cartel

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Agreement among national or international firms not to compete with one another. Cartels can be formed to fix prices by maintaining the price of a product at an artificially low level, to deter new competitors, or to restrict production of a commodity in order to maintain prices at an artificially high level to boost profits. The members of a cartel may also agree on which member should win a contract, known as bid rigging, or which customers they will supply. Cartels therefore represent a form of oligopoly. OPEC, for example, is an example of a transnational cartel restricting the output of a commodity, in this case oil. In many countries, including the USA and the UK, companies operating a cartel may be breaching legislation designed to abolish anticompetitive practices.

National laws concerning cartels differ widely, and international agreement is difficult to achieve. Both the Treaty of Rome and the Stockholm Convention, governing respectively the European Union (EU) and the European Free Trade Association (EFTA), contain provisions for control. In Germany, cartels are the most common form of monopolistic organization. In the USA, cartels are generally illegal. The Sherman Antitrust Act 1890 prohibited cartels, but legislation passed during the Great Depression permitted industries to enact ‘codes of fair competition’. These were declared unconstitutional 1935, and public cartels in coal mining, oil production, and agriculture largely ended after World War II.

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