Cartel, in Economics or Business, is a term which is used to refer to an agreement made between a group of competing companies aimed at controlling prices or banishing entry of a new competing firm. Through a Cartel, companies mutually decide, discuss and agree on certain clauses such as fixing selling prices, reducing production, allocating customers, fixing market shares, big rigging and fixing purchase prices, etc. Cartels usually take place in those industries where the number of the sellers is small. The main aim of Cartels or Collusions is to raise the profits of each of the members. This happens because there is a reduction in the competition.
Different types of Cartels
- Public cartels: Public cartels are those types of cartels where the government is involved to enforce the agreement, and it is the government which shields them from any legal action. One of the most common examples of a public cartel is the Shipping Conferences.
- Private cartels: In comparison to public cartels, private cartels are not authorized by the government and are made on mutual understanding between certain business companies or firms. The terms of the cartel agreement made between parties is not known or shared with any other person or party.
- Domestic cartels: Another type of a cartel is known as domestic cartel. As the term suggests, domestic cartels are made between businesses or parties based in the same country and are associated with selling of goods within the boundaries of that country.
- International cartels: In the case of international cartels, there are several additional challenges for the law enforcement authorities due to multiple jurisdictions over the international members of the arrangement. Such cartels are formed or established between members belonging to two or more than two different countries.
Cartels in Drug Trade
One of the most common examples of a cartel is a Drug Cartel. Drug Trade involves a lot of features which can only be handled or controlled by the formation of a drug cartel. Drug trade in a number of countries is controlled by drug cartels, which whether legal or illegal, can be difficult to track down. In the case of illegal cartels, the business owners make deals behind the doors and leave no paper trail behind. They try their best not to be detected by the legal authorities.
A very common example of a cartel is the Organization of Petroleum Exporting Countries or OPEC. This is an international cartel which has been controlling the prices of oil for over 5 decades. It is well known that OPEC once drove the price of oil very high in the 1970s by leverage. While on one hand, the member countries of this cartel suggest that they protect the oil supplies in the world and make sure that the fluctuations in the market are minimized, on the other hand, the critics of this international cartel differ in the opinion. This cartel cannot be held to antitrust enforcement in any other countries where its jurisdiction is not valid.