Cartels
A cartel is an agreement between companies that would normally compete with each other but instead coordinate in order to restrict or eliminate competition. The goal is higher profits through reduced competition.
Categories under German competition law
Generally prohibited cartels
- Price cartel: companies agree on prices or bids in tenders
- Territorial cartel: markets are divided to avoid competition
- Calculation cartel: a unified pricing scheme is set
- Quota cartel: fixed production quantities are agreed
Example: the sugar cartel, with agreements on prices, sales territories and quotas.
Notification-required cartels
- Terms cartel: unified terms and payment rules
- Discount cartel: same discounts for all customers
- Specialisation cartel: each company specialises in certain products
- Standardisation cartel: unified product standards or types
Approval-required cartels
- Structural crisis cartel: joint reduction of production in times of crisis
- Syndicate: a joint sales office handling orders and payments for all members
Example: the E.ON / Innogy merger had to be filed with the Bundeskartellamt because the combined market share in the energy sector would have been significant.
Effect on independence
- Legally: companies remain formally independent, but their freedom of action is restricted by the cartel agreement
- Economically: they lose independent control over prices, quantities and sales policy
Motives for cartel formation
- Profit maximisation through reduced competition
- Price stability
- Cost reduction
- Market power
Advantages and disadvantages
| Advantages | Disadvantages |
|---|---|
| Higher profits due to less competition | High fines for violations |
| Less risk through coordinated behaviour | Dependence on other cartel members |
Effects on others
- Other companies: harder market entry for newcomers
- Consumers: higher prices, less choice
- Economy: loss of trust in free markets