Cartel vs Collusion
Cartel and Collusion are two Market Structures concepts in AP Economics that students often mix up. In short: cartel is a cartel is a group of firms that collude to restrict competition and increase profits by acting as a single monopolist. Meanwhile, collusion is collusion is an agreement between firms in a market to cooperate rather than compete, in order to limit competition and increase profits. Here is how they compare side by side.
A cartel is a group of firms that collude to restrict competition and increase profits by acting as a single monopolist.
Cartels are agreements between firms to coordinate their actions, such as fixing prices or limiting production, to reduce competition. By acting together, the cartel members can behave like a single monopolist and earn higher profits. Cartels are often illegal.
Collusion is an agreement between firms in a market to cooperate rather than compete, in order to limit competition and increase profits.
Collusion involves firms coordinating their actions to reduce competition and act like a single monopolist. This can include agreeing to fix prices, limit production, or divide the market. Collusion is illegal in many countries as it harms consumers.
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