cartel

The Columbia Encyclopedia, 6th ed.

cartel

cartel (kärtĕl´), national or international organization of manufacturers or traders allied by agreement to fix prices, limit supply, divide markets, or to fix quotas for sales, manufacture, or division of profits among the member firms. In that it often has international scope the cartel is broader than the trust, and in that it carries on manufacture it differs from the speculative corner or ring. The existence of cartels is in opposition to classic theories of economic competition and the free market, and they are forbidden by law in many nations. In Germany, however, by the outset of World War II, nearly all industry was controlled by cartels closely supervised by the government. Opponents of cartels have alleged that they have driven competing firms out of existence, reduced volume of trade, raised prices to consumers, and protected inefficient members from competition. Cartels were blamed for having benefited German aggression by furnishing markets, profits, and technical data to Germany before World War II. Supporters of cartels claim that they protect the weaker participating firms, do away to an extent with limitations on trade resulting from high tariffs, distribute risks and profits equitably, stabilize markets, reduce costs, and hence protect consumers. The U.S. government legalized export associations in 1918 and has itself participated in agreements regulating production and international trade in foodstuffs, rubber, and other commodities. Because they imply the agreement and supervision of several governments, cartels in international trade are usually felt to be less harmful than those that tend to create monopolies in the home market for participants. Formal international agreements, involving governments as well as private firms, still control price, output, and distribution in some industries, notably in diamonds and in oil. Although not referred to as cartels, these agreements have the same general effect on world trade. The Organization of Petroleum Exporting Countries (OPEC) provides an outstanding example of the complex synergy of economics, politics, and international affairs that is involved in the dealings of large cartels. The term cartel is also used to describe the large criminal gangs in the illegal drug trade, especially those in Latin America, that dominate in certain regions or control certain aspects of the trade. See also tariff.

See E. Kefauver, In a Few Hands (1965); H. Kronstein, The Law of International Cartels (1973); J. Hobson, Cartels, Trusts, and the Economic Power of Bankers, Financiers, and Money-Moguls (1985).

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