Trade associations are a type of combination or cooperation among traders engaged in identical businesses, industries or occupations. Each member subscribes a considerable sum to form a common fund.
The main objective of the trade association was to control competition among its members by fixing prices, settling terms of sales, controlling quality, deciding on markets etc. They set a minimum price of a product to be charged and a maximum quality offered to the customer. Terms of sales were settled at a level beyond which customers could not be offered services. Markets were allocated where only one or a few producers could sell products creating monopoly or duopoly. Production amount was also fixed above which goods could not be produced to maintain a short supply or avoid glut. However, in the US such practices were discouraged and associations indulged in harming customers were declared illegal. Their modern objectives now are to promote fair business practices, offer assistance to members, and safeguard their interests.
In case of violation of the agreement producing undue competition or undercutting the member must pay penalties which are deposited to the common fund held by association’s nominated board of trustees. The associate for such infringement can also be expelled from the membership in which case his contribution is forfeited.
Since, the membership is voluntary a member can withdraw from the association with his contribution. The association guarantees a fair share of orders received centrally. The fair share is defined in terms of the members’ past sales record which works as a standard. Customers are given extra benefits if they can prove that they have not been in business with the traders not members of the association.