From Hobson's Choice
A cartel is an association of firms whose management is independent of each other, but which are involved in the same branch of industry. The association exists to increase economic rents by allowing its members to reduce output and increase prices. It is a type of industrial combination usually found in jurisdictions in which competition is not regarded as an overarching economic imperative; for example, in many European countries prior to the 1960's, cartels were intended to permit rationalization of capital outlays. Cartels are very closely related in concept to syndicates; cartels typically have a syndicate for each productive function that they group into a cartel.
Origins and Structure
The essence of the cartel is that it unites different firms politically so that they can act in unison against suppliers or customers. The most famous example is the Organization of Petroleum Exporting Countries (OPEC); in 1973, OPEC took the extraordinary step of launching an embargo against the United States, which led to an enormous increase in the price of oil. OPEC is unusual insofar as its members are national governments, and most of the time cartels are actually smaller firms operating in a single regional market.
The members of a cartel remain under independent administration, and indeed may compete with each other in regards to other forms of business activity. For example, during the period 1896-1919, cartels formed by the steel makers of Germany only managed to regulate A-products (intermediate goods, structural steel and formed material, heavy and light railway superstructural material), but not B-products (rod iron, rolled wire, plates and sheets, pipes and tubes, and railway axles); on those products, there remained significant competition. The object of German laws on cartels was to permit large numbers of smaller family-owned firms to survive; the economic rents of cartel members was intended to permit them to continue employing workers despite recession or cheaper foreign competition. Ironically, rulings by the German Imperial Court permitting cartels tended to be both in intent and in effect, antitrust; whereas the Sherman Antitrust Act was really anti-cartel, and tended to strengthen trusts (or later, mergers).
Because cartels relied on the state to enforce agreements (or, for that matter, permit them to operate), they were expected to serve the nation in various ways: by improving market organization, standardizing products or sales terms, rationalizing production, exchanging information, ameliorating the social and economic costs of downsizing industries, and even reducing marketing costs, as in some export cartels. The cartels could vary in organization, from simple agreements determining the terms of sale, to syndicates such as the virtually-merged partners of an Interessengemeinschaft (IG; "community of interest").
Reflecting the decades-long struggle of Western nations such as the USA and UK to suppress all forms of industrial combination other than outright mergers, cartels are now mostly illegal. OPEC, mentioned above, represents a relatively potent countervailing force to US hegemony; it resides outside of economies subject to US pressure to outlaw cartels. In the Western news media, the term "cartel" is overwhelmingly used to describe drug cartels, or (infrequently) OPEC.
The EU has outlawed cartels and punished many companies for conspiracy to engage in anticompetitive behavior. The highest individual fine so far levied in a European cartel probe was to France's Compagnie de Saint-Gobain SA, which was fined €896 million in 2008 for participating in an car-glass cartel.
Several fertiliser companies export potash and phosphate through three marketing syndicates, which negotiate secretive annual contracts with buyers in China, India and elsewhere. These are:
- Canpotex (members: PotashCorp, Mosaic, and Agrium, all North American companies);
- Belarusian Potash Company (members: Uralkali and Belaruskali);
- PhosChem, which markets phosphate (Mosaic and PotashCorp).
Together they control 70 per cent of global trade in two of three key fertilizers used to boost crop growth and protect plants from diseases.
- ↑ Definition of A- and B-products, Fear (2005), p.285; on efforts to cartellize production of either, see Ibid., p.245-249; p.255; and p.287. After 1924, when Germany regained control over its tariff policy from the Occupation, the new steel cartel was able to incorporate both A- and B-products; see Ibid., p.543.
- ↑ Fear (2005), pp.239-241
- ↑ Fear (2005), p.
- ↑ "EU Raids Polyurethane Foam Makers In Cartel Probe" Wall Street Journal (3 August 2010)
- ↑ Javier Blas, "End looms for fertiliser cartels," Financial Times, (19 August 2010). The third key fertilizer is nitrogen. Canpotex and Phoschem are differentiated mainly by the source of product and their legal structure; Canpotex operates under the laws of Saskatchewan and Canada, and markets product from Canada, while Phoschem operates under the laws of Florida and the USA, and markets US product. The companies involved are mostly the same (Agrium is not a member of PhosChem). PhosChem may exist because of the Webb-Pomerene Act of 1918, which exempts some industries from antitrust rules.
- Jeffrey R. Fear, Organizing control: August Thyssen and the construction of German corporate management, Harvard University Press (2005)
- Jeremiah W. Jenks & Walter Ernest Clark, The trust problem, Doubleday, Page & company (1917)
- William S. Stevens, Industrial combinations and trusts, Macmillan (1922)
- Clair Wilcox, Competition and Monopoly in American Industry, Hesperides Press (1940)
- Control of corporations, persons, and firms engaged in interstate commerce: report of the Committee on Interstate Commerce, US Senate Volume 2, US Government Printing Office (1913); Vol. I here