Cartels

Monopoly is usually defined as a single firm industry and the existence of a single firm may be due to natural cost advantage or economies of scale that may make competition unviable or because of policy created legal barriers no other firm can enter the market. Another way in which a monopoly can arise is when a number of firms in an oligopolistic market agree to cooperate and follow a jointly agreed price – output policy thus behaving as a virtual monopoly to maximize joint profits by eliminating any competition among themselves. Such a producer’s association which acts like a monopoly is called cartel. The Cartels is thus an association of producers which behaves like a monopoly in making its price – output decisions with a view to maximizing joint profits of its member firms. It is a collective action by all firms to restrict output, raise prices and enjoy monopoly profits. The restricted output to be produced is allocated among various member firms in the form of quotas so that aggregate output thus produced by all firms does not exceed the agreed level of monopoly output.