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A cartel is a group of separate companies that agree to increase profits by fixing prices and not competing with each other.


In other words, it is the collection of businesses or countries that act together as a single producer and agree to influence prices for certain goods and services by controlling production and marketing.


Types of agreement in Cartel:

Following are the types of agreement in a cartel: -


  1. Agreement relating to price fixation.
  2. Agreement relating to market allocation.
  3. Agreement relating to limiting or controlling the product supply in the market.
  4. Agreement relating to bid rigging.
  5. Agreement relating to technical development and investment.


Agreements in cartel are mainly categorised as: horizontal agreement and vertical agreement.


Horizontal Agreement:

Horizontal agreements are agreements between enterprises or persons at the same level of the production chain, such as agreements between competing manufacturers or competing retailers. These agreements are often the result of collusion, which can be explicit or implicit. Horizontal agreements are anti – competitive.

  1. Directly / indirectly determine purchase or stabilise price.
  2. Control output, services, technical development.
  3. Share or divide markets.
  4. Indulge in rigging or collusive bidding.


Types of Horizontal Agreement:

Types of horizontal agreement are as follows: -


  1. Price Fixing – Agreements between competitors to fix, maintain, or increase the price of goods or services.
  2. Market Allocation – Agreements to divide the market or source of production or provision of services by way of allocation of geographical areas of market, type of goods or services, or number of customers in the market.
  3. Production and/or Supply Control Agreements – Agreements to limit or control the production, supply, markets, technical development, investment, or provision of services.
  4. Bid-Rigging or Collusive Bidding - Agreements between bidders to manipulate the outcome of a bidding process. This can involve practices such as agreeing on who will submit the winning bid, rotating bids among competitors, or submitting artificially high bids to ensure a specific competitor wins.


Vertical Agreement:

Vertical agreements are agreements between enterprises or persons at different stages or levels of the production chain in different markets.  Unlike horizontal agreements, vertical agreements are not per se anti-competitive, and an effects-based approach is followed to assess their impact on competition.

For eg.: agreements between producer, wholesalers and retailers.


Types of Vertical Agreement:

Types of vertical agreements are as follows: -


1. Tie-in-arrangement - A tie-in arrangement, also known as tying or product bundling, is a type of vertical agreement where a seller conditions the sale of one product (the tying product) on the purchase of another product (the tied product). In this arrangement, the buyer must buy both products together as a package, and they cannot purchase the tied product separately.


2. Exclusive Supply Agreement - An exclusive supply agreement is a vertical agreement between a supplier and a buyer where the supplier agrees to sell its products exclusively to the buyer, and the buyer agrees to purchase the products exclusively from the supplier. Under this arrangement, the buyer is restricted from purchasing the same or similar products from any other supplier, and the supplier is prohibited from selling the products to any other buyer in the defined market.


3. Exclusive Distribution Agreement - An exclusive distribution agreement is a type of vertical agreement between a supplier and a distributor or retailer, where the supplier grants exclusive rights to the distributor to sell its products within a specific geographic area or to a particular group of customers. The distributor, in turn, agrees not to carry or distribute competing products offered by other suppliers.


4. Refusal to Deal - Refusal to deal refers to a situation where a dominant firm in the market refuses to supply goods or services to a potential buyer or customer. This refusal can be either direct or indirect and may occur when the dominant firm aims to exclude competitors or restrict competition in the market.


5. Resale Price Maintenance - Resale price maintenance (RPM) is when a supplier imposes restrictions on the minimum or maximum resale price at which retailers or distributors can sell its products.

RPM can either be explicit, where the supplier sets the resale price, or implicit, where the supplier uses incentives or threats to influence the resale price.