Cartel-: It is a formal agreement between firms, when firms decide to collude with each other and act as a monopoly, which includes that that the firms will not compete with each other on price. Cartels usually occur in an oligopolistic industry, where there is small number of sellers and firms produce homogenous products. Cartel members may generally agree on price fixing, total industry output, market share, and allocation of customers, allocation of territories, big rigging, and establishments of common sales agency. The aim of such collusion is to increase profits by reducing competition. OPEC (Organisation of petrol exporting countries) is the finest example of a cartel; it is a legal collusion between firms, where different oil producing countries join hands with each of them to follow non price competition. Cartels are not considered healthy for economies but,  as oil is the very Important commodity of our life, So the demand for oil is very Inelastic and all the countries want to make the maximum utilization of the resource by charging a consistent price all over the world and earning the maximum profit also. OPEC controls most of the world production of oil, so, there can’t be a steep fall in the prices of oil for OPEC

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                               Cartelization

        (Abnormal Profits)

        Diagram(1.1)

The above diagram is an example of cartel, OPEC, where many firms colluding together have a very low (average total cost). In 1970 OPEC ‘S prices even crossed $100, the box above (PabC) shows the abnormal profits being earned by OPEC, after acting as a cartel, excess price reduced the rate of increase in demand for oil, because the countries cannot avoid the use if oil in the short run, so they started making ...

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