Cartel

Cartel,

association of independent firms or individuals for the purpose of exerting some form of restrictive or monopolistic influence on the production or sale of a commodity or group of commodities. The most common arrangements are aimed at regulating prices or output or dividing up markets. Members of a cartel maintain their separate identities and financial independence while engaging in common policies. Their common interest in exploiting the monopoly position that the combination helps to maintain is the source of the cartel’s stability. Combinations of cartellike form originated at least as early as the European Middle Ages, and some writers claim to have found evidences of cartels even in ancient Greece and Rome.
The main reason usually advanced for the establishment of cartels is for protection from “ruinous” competition, which, it is alleged, causes the entire industry’s profits to be too low. Cartelization is said to provide for distributing fair shares of the total market among all competing firms. The most common practices employed by cartels in maintaining and enforcing their industry’s monopoly position include the fixing of prices, the allocation of sales quotas or exclusive sales territories and productive activities among members, the guarantee of minimum profit to each member, and agreements on the conditions of sale, rebates, discounts, and terms.
Cartels result in a price to the consumer higher than the competitive price. Cartels may also maintain inefficient firms in an industry and prevent the adoption of cost-saving technological advances that would result in lower prices. Though a cartel tends to establish a high degree of price stability as long as it lasts, it is subject to conflicts of interest among its members; a breakdown of the cartel may lead to violent price fluctuations.
In Germany the cartel has been the most common form of monopolistic organization in modern times. German cartels are usually horizontal combinations of producers, firms that turn out competing goods; sometimes, however, they consist of so-called integrated enterprises, which range from the production of raw material to intermediate goods and to finished commodities; such combinations of firms constitute vertical integration. A strong impetus to form combinations came from German industry’s increasing desire to dominate foreign markets in the decade before World War I. Tariff protection kept domestic prices high, enabling the firms to sell abroad at a loss.
During both world wars the German governments favoured cartels to facilitate the transition to a war economy. After World War II, cartels and other forms of restraint of trade were outlawed until the end of Allied occupation. Legislation that was adopted in 1957 forbade various forms of “restriction of competition” but exempted from control certain cartel agreements–e.g., export cartels.
International cartel agreements, normally among firms enjoying monopoly positions in their own countries, were first concluded in the period between World Wars I and II. Most such cartels, especially those in which German firms were partners, were dissolved during World War II, but some continued to exist. Later, some steps were taken in the chemical and allied fields to revive some of the old cartel agreements. Because each government views cartels differently and because the various partners of an international combination are subject to different national laws, a uniform policy is difficult to establish.

BIBLIOGRAPHY.

Ervin Hexner and Adelaide Walters, International Cartels (1945); George W. Stocking et al., Cartels in Action (1946); Alfred Plummer, International Combines in Modern Industry (1951).


Related Spectrum Categories

Purely competitive markets as distinguished from markets of imperfect competition: monopoly, oligopoly, and monopolistic competitionThe concept of competition

Control of prices by business: price-fixing


To cite this page:
“cartel” Britannica Online.
<http://www.eb.com:180/cgi-bin/g?DocF=micro/107/31.html>
[Accessed 09 May 1998].
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