Syllabus T. Y. B. A. Paper : IV advanced economic theory with effect from academic year 2010-11 in idol

2.1 INTRODUCTION 
One way of avoiding the uncertainty arising from 
interdependence under oligopoly is to enter into mutual or 
collusive agreements. Collusion is mainly of two types, Cartels 
and price leadership. Both forms imply secret agreement beacuse 
open collusive agreements are mostly illegal. In the modern 
business world, trade associations and professional organisations 
achieve in a legal or indirect way the aims of direct collusive 
agreements. For instance, many trade associations issue various 
periodicals with information concerning actual or planned action 
of members, in this manner, firms get the message and act 
accordingly. 

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Collusion: 
 
Collusion embodies Cartel arrangements. 
A 
cartel may be 
defined as a formal organisation of the firms in a given industry or 
group. The purpose of the Cartel is to transfer some decision 
making to a central body or association. There are different Cartel 
arrangements and, therefore, the degree of decision- making and 
functions delegated to the central association will differ. We shall 
discuss two typical Cartel arrangements. There is the centralised 
Cartel which implies complete control over member firms and 
there is the market-sharing Cartel in which case the functions 
transferred to the central association are fewer. Let us now study 
the principles involved in oligopoly model called the centralised 
Cartel. 
The concept of cartels comes in Oligopoly. Oligopoly is a 
market structure, in which few sellers dominate the sales of a 
product and the entry of new sellers is difficult or impossible. The 
products can be differentiated or standardized. Automobiles, 
cigarettes, and chewing gums are some examples of differentiated 
products whose market structures are oligopolistic in nature. 
Oligopolistic markets are characterized by high market 
concentration. Cartels basically mean the formal agreement 
between firms in an oligopolistic market to co-operate with regard 
to agreed procedures on variables such as price and output. The 
result will be diminished competition and co-operation over 
objectives. For example, avoidance of new entry or joint profit 
maximization. The best examples in this context are OPEC cartel 
which is an international agreement among oil-producing 
countries, which for over a decade succeeded in shooting up the 
world oil prices, the International Bauxite Association (IBA) 
quadrupled bauxite prices, and an international uranium cartel 
pushed up the uranium prices. Mercurio Europeo held the price of 
mercury close to monopoly levels from 1928-1970 and another 
international cartel monopolized the iodine market from 1878-
1939. An international copper cartel operates in the present day 
but never had a significant impact on copper prices. Similarly, 
cartel attempted to drive the prices of Coffee, Tin, Coca-Cola etc., 
but could not succeed.