International Cartels

Topics: OPEC, Cartel, 1973 oil crisis Pages: 10 (3323 words) Published: August 19, 2006
A cartel is a group of formally independent producers whose goal it is to fix prices, to limit supply and to limit competition. Cartels are prohibited by antitrust laws in most countries; however, they continue to exist nationally and internationally, formally and informally. A single entity that holds a monopoly cannot be a cartel, though it may be guilty of abusing said monopoly in other ways. As such, it is inaccurate to describe (for example) Microsoft or AT&T as cartels. Cartels usually occur in oligopolies, where there are a small number of sellers. In general, cartels are economically unstable in that there is a great incentive for members to cheat and to sell more than the quotas set by the cartel. This has caused many cartels that attempt to set product prices 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 cycle include the De Beers diamond cartel and the Organization of the Petroleum Exporting Countries (OPEC). Of a sample of forty such cartels prosecuted by the United States and European Union in the 1990s, twenty-four lasted at least four years. And for the twenty cartels in this sample where sales data are available, the annual worldwide turnover in the affected products exceeded US$30billion. Prevailing national competition policies are oriented towards addressing harm done in domestic markets, and in some cases merely prohibit cartels without taking strong enforcement measures.

There are a wide variety of organizations that could plausibly be described as international cartels, and to structure the analysis in this paper we distinguish between three types: Type 1 are the so-called "hard core" cartels made up of private producers from at least two countries who cooperate to control prices or allocate shares in world markets. Type 2 are private export cartels where independent, non-state-related producers from one country take steps to fix prices or engage in market allocation in export markets, but not in their domestic market. Types 3 are state run, export cartels. 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. Also international airline tickets have prices fixed by agreement with the IATA, a practice for which there is a specific exception in antitrust law.

International price fixing by private entities can be prosecuted under the antitrust laws of more than 100 countries. Examples of prosecuted international cartels are lysine, citric acid, graphite electrodes, and bulk vitamins. EXAMPLES

1) Organization of the Petroleum Exporting Countries (OPEC) The Organization of the Petroleum Exporting Countries (OPEC) is made up of Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela; since 1965 its international headquarters have been in Vienna, Austria. The principal aim of the Organization, according to its Statute, is "the coordination and unification of the petroleum policies of its member countries and the determination of the best means for safeguarding their interests, individually and collectively; devising ways and means of ensuring the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations; giving due regard at all times to the interests of the producing nations and to the necessity of securing a steady income to the producing countries; an efficient, economic and regular supply of petroleum to consuming nations, and a fair return on their...

Bibliography: 1) wikipedia
2) open website
3) article on "effect of international cartels on developing economies"
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