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A cartel is a group of formally independent producers whose goal is to increase their collective profits by means of price fixing, limiting supply, or other restrictive practices. Cartels typically control selling prices, but some are organized to control the prices of purchased inputs. Antitrust laws attempt to deter or forbid cartels. 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. Cartels usually occur in oligopolies, where there are a small number of sellers and usually involve homogeneous products. Bid rigging is a special type of cartel.
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
A survey of hundreds of published economic studies and legal decisions of antitrust authorities found that the median price increase achieved by cartels in the last 200 years is about 23%. Private international cartels (those with participants from two or more nations) had an average price increase of 28%, whereas domestic cartels averaged 18%. Less than 10% of all cartels in the sample failed to raise market prices.
In general, cartel agreements are economically unstable in that there is an incentive for members to cheat by selling at below the agreed price or selling more than the production 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.
Prior to World War II (except in the United States), members of cartels could sign contracts that were enforceable in courts of law. However, today price fixing by private entities is illegal under the antitrust laws of more than 140 countries. Examples of prosecuted international cartels are lysine, citric acid, graphite electrodes and bulk vitamins.
OPEC: As its name suggests, OPEC is organized 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 by exceeding their agreed production quotas.
Other cartels include the legal profession and medical profession in the U.K. and many other countries. In these professions the bodies controlling training, licences to practice and qualify restrict the number of new entrants into the profession, thereby creating an artificially low supply and increasing earnings for those within the profession. While this benefits those in the profession it means that in the U.K. legal advice is unaffordable for all but the wealthy. In the Medical profession there is now such a chronic shortage of doctors and Surgeons in the U.K. that there are now very large waiting times for simple operations and, some would speculate, even unnecessary deaths
- British Valve Association
- Business oligarch
- Central bank
- Competition law
- Competition regulator
- Content cartel
- De Beers
- Drug cartel
- Economic regulator
- Industrial organization
- Organized crime
- Phoebus cartel
- Robber baron
- Standard Oil
- State cartel theory
- Tacit collusion
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