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Definition

cartel

A cartel is a business network composed of manufacturers, supply chain partners, distributors and financiers who remain financially independent but work closely together to ensure each other’s success. In countries that value a competitive marketplace over a collaborative marketplace, cartels may be illegal. In the United States, for example, cartels are illegal and legislation has been enacted to prevent cartels from setting prices and creating monopolies. In Japan, however, the advantages that cartels offer are encouraged through an ideology known as keiretsu.

Cartels can only exist under certain market conditions. The demand for the product must be reliable, for one. In the case of fuel oil, for example, consumers cannot immediately turn to another product to fulfill their needs, which means that, by and large, they will pay whatever price the cartel sets. When a cartel is able to set prices and mandate production levels, it ensures that members will not have to deal with outside competition. A lack of real competition also means that companies are less motivated to improve infrastructure or service than they might be otherwise. 

Cartels may operate openly where they are not prohibited by law. OPEC (Organization of Petroleum Exporting Countries), for example, is acknowledged to function as a cartel that controls the market for oil. Being multinational allows OPEC to operate legally under the United States’ foreign trade laws. Generally, cartels are illegal in countries where price-fixing and other anti-competitive practices are prohibited under anti-trust legislation. In these environments and in black markets, cartels sometimes operate secretly.

Producers may also function as a cartel without having any apparent collaboration. In the U.S. and Canada, for example, telecommunications companies are sometimes said to operate as a cartel because their oligopoly status limits consumer choice.

This was last updated in April 2019

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