The Directorate General for Competition of the European Commission states that a cartel is a group of similar, independent companies which join together to fix prices, to limit production or to share markets or customers between them.
Instead of competing with each other, cartel members rely on each others' agreed course of action, which reduces their incentives to provide new or better products and services at competitive prices. As a consequence, their clients (consumers or other businesses) end up paying more for less quality. This is why cartels are illegal under the competition legislations of a vast number of jurisdictions and why competition authorities impose heavy fines on companies involved in a cartel.
Since cartels are illegal, they are generally highly secretive and evidence of their existence is not easy to find. The 'leniency policy' encourages companies to hand over inside evidence of cartels to competition authorities. This results in the cartel being destabilised. In recent years, most cartels have been detected by competition authorities around the world after one cartel member confessed and asked for leniency, though the authorities also successfully continue to carry out its own investigations to detect cartels.
30 Credits