A cartel is a formal agreement between a group of producers of a good or service to control supply or to regulate or manipulate prices. Cartels are a collection of independent businesses or countries that act together like a single producer, and they may agree on prices, total industry output, market shares, allocation of customers, allocation of territories, bid-rigging, and the division of profits. Some key points to understand about cartels include:

• Cartels are competitors in the same industry and seek to reduce that competition by controlling pricing in agreement with one another.
• Tactics used by cartels include reduction of supply, price-fixing, collusive bidding, and market carving.
• In the majority of regions, cartels are considered illegal and promoters of anti-competitive practices.
• The actions of cartels hurt consumers through increased prices and lack of transparency.

Cartels are most likely to occur in an oligopoly market to avoid price reduction due to the endless competition between the firms. A cartel can be called an example of an oligopoly when firms enter into agreements to restrict the supply or fix the price of a good in a particular industry. Successful cartels become an ‘easy’ way to make profit, therefore it may discourage innovation and efficiency gains. However, cartels tend to breakdown because firms have an incentive to cheat on their quotas and benefit from high prices and high output. The cartel is more likely to stay together if there are a small number of firms, it is easy to observe the behavior of other people, and there are penalties for breaking quotas.