An oil cartel is a legal and for agreement among firms that are competing in sale of petroleum products. The agreement that the sellers sign consist on agreeing on matters such as the price of the products, allocation of market shares, allocation of territories, total industry output, bid rigging, division of profits and establishment of sales agencies. The aim of cartels is to increase the profits of their members.
The cartels members have to agree on a number of things such as price of their products, the total industry output, the number of market shares that each member should have and the division of profits from the shares. The other factors that might be considered in the formation of the contract include the common sales agencies, allocation of territories, rigging of bids and allocation of customers. These issues, however, range from one cartel to another.
The first type is known as public cartels while the second one is the private cartels. The public cartels are cartels that have the government involved in the formation of the organization. The involvement of the government is usually an advantage to this group because they are protected from legal actions.
One of the biggest issues that cartels often encounter is the sustainability of its members. Some members usually cheat so as to increase their profits. Monitoring of firms is, therefore, very important so as to detect when members start to cheat.
A firms ability to be able to monitor cartels depends on a number of factors. These factors comprise of the number of firms in the industry, production costs of each member, behavior of demand, characteristics of products that are sold by the firms and frequency of sales as well as their characteristics. The cartels may employ one or two companies to investigate and audit all the members.
To tackle this issue, most cartels usually hire independent bodies to monitor all the members. In case, a member has breached the contract the firm is liable to face the consequences. An oil cartel is a very important part of every country's economy.
The cartels members have to agree on a number of things such as price of their products, the total industry output, the number of market shares that each member should have and the division of profits from the shares. The other factors that might be considered in the formation of the contract include the common sales agencies, allocation of territories, rigging of bids and allocation of customers. These issues, however, range from one cartel to another.
The first type is known as public cartels while the second one is the private cartels. The public cartels are cartels that have the government involved in the formation of the organization. The involvement of the government is usually an advantage to this group because they are protected from legal actions.
One of the biggest issues that cartels often encounter is the sustainability of its members. Some members usually cheat so as to increase their profits. Monitoring of firms is, therefore, very important so as to detect when members start to cheat.
A firms ability to be able to monitor cartels depends on a number of factors. These factors comprise of the number of firms in the industry, production costs of each member, behavior of demand, characteristics of products that are sold by the firms and frequency of sales as well as their characteristics. The cartels may employ one or two companies to investigate and audit all the members.
To tackle this issue, most cartels usually hire independent bodies to monitor all the members. In case, a member has breached the contract the firm is liable to face the consequences. An oil cartel is a very important part of every country's economy.
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