Cartel Is: Definition, Types, Characteristics and Impact on Business

Cartel is one of the practices in business in the form of agreements between business actors in the context of competition. This practice can have positive or negative impacts depending on the perspective and parties involved or not involved in the agreement.

Through this agreement, business actors can determine business arrangements that will provide benefits to the parties involved in the agreement. The following is information about cartels that you should know if you want to enter the business world.

Cartel Definition

Cartel is an agreement made by business actors in the context of competition to eliminate competition between parties. Cartel is also understood as a form of agreement used to increase profits in a business run by a company.

Cartels in practice also have the potential to create a trade monopoly on a product or service being offered. This is because cartels focus on agreements to eliminate competition between business actors, so cartels have the potential to engage in unfair business competition as a whole.

In practice, cartels have two sides of different values, namely positive and negative. This can be caused by cartel activities not only involving business people but also consumers who use the products or services offered.

Cartel Types

Cartels are divided into several types in practice. This is done to facilitate the identification of cartel behavior by business people, including the following types of cartels:

1. Pricing 

In practice, a cartel can be used to regulate the pricing of a product or service offered in accordance with an agreement between business members. This pricing aims to determine to what extent a business can determine a minimum selling price so that other business actors feel equal to the price offered.

2. Stock

Is a cartel business practice that takes advantage of the expansion of business areas by placing shares in a business. The members who join the cartel agreement will ensure that the income stream of each business actor is the same, in the sense that the business actor will be given a limit or Privilege to sell its products outside its own business area or not.

3. Terms of delivery

Through cartel practices, members also agree and agree to make terms related to the terms of delivery of products or services. This includes location, delivery time, payment amount and so on.

4. Yield and production

One type of cartel is the production and production of products or services offered in the business market. Through this type of cartel agreement, the members involved are required to be able to comply with the terms and agreements that have been made, this relates to market trends regarding products or services up to the level of production.

Cartel Characteristics

Businesses that involve cartel agreements can be seen from a number of characteristics they have. The following are characteristics of a business involved in a cartel:

• Business actors are involved in a conspiracy over the business practices they carry out
• Involvement of officials or senior executives of a company
• Involves the role of an association as backing-to cover up cartel practices in their business
• Doing price fixing in the market so as not to be suspected of committing a cartel
• The imposition of penalties in the form of sanctions that have been agreed upon by all members involved, if the agreement that has been agreed upon is violated
• Have a party that is able to disseminate information to every member of the business so that it is not known to the general public.

Impact of Cartels on Business

Cartel certainly in practice has an impact on the running of a business, especially for consumers who use the product or service. Cartels are seen as having both positive and negative impacts that reap pros and cons, this will depend on the use of perspectives in viewing cartel practices.

Positive impact

For business entrepreneurs involved in cartels, they benefit from the amount of income and power that can be achieved through the monopoly of the competitive market. The margins used to sell products or services can also be made higher in an effort to maximize profits, on the other hand cartels allow the perpetrators to achieve economies of scale. In essence, cartels can provide a number of advantages for the members who join them.

Negative impact

In contrast to the positive impact that can be felt by cartel members, consumers and the state will feel the negative impact of the cartel's presence. This is caused by the potential for market manipulation and monopoly carried out by a number of business actors so that the products or services offered can follow the desires of these actors. The cartel also has a negative impact on other small entrepreneurs, because with a cartel the growth of small business enterprises will be difficult to develop.

Cartels can also cause a country to experience an economy that is not conducive and a reduced sense of competition for business people, compared to the quality of business in other countries. Cartel practices can also cause a country's ability to carry out new discoveries and developments to become more hampered because there is no perceived competition.

Based on the explanation previously mentioned, we can understand that cartel practices do provide benefits for its members, but also have a negative impact on the state and consumers involved. Basically, cartel activity in business can also threaten business people who are involved in cartel practices, this is because it will lead to various threats and strict prohibitions from consumers and the government for losses that occur to them.

This is an explanation of the cartel that you can understand if you want to start a business. Hope it is useful.