Meanings of Cartel

A cartel is a merger of at least two companies, both of which are either suppliers or buyers of certain market goods. The merger is taking place with the aim of gaining a competitive advantage. For this reason, cartels are generally prohibited. There are exceptions, however: certain forms of cartel are allowed.

  • A cartel consists of at least two independent companies.
  • The Federal Cartel Office monitors cartels in Germany and punishes them if they are violated.
  • A cartel cannot have a monopoly on the market.
  • Cartels are allowed under certain conditions, especially in small and medium-sized companies.

What is a cartel?

A cartel is basically a joint venture made up of at least two independent companies. It is characterized, among other things, by the following properties and is formed for the following reasons:

  • The members of a cartel are basically competitors.
  • The companies involved make agreements and coordinate their actions.
  • By working together, they want to strengthen their market position vis-à-vis other companies outside the cartel.
  • The members of a cartel partly give up their independence by committing themselves to joint economic action.

A cartel can quickly achieve a monopoly position in the market through joint agreements and distort competition. That is why cartels – unless they are fundamentally prohibited – are under close scrutiny. If the Cartel Office reveals illegal agreements that violate the German Cartel Act – the Act against Restraints of Competition (GWB) – high penalties can be imposed.

What types of cartels are there?

Beer cartel, mineral oil cartel, sausage cartel: citizens repeatedly come across various cartel terms in the media, especially when a violation of the cartel law has been uncovered. Rarely do consumers hear the term “cartel” in a positive context. But not every cartel is bad and illegal. Depending on the purposes for which a cartel is formed, different types of cartels can be distinguished.

Allowed cartels

There are certainly amalgamations to form a cartel that are legal; cooperation between the companies involved can even improve market conditions for consumers. This is conceivable in the following cases, among others:

  • In the event of a crisis or slump in sales in an industry, companies can temporarily form a crisis cartel in order to prevent serious economic consequences for the individual companies.
  • The Federal Cartel Office allows small and medium-sized companies to join forces more frequently so that they can maintain or improve their competitiveness compared to large companies.
  • In rationalization cartels, for example, companies divide production steps among themselves in order to reduce competition between them. Especially if smaller companies are involved in such a cartel and their profitability and efficiency increase as a result of the merger, it is exempt from the cartel ban.
  • A cartel is legal if it serves to define uniform standards and types and if this is done in an open and transparent manner.

Prohibited cartels

In principle, all cartels that create an economic advantage, endanger the free market economy through their agreements or that form a monopoly, which result in disadvantages for consumers, are prohibited. The following forms of cartel, among others, are prohibited:

  • Price cartel: Companies in the cartel coordinate their prices with one another – either to prevent price wars and sell goods or services at a higher profit or to disadvantage competitors outside the cartel with uniformly low prices.
  • Territorial cartel: The cartel divides the market by region; every company can then operate in its field without competition.
  • Submission cartel: In tenders, the companies involved in the cartel determine in advance who will win the tender and thus distort competition.

Control of cartels: antitrust law

Antitrust law serves to prevent illegal collusion. For example, agreements on pricing within an industry are always at the expense of the customer. There is no free and fair competition.

In Germany, the Bundeskartellamt is responsible for controlling cartels and uncovering illegal activities. Even before planned mergers or takeovers of companies, the Federal Cartel Office must first check whether this will result in a monopoly or whether it could result in future. It will then approve or reject the project.

At the European level, the European Commission monitors company mergers and agreements to ensure compliance with the competition rules contained in the Treaty on the Functioning of the European Union (TFEU) and the European Merger Regulation (EC). Among other things, the laws are intended to prevent a strong separation into national markets.