Cartel

I

Introduction

Cartel, formal or informal agreement among business firms designed to reduce or suppress competition in a particular market. Cartels control production and distribution. The main activities in which they engage are fixing prices, limiting available supplies, dividing the market, and pooling profits. Today the term cartel is usually applied to arrangements that regulate competition in international commerce. Similar national collaborations are known as trusts.

II

History

Cartels originated in Germany during the 1870s, coinciding with the growth of that country's economy. Their successful operation is thought to be partially responsible for German aggression, which led to two world wars. During World War I the government of Germany utilized domestic cartels to produce armaments and other war materials. In the next two decades German firms continued to combine to control production. One of the most important was I. G. Farbenindustrie, which produced chemicals and dyestuffs. By the start of World War II almost all German industry was controlled by cartels, supervised and encouraged by the government.

Basic economic beliefs in the U.S. have long been opposed to group monopolies. In general, domestic cartels are considered in restraint of trade and are illegal, and participation of firms in international cartels is not sanctioned.

III

Support and Opposition

Defenders have claimed that cartels stabilize markets, reduce costs of production, eliminate high tariffs, distribute profits equitably, and benefit the consumer. Those who object to cartels point out that prices are higher and output is lower when firms do not engage in competition. Today their disadvantages are considered to outweigh their advantages; legal barriers often restrict development of new cartels. Some do exist, however, notably in the oil industry and the diamond trade.

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See Business; Monopoly.

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