Car Cartel

When we hear the word 'cartel' we may only think of oil-powerhouses or drug lords. But unfortunately cartels exist in many areas of business, most illegally. To form a cartel multiple companies enter into an agreement where they agree to set a monopolistic level of supply thereby incurring a monopolistic price and profit. Sometimes these agreements are simply referred to as 'price-fixing'.

Last September several Japanese auto parts companies were prosecuted. These companies, including Mitsubishi Electric Corp. were setting high-prices for their auto parts which they sold to American car companies. These prices eliminated the competitive market and elevated the prices on 25 million vehicles from GM, Ford, and Chrysler, to name a few Autoparts Cartel.

Luckily this type of activity is highly prosecuted. These auto part companies pleaded guilty and face $740 million in fines Autoparts Cartel. The main legal issue is the harm to consumers, which for this case that encompasses many individuals.

How Cartels Work

Cartels gain profits and divide them among their members by taking away some consumer surplus 'A' and leaving dead-weight loss 'B' or money on the table in a competitive environment. Cartels are a huge harm to the economy; "the consumer losses more than the cartel wins" How Cartels Work.