Features of Cartel in Business Combination
The cartel is an alliance of producers who combine together retaining their identities for the purpose of perusing a monopolistic policy in their joint efforts. It is a form of combination in which independent business firms in an industry agree to regulate their output, to fix sales quotas, and to control sales contracts and prices. Normally it is a voluntary agreement between the associations or independent enterprises of similar types to secure a monopoly often market.
A cartel is a voluntary association formed with the objective of eliminating competition and to secure a monopoly in the market. Mainly it is formed as a savior of its members from detection is given up and enters upon a purely capitalistic career and to maximize proton by abounding an artificial increase of prices up to a point where consumers shall not stop buying and foreigners shall not be edible to take the market. To achieve their objective, various restrictive measures are imposed by them.
There are some common features of the cartel which differentiate cartel from other business combination. Main features are discussed below:
- Monopolistic Market
An important feature of the cartel is the monopolization of the market so that other non-member units may not resort to price competition. Then they can capture the whole market. Members have to adhere to the terms of trade fixed by the cartel.
- Voluntary organization
Cartel is a voluntary organization of business combination some organizations producing the same kind of product combine themselves voluntarily to make a cartel. The member unit should sell its products only to those customers who have been allotted to it.
The cartel is a goose type of horizontal combination bat it is mane rigid than pool form of combination. This is primarily formed to eliminate competition in order to maximize the profit and control market. For e.g., the entire Indian market can be divided into North, South, East, and Western zones, and each zone allotted to a certain member.
- Determination of production quota
To achieve this objective they seek to limit production by fixing production quotas for each member. The members of the cartel usually limit their function of producing and selling and other functions related to selling by the quota system of eternal management which is entrusted to the individual units. No member can produce more than the quota allotted to him.
- Control of price
The cartel controls the supplement of products and services to the market. Thus they can control the price of the products or services. Minimum prices are fixed for products. No member can sell products at a price lesser than the minimum price. So it is seen that the cartel has full control over the price of the products in the market.
- Independent entity and management
The member of the cartel has an independent entity and management. Thus they enjoy full freedom to manage the organizations and control them.
- Super cartels
They are formed on an international basis. These refer to agreements between cartels of one country with the cartels of the other countries.
So many organizations come forward to create a combination of a cartel to produce the same products proportionately and to control market competition have the above-disused features must.