The firms typically quote comparable prices that are well above the competitive level. (Samuelson &. Nordhaus). Given that cartels undertake activities aiming to distort competition (“Competition: Commission action against cartels”) and thrive in sub-optimal conditions such that firms produce at levels wherein marginal cost of production is below the price per unit (Johnson), economic regulatory bodies in various countries prohibit the enforcement of such agreements and concerted practices as they are deemed to adversely affect the overall economy. In this regard, it is considered illegal in more than 100 countries (“Wikipedia”) for businesses to collude with each other to fix prices or carve up markets between them (“Effective competition is crucial to an open market economy”).
Given the advent of globalization, issues pertaining to cartels are gaining worldwide prominence since international cartels’ sphere of influence has expanded substantially, thus, affecting not only the respective domestic market but the global economy as well. (Connor)
This paper discusses the risks brought about by cartels, particularly in the European Union (EU), to businesses. Furthermore, this paper provides potential legal reforms and possible courses of action that may effectively curb this crime.
As cited by the Competition Commission of the EU, cartel operations are considered perilous to the economy mainly because, with the cartel members undertaking price-fixing schemes and restricting supply of new quality products or services at competitive levels, its is the customers, who are either individuals or firms, that eventually foot the bill and are burdened with relatively higher prices of goods and services that may be of inferior quality.
Furthermore, with restrictive agreements such as those applied on new technology utilized by the cartel members, innovation is stifled. By hampering the flow of information with regard to technology, .barriers to entry of new firms into the industry are generated. . .