International cartel

3 key takeaways

• International cartels involve companies from multiple countries collaborating to manipulate market conditions, such as setting prices, restricting output, or allocating markets.
• These cartels can lead to higher prices and reduced competition, negatively impacting consumers and economies.
• Governments and international bodies actively monitor and regulate against cartel activities to maintain fair competition and market integrity.

What is an international cartel?

An international cartel is a coalition of businesses from different countries that agree to coordinate their activities to control prices, limit production, or divide markets among themselves. By reducing competition, these firms can secure higher profits than they would in a competitive market. Cartels can operate in various industries, including oil, chemicals, and pharmaceuticals.

Importance and impact of international cartels

• Market Control: Cartels can exert significant control over global markets, influencing prices and availability of goods and services.
• Consumer Impact: The lack of competition usually leads to higher prices and fewer choices for consumers.
• Economic Distortion: Cartels distort free markets, leading to inefficiencies and potentially stifling innovation and economic growth.

Example of an international cartel

One of the most well-known examples of an international cartel is the Organization of the Petroleum Exporting Countries (OPEC). OPEC members coordinate oil production levels to influence global oil prices. While OPEC is not an illegal cartel and operates openly, its activities have cartel-like effects on the global oil market.

Methods used by international cartels

• Price Fixing: Agreement to sell products at a specific price, eliminating competition and allowing cartel members to maintain high prices.
• Market Allocation: Dividing markets among cartel members to avoid competition, with each member agreeing not to enter another’s allocated market.
• Production Quotas: Limiting the amount of goods produced to keep supply low and prices high.

Example of price fixing

Several international airlines might collude to set identical prices for certain routes, ensuring they do not compete on price. This agreement allows them to maintain higher fares than they could in a competitive market.

Detection and regulation of international cartels

Governments and international regulatory bodies work to detect and dismantle cartels to protect market integrity and consumer interests:

• Antitrust Laws: Many countries have antitrust laws that prohibit cartel activities, such as the Sherman Antitrust Act in the United States and the Competition Act in the European Union.
• International Cooperation: Regulatory agencies often collaborate across borders to investigate and prosecute international cartels.
• Whistleblower Programs: Incentives for insiders to report cartel activities can help regulators detect and act against cartels.

Example of antitrust enforcement

The European Commission has imposed heavy fines on companies involved in cartels, such as the case where several major truck manufacturers were fined for colluding on prices and passing on costs of new emissions technologies to consumers.

Challenges in regulating international cartels

• Jurisdictional Issues: Cartels operate across multiple countries, complicating jurisdiction and enforcement.
• Secrecy: Cartels often operate in secret, making detection and evidence gathering challenging.
• Resource Constraints: Investigating and prosecuting cartels require significant resources and expertise.

Example of jurisdictional challenge

An international cartel involving companies from the US, Europe, and Asia may face legal scrutiny from multiple regulatory bodies, each with different laws and enforcement mechanisms, making coordinated action complex.

Effects of successful cartel regulation

• Lower Prices: Breaking up cartels typically leads to lower prices and increased competition, benefiting consumers.
• Market Efficiency: Ensures that markets operate more efficiently, with resources allocated based on competitive forces rather than collusion.
• Innovation and Quality: Increased competition encourages innovation and improvements in product quality.

Example of market impact

After the breakup of a cartel in the electronics industry, consumers may benefit from a wider selection of products at lower prices and better quality, as manufacturers compete more aggressively for market share.

International cartels can significantly impact global markets by reducing competition and inflating prices. Governments and international bodies actively work to detect, regulate, and dismantle such cartels to ensure fair competition and protect consumers. Understanding the methods, detection, and regulation of international cartels is crucial for maintaining healthy and competitive markets.