cartel

A cartel is a group of formally independent producers whose goal it is to fix prices, to limit supply and to limit competition. Cartels are prohibited by antitrust laws in most countries; however, they continue to exist nationally and internationally, formally and informally. Note that a single entity that holds a monopoly by this definition cannot be a cartel, though it may be guilty of abusing said monopoly in other ways. As such, it is inaccurate to describe (for example) Microsoft or AT&T as cartels. Cartels usually occur in oligopolies, where there are a small number of sellers.

Overview

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

Adam Smith, The Wealth of Nations, 1776

In general, cartels are economically unstable in that there is a great incentive for members to cheat and to sell more than the quotas set by the cartel (see also game theory). This has caused many cartels that attempt to set product prices to be unsuccessful in the long term. Empirical studies of 20th century cartels have determined that the mean duration of discovered cartels is from 5 to 8 years. However, once a cartel is broken, the incentives to form the cartel return and the cartel may be re-formed. Publicly-known cartels that do not follow this cycle include, by some accounts, the Organization of the Petroleum Exporting Countries (OPEC).

Price fixing is often practiced internationally. When the agreement to control price is sanctioned by a multilateral treaty or protected by national sovereignty, no antitrust actions may be initiated. Examples of such price fixing include oil whose price is partly controlled by the supply by OPEC countries. Also international airline tickets have prices fixed by agreement with the IATA, a practice for which there is a specific exception in antitrust law.

International price fixing by private entities can be prosecuted under the antitrust laws of more than 100 countries. Examples of prosecuted international cartels are lysine, citric acid, graphite electrodes and bulk vitamins.

Examples

OPEC: As its name suggests, OPEC is organised by sovereign states. It cannot be held to antitrust enforcement in other jurisdictions by virtue of the doctrine of state immunity under public international law. However, members of the group do frequently break rank to increase production quotas.

Many trade organizations, especially in industries dominated by only a few major companies, have been accused of being fronts for cartels:

Although cartels are usually thought of as a group of corporations, Labor Unions are also considered cartel, as they seek to raise the price of labor (wages) by preventing competition.

An example of a new international cartel is the one created by the members of the Asian Racing Federation and documented in the Good Neighbour Policy signed on September 1, 2003.

See also

• Collusion
• Oligopoly
• Tacit collusion
• Content cartel
• Drug cartel
• Phoebus cartel
• Zaibatsu
• Competition regulator
• RIAA

External links

• International Cartel History Site
• The Food and Global Agricultural Cartels of the 1990s