What Is a Cartel?
A cartel is a collection of independent businesses or companies organized to regulate production, pricing, and other factors of the marketplace Cartels are found in a wide range of industries, including oil, gas, and minerals, but are most common in the banking, finance, and pharmaceutical sectors. They are a form of market manipulation and are illegal in many countries, including the United States.
In a cartel, members agree to fix prices and production output among themselves, in order to increase profits and reduce competition. This form of collusion allows the members to reap the benefits of higher profits and market share, while consumers may be charged higher prices due to the lack of competition. Cartels also often use other tactics such as creating barriers to entry, setting restrictive practices, or limiting production.
Cartels are usually characterized by the use of secrecy and non-transparency, allowing them to avoid detection and prosecution. The lack of transparency also makes it difficult for competitors to identify and challenge the cartel’s activities, allowing the cartel to continue its activities for a longer period of time.
Examples of Cartels
1. OPEC: The Organization of the Petroleum Exporting Countries (OPEC) is a prime example of a cartel. Established in 1960, OPEC is made up of 13 countries and their primary aim is to control the supply of oil and regulate the price of oil on a global scale.
2. Wall Street Bankers: This cartel includes the five largest U.S. banks, which account for almost two-thirds of the U.S. banking industry. These banks use their collective market power to set prices and to control the flow of capital.
3. Generic Pharmaceuticals: This cartel includes the three largest generic drug makers in the U.S. Their aim is to reduce competition and increase prices for generic drugs, by creating minimum pricing agreements.
4. Diamond Producers: This cartel is made up of the five largest diamond producers in the world. It is responsible for controlling the supply of diamonds and setting prices for the international market.
5. Silicon Valley: A group of technology companies, including Apple, Google, Intel and Microsoft, have been found to have colluded to limit employee mobility and wages. The companies agreed that they would not hire each other's employees, in order to limit competition for engineers and other highly sought after workers.