Legal Definitions - chartel

The term "chartel" is an older or less common spelling of cartel. A cartel is an illegal agreement among competing businesses to restrict competition in a market.

Typically, this involves competitors secretly agreeing to:

• Fix prices: Setting a minimum price for their products or services, preventing genuine price competition.
• Limit production or supply: Artificially reducing the availability of goods or services to drive up prices.
• Allocate markets or customers: Dividing up geographic areas or specific client groups among themselves, agreeing not to compete in each other's designated territories.
• Rig bids: Conspiring on who will win a contract by submitting non-competitive bids.

The primary goal of a cartel is to increase profits for its members by eliminating the competitive pressures that would normally benefit consumers through lower prices, higher quality, and greater innovation. Because cartels harm consumers and stifle fair trade, they are strictly prohibited by antitrust or competition laws in most countries.

Here are some examples illustrating how a cartel operates:

• Example 1: Price-Fixing in the Construction Industry

  Imagine a situation where the three largest concrete suppliers in a metropolitan area secretly meet and agree that they will all raise their prices for ready-mix concrete by 10% starting next month, and none of them will offer discounts below this new price. They also agree to inform each other if a customer tries to negotiate a lower rate.

  Explanation: This scenario illustrates a cartel because competing businesses (the concrete suppliers) have made an illegal agreement to fix prices. By eliminating price competition, they force construction companies and ultimately consumers to pay inflated prices for concrete, which is a direct violation of antitrust laws.

• Example 2: Market Allocation for Professional Services

  Consider three independent accounting firms that specialize in auditing small businesses within a particular state. Instead of competing for every client, they secretly agree that Firm A will exclusively pursue clients in the northern counties, Firm B in the central counties, and Firm C in the southern counties. They also agree not to solicit clients from each other's designated regions.

  Explanation: This demonstrates a cartel through market allocation. The competing accounting firms have colluded to divide the market geographically, thereby eliminating competition and limiting the choices available to small businesses in each region. This agreement prevents clients from benefiting from competitive pricing or service offerings.

• Example 3: Limiting Supply of a Raw Material

  Suppose the only four global producers of a specialized chemical compound, essential for manufacturing certain high-tech batteries, secretly agree to collectively reduce their annual production by 15% for the next two years. This artificial reduction in supply causes the global price of the chemical to skyrocket, significantly increasing the cost of batteries for electronics manufacturers and consumers.

  Explanation: This is an example of a cartel because the competing producers have conspired to limit the supply of a product. By artificially restricting the availability of the chemical, they manipulate market prices to their collective advantage, harming downstream industries and consumers, which is illegal under competition laws.