Categories: BUSINESS & FINANCE

Defining Cartels

We’ve all heard about cartels. There is always something mysterious and edgy about the word, signifying a plethora of illegal activities. But how many of us actually understand the word and what it means? When you think cartel, drugs usually come to mind. But there is a very simple definition of a cartel that applies to numerous levels of commerce. A cartel is defined as a group of producers whose goal it is to fix prices, control supplies and limit competition.

Though they exist both nationally and internationally, cartels are prohibited by many countries that have anti trust laws. Anti trust laws are laws that prohibit unfair business practices like price fixing. Cartels continue to exist nationally and internationally, formally and informally.

Europe still allows some cartels, but they are completely illegal in the United States.
One way cartels circumvent antitrust laws in countries like the United States without actually setting foot here is through private entities that are often completely legitimate groups or corporations. For example, many trade organizations have been accused of fronting for cartels, as have many private institutions.

The De Beers Diamond cartel was extremely adept at conducting business through both private individuals and companies in the United States. They fixed diamond prices by limiting the supply, placing specific numbers of diamonds with particular jewelers and individuals, and setting high prices that had to be followed by each of the jewelers and individuals to whom De Beers supplied with diamonds.

The main operation base of cartels is centered on price fixing. This is generally illegal, but there are some exceptions. Some cartels aren’t prosecuted, and here’s where it gets complicated. Basically, some cartels are protected under international laws regulating their operation. When several governments get together and sanction a multilateral treaty or when a group is protected by national sovereignty, no antitrust violations can be brought against the group.

Examples of companies exempt from antitrust violations because of the standards above include companies like OPEC and even international airlines, whose tickets have prices fixed by agreement with the IATA (www.wikipedia.com).These standards apply only in rare situations, and only under the conditions laid out by international laws. Private companies and corporations who fix prices can be prosecuted in most countries under antitrust laws.

Another excellent example of an international cartel that is allowed to operate is the International Monetary Fund. As Jeff Faux of the Economic Policy Institute states, the IMF fronts as an international bank whose only goals are to foster global independence and contribute to the growth of underdeveloped nations. In reality, it is a lender with an ideological agenda. The IMF itself is the center of a credit cartel; it has agreements with other financiers to assure that projects it does not like will be blacklisted from receiving assistance from the World Bank and other entities like governments and private investors. Countries whose leaders are supportive of the bank’s major supporters are given priority over those who are not.

In essence, a cartel can be composed of any group or number of entities whose goals are to control every aspect of a products success. The key word is group, as a single entity who attempts the same goals is considered a monopoly. Cartels can comprise a small group of individuals or a huge network of corporations. They are adept at using other companies and businesses as fronts for their activities in countries where it is illegal to operate. There are many more examples of cartels than those listed above. Check out the resource links for other examples and information.