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'@@ -7,9 +7,9 @@ }} -A '''cartel''' is a group of apparently independent producers whose goal is to increase their collective profits by means of [[price fixing]], limiting supply, or other [[anti-competitive practices|restrictive practices]]. Cartels typically control selling prices, but some are organized to control the prices of purchased inputs. [[Competition law|Antitrust]] [[law|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 [[oligopoly|oligopolies]], where there are a small number of sellers and usually involve [[commodity|homogeneous products]]. +A '''cartel''' is a group of apparently independent producers whose goal is to increase their collective profits by means of [[price fixing]], limiting supply, or other [[anti-competitive practices|restrictive practices]]. Cartels typically control selling prices, but some are organized to control the prices of purchased inputs. [[Competition law|Antitrust]] [[law|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 [[oligopoly|oligopolies]], where there are a small number of sellers and usually involve [[commodity|homogeneous products]]. A ‘perfect cartel’ is one that maximizes the sum of the profits of its members. This requires that output be allocated among participants so that cost is minimized. <ref name=":0">{{Cite web|url=https://weblogin.umich.edu/?cosign-www.lib&https://www.lib.umich.edu/cgi/l/login/proxy-session-init-qurl?qurl=https%3a%2f%2flink.springer.com%2freferenceworkentry%2f10.1057%2f978-1-349-95121-5_296-1|title=U-M Weblogin|website=weblogin.umich.edu|doi=10.1057/978-1-349-95121-5_296-1#howtocite|access-date=2019-04-20}}</ref> -In general, cartels can be divided into domestic and international agreements.<ref>{{Cite book|title=Regulating Competition: Cartel registers in the twentieth-century world|last=Fellman|first=Susanna|last2=Shanahan|first2=Martin|publisher=Routledge|year=2015|isbn=9781138021648|location=London|pages=224}}</ref> Export cartels constitute a special case of international cartels. Unlike other cartels, export cartels are legal in virtually all jurisdictions, despite their harmful effects on affected markets.<ref>{{cite journal |last1=Martyniszyn |first1=Marek |title=Export Cartels: Is it Legal to Target your Neighbour? Analysis in Light of Recent Case Law |journal=Journal of International Economic Law |date=2012 |volume=15 |issue=1 |page=181 |doi=10.1093/jiel/jgs003 |url=https://doi.org/10.1093/jiel/jgs003}}</ref> +In general, cartels can be divided into domestic and international agreements.<ref>{{Cite book|title=Regulating Competition: Cartel registers in the twentieth-century world|last=Fellman|first=Susanna|last2=Shanahan|first2=Martin|publisher=Routledge|year=2015|isbn=9781138021648|location=London|pages=224}}</ref> Export cartels constitute a special case of international cartels. Unlike other cartels, export cartels are legal in virtually all jurisdictions, despite their harmful effects on affected markets.<ref>{{cite journal |last1=Martyniszyn |first1=Marek |title=Export Cartels: Is it Legal to Target your Neighbour? Analysis in Light of Recent Case Law |journal=Journal of International Economic Law |date=2012 |volume=15 |issue=1 |page=181 |doi=10.1093/jiel/jgs003 |url=https://doi.org/10.1093/jiel/jgs003}}</ref>A number of countries use cartels to aid temporarily depressed industries. Depressed industries can form cartels for 1 year or less if approved by a specified government agency. -[[Bid rigging]] is a special type of cartel. +[[Bid rigging]] and rationalization are special types of cartels. Rationalization is intended to be long-term changes to an industry such as eliminating of excess capacity, but often they set price and/or output that end up being a short-term restraint of trade.<ref name=":0" /> == Overview == @@ -18,15 +18,20 @@ 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 percent.<ref>John M. Connor. Cartel Overcharges, pp. 249-387 of The Law and Economics of Class Actions, in Vol. 29 of Research in Law and Economics, edited by James Langenfeld (March 2014). Bingley, UK: Emerald House Publishing Ltd. June 2017</ref> Private international cartels (those with participants from two or more nations) had an average price increase of 28 percent, whereas domestic cartels averaged 18 percent. Less than 10 percent of all cartels in the sample failed to raise market prices. -In general, cartel agreements are [[economics|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 [[price]]s 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 [[Business cycle|cycle]] include, by some accounts, the [[Organization of the Petroleum Exporting Countries]] (OPEC). +In general, cartel agreements are [[economics|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 [[price]]s 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 [[Business cycle|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, and international airline tickets, which have prices fixed by agreement with the [[International Air Transport Association|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. There were even instances where cartels are encouraged by states. For example, during the period before 1945, cartels were tolerated in Europe and were promoted as a business practice in German-speaking countries.<ref>{{Cite book|title=Competition Policy in the European Union|last=Cini|first=Michelle|last2=McGowan|first2=Lee|publisher=Palgrave Macmillan|year=2009|isbn=0-230-00675-2|location=New York|pages=63}}</ref> This was the norm due to the accepted benefits, which even the U.S. Supreme court has noted. In the case, ''the'' ''U.S. v. National Lead Co. et al.'', it cited the testimony of individuals, who cited that a cartel, in its protean form, is "a combination of producers for the purpose of regulating production and, frequently, prices, and an association by agreement of companies or sections of companies having common interests so as to prevent extreme or unfair competition."<ref>{{Cite book|title=Strategies to Achieve a Binding International Agreement on Regulating Cartels: Overcoming Doha Standstill|last=Lee|first=John|publisher=Springer|year=2016|isbn=978-981-10-2755-0|location=Berlin|pages=13}}</ref> +Prior to World War II (except in the United States), members of cartels could sign contracts that were enforceable in courts of law. There were even instances where cartels are encouraged by states. For example, during the period before 1945, cartels were tolerated in Europe and were promoted as a business practice in German-speaking countries.<ref>{{Cite book|title=Competition Policy in the European Union|last=Cini|first=Michelle|last2=McGowan|first2=Lee|publisher=Palgrave Macmillan|year=2009|isbn=0-230-00675-2|location=New York|pages=63}}</ref> This was the norm due to the accepted benefits, which even the U.S. Supreme court has noted. Many public cartels existed within the U.S.in industries such as oil production, coal mining, interstate transportation and agriculture.<ref>{{cite journal |last1=Weiss |first1=Leonard W. |title=Cartel |journal=The New Palgrave Dictionary of Economics |date=1987 |url=https://link-springer-com.proxy.lib.umich.edu/referenceworkentry/10.1057/978-1-349-95121-5_296-1#howtocite}}</ref> In the case, ''the'' ''U.S. v. National Lead Co. et al.'', it cited the testimony of individuals, who cited that a cartel, in its protean form, is "a combination of producers for the purpose of regulating production and, frequently, prices, and an association by agreement of companies or sections of companies having common interests so as to prevent extreme or unfair competition."<ref>{{Cite book|title=Strategies to Achieve a Binding International Agreement on Regulating Cartels: Overcoming Doha Standstill|last=Lee|first=John|publisher=Springer|year=2016|isbn=978-981-10-2755-0|location=Berlin|pages=13}}</ref> -Today, however, 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]] [[electrode]]s, and bulk [[vitamin]]s. This is highlighted in countries with market economies wherein price-fixing and the concept of cartels are considered inimical to free and fair competition, which is considered the backbone of political democracy.<ref>{{Cite book|title=Controlling International Technology Transfer: Issues, Perspectives, and Policy Implications|last=Sagafi-Nejad|first=Tagi|last2=Moxon|first2=Richard|last3=Perlmutter|first3=Howard|publisher=Pergamon Press|year=2017|isbn=0-08-027180-4|location=New York|pages=180}}</ref> The current condition makes it increasingly difficult for cartels to maintain sustainable operations. Even if international cartels might be out of reach for the regulatory authorities, they will still have to contend with the fact that their activities in domestic markets will be affected.<ref>Fellman & Shanahan, p. 224.</ref> +Today, however, price fixing by private entities is illegal under the antitrust laws of more than 140 countries. In the U.S., the Sherman Antitrust Act was passed in 1890. Examples of prosecuted international cartels are [[lysine]], [[citric acid]], [[graphite]] [[electrode]]s, and bulk [[vitamin]]s. This is highlighted in countries with market economies wherein price-fixing and the concept of cartels are considered inimical to free and fair competition, which is considered the backbone of political democracy.<ref>{{Cite book|title=Controlling International Technology Transfer: Issues, Perspectives, and Policy Implications|last=Sagafi-Nejad|first=Tagi|last2=Moxon|first2=Richard|last3=Perlmutter|first3=Howard|publisher=Pergamon Press|year=2017|isbn=0-08-027180-4|location=New York|pages=180}}</ref> The current condition makes it increasingly difficult for cartels to maintain sustainable operations. Even if international cartels might be out of reach for the regulatory authorities, they will still have to contend with the fact that their activities in domestic markets will be affected.<ref>Fellman & Shanahan, p. 224.</ref> + +== How Cartels Work == +In private cartels, it is more difficult to maintain prices that are maximized for all participants because firms with low-costs have incentive to deviate because the cartel price is likely to be lower than that of a monopolist. Private cartels are most beneficial for small firms because they would face higher prices. Private cartels are difficult to maintain as the number of small firms involved increases and hurts the profit of larger firms. + +Effective cartels are likely to result in excess capacity when high-profits attract new firms to enter. Existing firms will often build excess capacity if it increases sales because with prices far above marginal cost, additional sales are worth the additional cost to the firm. An equilibrium at high cartel prices is reached when excess capacity has forced cost up to the point where profits are reduced to normal levels and entry and expansion is no longer attractive.<ref name=":0" /> ==Examples== [[File:ATF policy.jpg|thumb|The printing equipment company [[American Type Founders|ATF]] explicitly states in its 1923 manual that its goal is to 'discourage unhealthy competition' in the printing industry.]] -[[OPEC]]: As its name suggests, OPEC is organized by [[sovereignty|sovereign]] [[state (polity)|states]]. The traditional view holds that it cannot be held to antitrust enforcement in other [[jurisdiction]]s by virtue of the [[doctrine]] of [[state immunity]] under [[public international law]]. OPEC serves as an example of state entanglement in anticompetitive conduct.<ref>{{cite journal |last1=Martyniszyn |first1=Marek |title=Foreign State’s Entanglement in Anticompetitive Conduct |journal=World Competition |date=2017 |volume=40 |issue=2 |page=299 |url=https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3116910}}</ref> +[[OPEC]]: As its name suggests, OPEC is organized by [[sovereignty|sovereign]] [[state (polity)|states]]. The traditional view holds that it cannot be held to antitrust enforcement in other [[jurisdiction]]s by virtue of the [[doctrine]] of [[state immunity]] under [[public international law]]. OPEC serves as an example of state entanglement in anticompetitive conduct.<ref>{{cite journal |last1=Martyniszyn |first1=Marek |title=Foreign State’s Entanglement in Anticompetitive Conduct |journal=World Competition |date=2017 |volume=40 |issue=2 |page=299 |url=https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3116910}}</ref>The goal of this cartel is to maintain world prices far higher than costs. Many [[trade association]]s, especially in [[industry|industries]] dominated by only a few major companies, have been accused of being fronts for cartels or facilitating secret meetings among cartel members. @@ -34,6 +39,5 @@ Although cartels are usually thought of as a group of [[corporation]]s, the free-market economist [https://web.archive.org/web/20100624071027/http://www.cbe.csueastbay.edu/~sbesc/99septcol.html Charles W. Baird] considers [[trade union]]s to be cartels, as they seek to raise the price of labor ([[wage]]s) by preventing [[competition]]. For example, [[negotiated cartelism]] is a labor arrangement in which labor prices are held above the market clearing level through union leverage over employers. -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 (horse racing)|Good Neighbor Policy]] signed on September 1, 2003. - +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 (horse racing)|Good Neighbor Policy]] signed on September 1, 2003. ==See also== {{div col|colwidth=30em}} '