What is the Difference Between Cartel and Collusion?

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The main difference between a cartel and collusion lies in the level of organization and formality of the agreement between firms in the same industry to reduce competition and increase prices or profits.

Cartel:

  • A cartel is a formal agreement between competitors in a specific industry to cooperate in setting prices and controlling levels of production.
  • Cartels are more organized and often involve a written agreement among the participating firms.
  • Examples of cartels include the Organization of Petroleum Exporting Countries (OPEC) and the drug cartels.

Collusion:

  • Collusion is an informal arrangement between firms to secretively fix prices and agree on other aspects of competition, such as not competing in certain products or services.
  • Collusion can occur without any direct communication between the firms, which is referred to as tacit collusion.
  • Both cartels and collusion are considered unfair and anti-competitive behavior, violating antitrust laws in many countries, including the United States.

In summary, a cartel is a more organized and formal arrangement between firms to reduce competition and increase prices, while collusion is an informal agreement between firms to engage in anti-competitive behavior. Both practices are considered unfair and are subject to legal sanctions in many jurisdictions.

Comparative Table: Cartel vs Collusion

Here is a table comparing the differences between a cartel and collusion:

Feature Cartel Collusion
Definition A cartel is a group of companies or organizations that come together to control the production, pricing, and distribution of a particular product or service, eliminating competition and increasing profits for all members. Collusion is an illegal and secret agreement between two or more companies to deceive, manipulate, or gain an unfair market advantage.
Formation Cartels are formed through formal agreements between a group of producers of a good or service to regulate supply and manipulate prices. Collusion involves people or companies that would typically compete against one another, but who conspire to work together to gain an unfair market advantage.
Legality Some cartels are legal and even encouraged in certain situations, such as agricultural cooperatives in the United States. However, most cartels are considered anti-competitive and are prohibited by anti-trust laws like the Sherman Act and the Clayton Act. Collusion is generally considered an anti-competitive and illegal practice, with antitrust laws aiming to prevent it.
Examples Examples of cartels include OPEC, which controls the production and pricing of oil, and agricultural cooperatives in the United States. Examples of collusion include price-fixing, synchronized advertising, and sharing insider information.

In summary, a cartel is a group of companies that work together to control the production, pricing, and distribution of a product or service, while collusion involves secret agreements between companies to gain an unfair market advantage. Cartels can be legal in certain situations, whereas collusion is generally considered an anti-competitive and unlawful practice.