Trust

economic-dictionary

The trust is an association of companies that, within the same union, establish property, price fixing and non-competition agreements among themselves. The goal is to form a market monopoly.

The trust is an association of several companies, which try to associate through a series of agreements. These agreements are established through the sharing of ownership based on shares, the setting of prices in products and services, as well as non-competition between partners. The objective is that, within the same industry or sector, the members of the trust obtain greater market power through monopolies.

These arise in America, during the nineteenth century, after the Civil War. The first American company to adopt this type of association was the Standard Oil Trust.

Types of trust

Depending on the production, trusts can be classified into two types.

  • Horizontal trust: When the association of companies, among themselves, produce the same type of good or service.
  • Vertical trust: When the association of companies occurs between companies that, in addition to producing a relationship of common goods and services, there are others that perform other alternative goods and services.

Difference between trust, cartel and holding company

Usually the three concepts tend to be confused. Among the differences to be pointed out, it is worth highlighting their own composition. Depending on the composition, we will be talking about a trust, a cartel or a holding company.

  • Trust: Composition is done by merging a number of companies to create a new one. In this, a series of actions is distributed to the founding partners that makes them partners.
  • Cartel: The objectives are very similar, although the composition changes, since the unification of companies is purely strategic. The cartel does not establish a merger of the companies, but some common rules of the game.
  • Holding: This one does differ from the other two. The holding company is also a group of companies, but it pursues investment objectives and market power.

As we can see, although they are similar business associations, they show clear differences between them.

Criticism of trusts

In the United States, the origin of this type of business association, the Sherman Law was created in 1890. This law declared the illegality of the existence of trusts in the country. According to the effects of these on the economy, trusts have been a type of association highly criticized in the markets.Their desire to achieve a monopoly market has prompted, on the part of governments, laws that have tried to prohibit trusts.

Antitrust laws are already present in many countries. Their behavior within the markets is not usually adjusted to the rules of free competition. For this reason, with the intention of blocking their entry into the market, as well as the negative effects that these can generate in it, the countries have adopted very severe measures to combat the existence of these associations; penalized by law.

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