Cartel agreements are arrangements between businesses in which they agree to collaborate in order to control prices and restrict competition. These agreements are typically made in industries where there are only a few major players, and they can have a significant impact on the market.
However, cartel agreements are not always successful. In fact, they are more likely to break down under certain conditions. Here are some factors that can lead to the breakdown of a cartel agreement:
1. The presence of new entrants: Cartel agreements are more likely to break down when new players enter the market. New entrants are typically not bound by the agreement, and they can disrupt the established power dynamics by introducing new products or services at lower prices.
2. Changes in market conditions: Cartel agreements are also more likely to break down when there are changes in market conditions. For example, if there is a sudden increase in demand for a particular product, the cartel members may begin to compete with each other to meet that demand, leading to a breakdown in the agreement.
3. Disagreements among members: Cartel agreements rely on cooperation and trust among members. If there are disagreements among members about the terms of the agreement or how it should be enforced, the agreement is more likely to break down.
4. Legal challenges: Cartel agreements are illegal in many countries, and members can face significant legal challenges if the agreement is exposed. The fear of legal repercussions can cause members to turn on each other and break the agreement.
5. External pressure: Finally, cartel agreements are more likely to break down when there is external pressure from regulators or other stakeholders. For example, if there is a public outcry about the high prices of a particular product, regulators may launch an investigation into the industry, which can lead to the exposure of the cartel agreement.
In conclusion, cartel agreements can be an effective way for businesses to control prices and restrict competition, but they are not foolproof. They are more likely to break down under certain conditions, such as the presence of new entrants, changes in market conditions, disagreements among members, legal challenges, and external pressure. Businesses that engage in cartel agreements must be aware of these risks and be prepared to adapt to changing circumstances in order to maintain their market power.