Cartel Price

a uniform monopoly price fixed by members of a domestic cartel by mutual agreement; once the price is set, individual companies belonging to the cartel are not permitted to undercut it. In cases where many different products are produced by cartel members, the cartel price may take the form of a uniform scale of prices for all products that are subject to cartel regulation.

Cartel prices ordinarily are much higher than the prices that preceded the cartel agreement. Since they are intended to ensure an average profit to the least efficient company among the cartel members, the other cartel members receive a monopoly profit whose size is determined by the difference between their production costs and the production costs of the least efficient member. Cartel price regulation is possible only through combined limitation of production and sales. The cartel price is determined by a number of factors, including the possibility of eliminating outsiders or including them in the cartel; the lack of competition from substitute products that consumers could switch to; and the absence of forces that would undermine the cartel from within (for example, through secret discounts below the established price). The cartel price is one of the most obvious forms of the monopoly price; in many cases, it leads to prolonged retardation of technical progress in the cartel-controlled sector.