2 A Primer on Cartels

Subject(s):

Cartels, parties to — Organisational aspects — Bid rigging — Crisis Cartels — Co-ordinated price increase campaigns — Information exchange — Output limitation — Basic principles of competition law

This chapter describes why and how firms try to form and run a cartel, and how these decisions relate to the economic theory of collusion. It first shows how firms form cartels to suppress or weaken the rivalry between them. They privately benefit from doing so but harm buyers (whether final consumers or other businesses) by artificially distorting the allocation of resources in the economy. The chapter then focuses on each of the elements needed for a cartel arrangement to be formed and to succeed, from the initial contact to the credible punishment mechanisms needed to prevent cheating. It looks at how cartels are set up and the challenges a cartel must overcome to maintain stability.