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What is a Cartel?

Mary McMahon
Updated May 16, 2024
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A cartel is a group of people, organizations, or companies which cooperates together to control production, marketing, and pricing of a product. Under antitrust laws in many regions of the world, cartels are explicitly illegal, because they eliminate fair market competition. However, several international cartels continue to exist despite these laws, and within nations, private cartels may secretly control the market for certain commodities.

For the members of a cartel, cooperating together has a distinct advantage. By agreeing to not compete, the members of the cartel mutually benefit. Cartels are often successful in driving the price of the commodity they control up well beyond what could be considered the fair market value. A classic example of an international cartel is the De Beers diamond company, which controls the market for diamonds around the world, causing an artificially inflated price. De Beers has been criticized for its practices, and several governments have attempted to undermine the company's stranglehold on global diamond supplies, without success.

Another well known example of an international cartel is the Organization of Petroleum Exporting Countries (OPEC), which has controlled oil prices since the 1960s. OPEC notably drove up the price of oil in the 1970s, using its market leverage as a political tool. The member nations of OPEC claim that their cartel protects world oil supplies and minimizes market fluctuations; critics of OPEC are not so sure about this.

By controlling production of a product or commodity, a cartel essentially gets to decide how much is available on the market. If members of a cartel agree to sell at a set price, they can drive the cost of something up by making it difficult to obtain, and thereby forcing people to pay the price they set. When a cartel controls the bulk of an available commodity, this restriction of fair market competition can be harmful for consumers because they find themselves paying too much for necessities.

Cartels are also present in the drug trade, and some nations have attempted to put a stop to the flow of drugs by attacking the cartels which control them. Whether a cartel controls legal or illegal substances, however, it can be difficult to track down. Since cartels are in theory illegal, most member organizations are smart enough to do deals behind closed doors, and to leave no paper trail. Prosecuting a cartel successfully can require years of investigation and hard work, even with strong anti-trust laws.

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Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By anon167077 — On Apr 11, 2011

i am teaching economics so i need to give learners the examples of companies that has form a cartel or of those who have tried but failed.

By Benyamen — On Oct 27, 2008

Explain for me guys the reasons for the successes of a cartels.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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