Assignment
Cartels and collusion Companies in oligopolistic markets such as Coke and Pepsi, or Exxon Mobil and Shell, can generally set prices at levels that match mutual profit requirements, with neither price wars nor secret meetings. However, cartels still happen and the following examples will help show the degree of formal collusion which often occurs. In 2000, the three largest UK producers of ordinary Portland cement (OPC), namely Blue Circle PLC, Castle Cement Ltd and the Rugby Group, refused to supply OPC in bulk to concrete producers such as Ready-mix when they heard that the concrete producers intended to resell the cement themselves in bag form to builders' merchants. This was because they, themselves, sold OPC in bag form to other customers. However, the three producers were forced to supply cement after the Office of Fair Trading (OFT) found that refusing to supply OPC in bulk for ultimate resale in bags was anti-competitive. In December 1999 the OFT had discovered that Vita foam Ltd of Rockdale, Carpenter PLC of Gossip, Derbyshire, and Retie Ltd of Alorton, Derbyshire, had met to agree on the price rises of 8% for foam rubber and 4% for reconstituted foam which they supplied to the upholstery business. Cartel members agreed that the price rises announced by Vita foam, the market leader, would be matched by similar announcements from Carpenter and Retie. On a much larger scale, the European Commission identified a ‘vitamin cartel' in 2001, when eight pharmaceutical companies led by the Swiss firm, Hoffman La Roche, were found to have been operating secret market sharing and price fixing cartels in the supply of vitamins throughout the 1990s. These vitamins were used in a multitude of products from cereals and biscuits to cosmetics. The Commission found that the companies led by Hoffman La Roche allocated sales quotas, agreed on and implemented price increases, and engaged in regular meetings between the senior executives of the companies. The Commission imposed a record fine of £534m on the companies for operating an illegal cartel.
Question
1 In what ways do the examples above show that cartel activity can take various forms?
2 Why are cartels widely believed to be against the public interest?
3 Draw a simple supply and demand diagram to illustrate a supply-based cartel and indicate what conditions are necessary for the cartel to be successful.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.