• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

In 1998 two British sugar producers 'British Sugar' and 'Tate & Lyle' were found to be operating a cartel by the European union.

Extracts from this document...

Introduction

CARTELS ESSAY NICOLA ACTON 13JLB In 1998 two British sugar producers 'British Sugar' and 'Tate & Lyle' were found to be operating a cartel by the European union. A) Explain the circumstances under which a cartel is likely to be successful B) Analyse the economic implications of operating a cartel for producers and consumers in the sugar industry. C) Examine methods by which firms might compete in the absence of a cartel. <A> During the 19th Century and for most of the 20th century British industries were dominated by collective agreement. Firms colluded to restrict competition. By colluding, a firm could gain some monopoly power over their respective markets; as a result they become price makers rather than price takers. A cartel is a group of producers, which have agreed to restrict competition in the market. Essentially, they make agreements about the prices and quantities that will be sold. In markets, which are unregulated by the government, there is a strong tendency for firms to collude and act as if they were one firm. Possibly the most famous cartel today is OPEC. THE SUCCESS OF A CARTEL DEPENDS ON A NUMBER OF FACTORS: Production must be in the hand of relatively few producers, as an agreement has to be reached. This is likely to be easiest in Oligopolies, where only a few firms dominate the market. ...read more.

Middle

Investment is the purchase of capital goods, which are then used to create other goods and services. This makes firms stronger and more efficient and in turn, this will be passed onto the consumer through lower prices. It is important to remember that cartels are extremely illegal. Their movements are monitored by the OFT (Office of Fair Trading) which used to be the Competition Commission. They investigate cases where it is believed that a cartel is in operation. Cartels can be broken down and heavily fined- under the New Competition Act the fine is 10% of turnover. FOR THE CONSUMER: The operation of a cartel will mean an increase in the price of sugar for consumers and also a lack of choice as to whom the consumer can buy their sugar from. This may be viewed as an increase in the price of plain sugar, but this is not the case. Products, which contain sugar, such as chocolate and many processed goods, will also have higher prices. This is because the cost to firms for making the product containing sugar will be higher and this is then passed through the price onto the consumer. On the other hand, if these producers did not increase the price it would mean lower profits for them. The demand curve shows the price that the buyer would be prepared to pay for each unit. ...read more.

Conclusion

More recently, we have seen sugar firms taking a much more involved role. Tate & Lyle sponsors many sport events and both companies have used celebrity chefs such as Gary Rhodes to increase the awareness of their product. THE CONCLUSION OF THE CASE The EU believed that this cartel gave rise to cause for concern from the viewpoint of large companies operating in concentrated markets. The Commission fined British Sugar and Tate & Lyle 39.6m euros (�27.9m) and 7m euros (�4.9m) respectively, for adopting a 'collaborative strategy of higher pricing' on the British markets for industrial white granulated sugar and retail white granulated sugar. Napier Brown and James Budgett were each fined 1.8m euros (�1.3m) for participating in the cartel in the industrial white granulated sugar market. The Commission took account of the fact that Napier Brown and James Budgett, both sugar merchants, were dependent for supplies on British Sugar and Tate & Lyle. Between them, the four companies accounted for 90 per cent of the British white granulated sugar market. The Commission decided that there was a cartel on the basis of an initial meeting between all the firms. The Commission commented that while it did 'not have sufficient evidence that prices to be charged to individual buyers of industrial or retail sugar were jointly fixed, the systematic participation of all the four parties in regular meetings concerning industrial sugar, and of British Sugar and Tate & Lyle concerning retail sugar, led to an atmosphere of mutual certainty as to the participants' intentions concerning their future pricing behaviour'. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. Characteristics of Oligopolies

    This would be a monopoly. This is complete control over the market, and no kink-demand curve as the competition is none and therefore the firm cannot worry about whether or not to increase its price. The non-price competition works towards this and involves the getting rid of all competitors.

  2. Is the Watch Industry dominated by an Oligopoly which is beneficial to both firms ...

    seven years since the report was written and there have not been any huge changes in the watch industry since then that I am aware of. Also, the Mintel report is an independent study of the watch industry and so it is more likely to be a 'neutral' sided report.

  1. UK Membership of the European Monetary Union.

    exposed to the high levels of pension liabilities, which face many other EU countries in the years to come. o Separate economic cycles The "separate cycles" argument, which points out that the UK economy, is almost always out of sync with the French, German and other EU economies.

  2. Economics of European Integration

    the electricity consuming companies in general in the debate of deregulation in the European electricity market. Although we will often focus on the industrial companies, we will try to nuance the opinion by using examples for other electricity consuming companies.

  1. Critically evaluate the perceived competitive starategies of the five clothing retail outlets, namely Edgars, ...

    Narayanan et al. (1985) points out that the remote environment can be broken down into four factors, namely; political, economic, social and technological * Political factors The political factors comprise of political processes and regulatory institutions that shape the code of conduct in a society. ( Narayanan et al 1985).

  2. Spain's Transition to the European Union

    Spain would be governed as a bi-cameral parliamentary democracy with a constitutional monarch. Political and economic reform was accelerated under the Spanish Socialist Workers Party (PSOE), led by Felipe Gonzalez who became Prime Minister in 1982.

  1. Citigroup has successfully faced the challenges of the 19th and 20th centuries and has ...

    Citigroup has done extremely well in pursuing these opportunities and continues to do so. Launching of credit card in China with Shanghai Pudong bank or opening up of the first branch in St. Petersburg, Russia are just a few examples.

  2. The Quest for Optimal Asset Allocation Strategies in Integrating Europe.

    has increased, even when using the adjusted Heston & Rouwenhorst methodology, and even when the TMT sectors are excluded. 4.4. Analysis of mean-variance frontiers The results found in the literature on the importance of industry effects versus country effects in explaining stock returns are thus mixed and ambiguous.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work