Wednesday, 8 January 2014

Cartel Strategy


One of the frequently adapted strategy in this fast growing market. It is a situation where two or more firms come together and attempt to have a monopoly to control the market share and market price. 

Although, its an illegal relationship between the firms but it results in win-win situation for all of them. Its one of the easiest way to reduce the competition among the same line of business. This kind of strategies can work only when all the member adhere to the contract and follow the same set of protocols(especially when the pricing is a concern). 

There could be a disadvantage, that is, they can possibly decrease their production to increase the demand and hence the price. 

Lets take an example, in any Airline industry, they imbibe this strategy to grow in a cost effective manner. They generally apply it to the luggage and cargo department. They combine all the different parcels which have the same destinations. By having a healthy relationship they can grow even better as compared to an individual firm. 

One of the recent cartel was between the Belarusian Potash Company (BPC) and Belaruskali for exporting potash, although it didn't work out because one of the member cancelled the deal.
You can find an article about this here, and the reasons for the breach in their contract.

Well, sometimes this kind of breach will give lots of benefit to the competitors. At this point of time India and China both are trying to have this deal. You can find more about this here.

Cartel strategy is very old and being followed even today by growing digital markets. But, I believe this type of strategy can only result in success if it is followed by some ethics. It will definitely work well where there is no room for cheating!