Unethical price fixing cartels Essay
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Ethics is a very important factor in businesses, it makes the managers of various business organizations all over the world to make decisions and engage in business practices that will not harm others in any way. Business practices and decisions a that are ethical are usually geared towards ensuring that everyone in the commerce chain benefits from such decisions and business practices and are not aimed at just benefiting a few individuals and businesses to the detriment of others in the entire chain.
However, business ethics have not always been achieved as many business organizations all over the world continue to act unethically, thus harming other businesses and consumers who fall prey of such unethical behaviors. Most businesses that act unethically are selfish and greedy since they are only interested in the huge profits they will make out of such business practices without thinking how other will be affected by their actions (Arora & Sarkar, 2008). Price fixing cartels As a result of globalization, different business organizations are now able to sell their goods and services world wide.
This has made some business organizations to engage in unfair practices thus affecting other businesses and consumers in different parts of the world negatively. Price fixing cartels is one such practice that established business enterprises use to exploit their consumers. Such businesses deny the market forces of demand and supply to determine the prices of their products in the market. They instead agree on prices which are usually high as compared to what fair prices could have been for such products.
This unethical business practice enables these businesses to make abnormal profits as a result of exploiting the masses. They are able to maintain their market share by ensuring that they block any other new investors joining their industry and hence the business is dominated by few cartels that control the entire market. They only allow new investors into the industry that are willing to abide by their unethical actions so that they can continue to exploit the consumers and make more profits (Connor, 2004).
International businesses collude with each other to form productive structures that involve several producers acting as one to allow them to effectively perfect monopoly power. This is unethical behavior of the well established businesses in which they are in a position to explicitly coordinate or to regulate the behavior of the entire market in a tactical manner in order to restrict fair competition as well as maintain relatively high prices in the market which will ensure that they continue enjoying their huge profits without considering the fate of their consumers and other investors in the industry.
Agreements between various business organizations that are intended to lock out other investors and to exploit the consumers are mainly verbal making it very hard to detect them as the cartels ensures that no evidence of such practice exist outside the boundaries of the cartels (Arora & Sarkar, 2008). Cartels are very attractive operations for different firms especially those that complement each other. The cartels usually establish secretariats or committees who are given the task of collecting information about the market share and sales among other relevant information of the members to the cartel.
During the times when demand is relatively high, with constraints in capacity, larger firms are more attracted to joining the cartels; such a move will enable them to reduce their production costs while at the same time maximizing their profits by increasing prices. However, during in times of low demand smaller firms will benefit more by remaining outside the cartels. They would be in a better position of selling their goods and services without the price fixation burden.
Cartels are notorious in deterring the entry of other firms into the industry by use of price wars. The price wars are also used to force the firms outside the cartel to join them; they can also be used to punish the firms that have defected from the cartel or those that refuse to comply with the rules and regulations of the cartel. All these are unethical business practices that hinder fair competition; they also lead to the exploitation of consumers all over the world (Arora & Sarkar, 2008). Ethical perceptions resulting into a dilemma
Despite the fact that the joining of efforts by producers in order to ensure that they retain their market share as well as be able to control the prices of the products that they trade in can be referred as unethical, there are those who will argue that they are doing so as an ethical action. This is the case that applies to the oil producing countries; they argue that it would be detrimental to their own economies if they allowed the market forces of demand and supply to determine the prices of their crude oil. This would mean that they could fetch less income if such forces were to be allowed to take effect.
As a result such governments could be unethical to their own people as they could be selling off their main natural resources cheaply to other countries (Connor, 2004). It is therefore, ethical for them to join hands and ensure that they determine the prices of crude oil in the international market so that they can continue benefiting from such high prices. They in fact, control the prices of the crude oil by cutting their production when demand of crude oil internationally drops and increasing the production of such when the demands picks.
This is a dilemma as far as ethical behaviors are concerned since the oil producing nations have a duty of ensuring that the natural resources in their countries benefit their citizens as much as possible. This can only be achieved if they join hands and effectively control the prices of crude oil internationally. On the other hand the question of ethical behavior emerges where by such countries can be blamed of combining their efforts in order to oppress those countries that are not lucky enough to have crude oil in their countries.
This leaves the oil producing countries in a fix wondering the best way to approach the issue to ensure that they benefit their citizens optimally and at the same time benefit their consumers in other countries. For sure this is a complex equation to balance with a single answer of ethics (Connor, 2004). This dilemma makes the oil producing countries to effectively manage cartels and thus be unethical, while hiding themselves behind the curtain of protecting their citizens and their economies.
They are therefore, able to manipulate the prices of crude oil to their own advantage without caring the negative effects such acts have on the economies of other countries that depend on such crude oil for their expansion. The world economy therefore, risks being controlled by such cartels, as they control prices of vital commodities for their economies (Murali, 2007). Conclusion For the international trade to excel in all parts of the world there is need for businesses to act ethically by being mindful of other businesses as well as their consumers.
They should at all times deter themselves from engaging in business practices that hinder fair competition as this will in most cases result in situations where the consumers will be exploited by being charged high prices for various products in the market which will only benefit the business firms while the consumers and other small investors continue being oppressed. Reference: Arora, R. R. & Sarkar, R. (2008): Detecting Cartels in the Indian cement industry: An Analytical Framework, Retrieved on 2nd June 2009 from,
http://www. iitk. ac. in/infocell/announce/convention/papers/Industrial%20Economics%20%20Environment,%20CSR-01-Ritu%20Raj%20Arora,%20Runa%20Sarkar. pdf. Connor, J. M. (2004): PRICE-FIXING OVERCHARGES: LEGAL AND ECONOMIC EVIDENCE, Retrieved on 2nd June 2009 from, http://www. agecon. purdue. edu/staff/connor/papers/PRICE%20FIXING_OVERCHARGES_FULL_TEXT_8-20-05. pdf. Murali, D (2007): Cartelist behaviour is difficult to detect, Retrieved on 2nd June 2009 from, http://www. cuts-ccier. org/ccier-meDec07. htm.