Cartel

Topic: Market Structures, Market Failure and Competition · NCERT: Beyond NCERT

Meaning

A cartel is a formal agreement among independent producers to fix prices, limit output or share markets, so that together they act like a single monopoly. Competition law makes it illegal.

• Why it matters: a cartel raises prices and cuts supply, but consumers cannot see it happening.
• In India: the Competition Commission of India (CCI) punishes cartels under the Competition Act, 2002. Oligopoly sectors like tyres, cement and tenders are where cartels usually show up.

Explanation

How a cartel works

• Where it starts: in an oligopoly (a market with a few large sellers). Each firm's best price depends on what its rivals do.
• What the members agree to do:
• Fix prices: all members charge the same high price.
• Limit output: each member gets a quota (a fixed maximum it may produce).
• Share markets: each member takes certain regions, buyers or tenders.

• Bid rigging: competitors secretly decide who will win a tender. The others put in high "cover" bids or stay out.

• Aim: together they produce the monopoly output, where MR = MC. MR is marginal revenue, the extra money from selling one more unit. MC is marginal cost, the extra cost of making one more unit. The members then share the monopoly profit.

• Worked example. Market demand is P = 100 − Q, and each unit costs ₹10 to make (MC = ₹10).

Outcome	Total output (Q)	Price (P)
Cartel acting as a monopoly (100 − 2Q = 10)	45	₹55
Cournot duopoly (two firms competing on quantity, no agreement)	60	₹40
Perfect competition (P = MC)	90	₹10

• The cartel halves output, from 90 to 45 units.
• It raises the price from ₹10 to ₹55.
• That gap is what buyers lose.

What makes cartels more likely

• Few firms. It is easier to agree and to watch each other.
• Homogeneous products (identical goods, such as cement or tyres). There is only one thing to agree on: price.
• Significant entry barriers, such as scale economies, licences or spectrum. New firms cannot come in and undercut the cartel price.
• Data sharing through a trade association. Members can check whether others are keeping to the deal.
• In the tyre case, the association ATMA collected company-wise production, sales and export data in real time. Members used it to take collective price decisions [1].

Why cartels break down

• Cheating incentive:
• While the others keep to their quotas, the price stays high.
• So each member gains by secretly producing more or quietly giving discounts.

• If all members cheat, output rises and the price falls back towards the competitive level.

• Prisoner's dilemma: a worked example

	Rival keeps quota	Rival cheats
Firm keeps quota	₹100 cr each	Firm ₹40 cr, rival ₹150 cr
Firm cheats	Firm ₹150 cr, rival ₹40 cr	₹60 cr each

• Whatever the rival does, cheating pays more (₹150 > ₹100, and ₹60 > ₹40).
• So cheating is the dominant strategy (the best choice whatever the other firm does).

• Both firms end up with ₹60 crore, even though keeping the deal would give each ₹100 crore.

• Leniency uses this weakness:

• A member that confesses first gets a lower penalty.
• Each member fears the others will report first, so trust inside the cartel breaks down.

Types

• Explicit (price or output) cartel: a written or spoken agreement on price or quantity, such as the tyre case.
• Bid-rigging cartel: the agreement is on who wins a tender, such as the cement, Railways and SBI cases.
• International cartel: countries rather than firms set production quotas. OPEC/OPEC+ in crude oil is the classic example.

In India

• Law: the Competition Act, 2002. It treats cartel-type agreements as illegal.
• Price-fixing breaches Section 3(3)(a), and limiting production or supply breaches Section 3(3)(b), both read with Section 3(1) [1].

• Section 3(3) covers horizontal agreements, meaning agreements between rival firms at the same stage of business.

• Regulator: the Competition Commission of India (CCI).

• Tyre cartel:
• The CCI final order is dated 31.08.2018.
• It covered Apollo, MRF, CEAT, JK Tyre, Birla Tyres and their association ATMA.
• They raised prices of cross-ply/bias tyres and limited production and supply [1].

• The penalty was about ₹1,788 crore. Check the current appeal status.

• Cement bid rigging: CCI penalised Shree Cement, UltraTech, Jaiprakash Associates, J.K. Cement, Ambuja, ACC and J.K. Lakshmi [2].

• Other bid-rigging cases: CCI penalised bid rigging in Indian Railways tenders [7] and in a State Bank of India tender [8].
• Leniency: Section 46 (lesser penalty):
• A cartel member that makes full, true and vital disclosures can get a lower penalty [1].

• CCI's first order under the lesser penalty provisions was about bid rigging in sports-broadcasting tenders [9].

• Competition (Amendment) Act, 2023 (Act No. 9 of 2023, dated 11 April 2023) [5]:

• It added "lesser penalty plus" (LPP). A firm that has already applied for leniency in one cartel gets an extra cut if it reveals another cartel that CCI does not know about [1][4].
• The CCI (Lesser Penalty) Regulations, 2024 were notified on 20.02.2024 [1].

• It also added settlement and commitment for Section 3 and Section 4 cases. A firm can promise to change its behaviour, so markets are corrected faster with less litigation [4].

• Scale of enforcement:

• CCI investigated 35 cartel cases in the last five years, according to a PIB release in 2025 [3].
• In 2025, CCI registered 54 antitrust cases [6].

Don't confuse with

• Tacit collusion: firms behave in parallel with no agreement, for example by all following a price leader. It is hard to prove, because similar prices can come from similar costs. A cartel is based on an agreement.
• Price leadership: one firm (a dominant or barometric firm) sets the price and the others follow without any formal agreement. It is a form of tacit coordination, not a cartel.
• Monopoly: a monopoly is a single seller. A cartel is several independent firms acting like one seller, and each member can still cheat.
• Oligopoly: oligopoly is a market structure (a few sellers who depend on each other). A cartel is a conduct (illegal behaviour) that can happen inside an oligopoly. Oligopoly itself is not illegal.

Prelims Hooks

• Cartel = a formal agreement to fix prices, limit output, share markets or rig bids. It is illegal under Section 3(3) read with Section 3(1) of the Competition Act, 2002 [1].
• Section 46 is the lesser penalty (leniency) provision. Lesser penalty plus came through the Competition (Amendment) Act, 2023, and the Lesser Penalty Regulations were notified on 20.02.2024 [1][5].
• Tyre cartel: CCI order of 31.08.2018 against Apollo, MRF, CEAT, JK Tyre, Birla Tyres and ATMA. It breached Sections 3(3)(a) and 3(3)(b) [1].
• Trap: tacit collusion and price leadership involve no agreement, so they are not a "cartel" in the textbook sense.
• Trap: bid rigging is treated as cartel conduct. Examples are the Railways, SBI and cement tender cases [7][8][2].
• The prisoner's dilemma explains why cartels are unstable: cheating is the dominant strategy. OPEC/OPEC+ is the classic international cartel that uses production quotas.

Mains Points

• Detection is the hard part of enforcement:
• Parallel prices in oligopolies such as telecom or cement can be innocent.
• So CCI looks for "plus factors", such as data exchange through trade associations (ATMA in the tyre case) [1].

• It also relies on leniency and LPP to get insider evidence [1][4].

• Deterrence vs. speed:

• Large penalties deter cartels, but long appeals weaken the effect.
• The 2023 amendment added settlement and commitment [4][5], which moves enforcement towards quicker market correction.

• Cartels, however, still need strong penalties to deter them.

• Structure feeds conduct:

• High entry barriers and few firms make cartels easier to form and keep going.
• Policy should lower sunk-cost barriers so markets become contestable (open to easy entry and exit).
• Public procurement should be designed to make bid rigging harder. This matters for spending efficiency in Railways, banks and infrastructure tenders.

Related concepts

• Monopolistic competition
• Oligopoly
• Duopoly
• Kinked demand curve
• Price leadership
• Limit pricing
• Contestable market
• Collusion

Read more

• Monopolistic competition, oligopoly and collusion