What is a cartel?
- A cartel is a group of companies that control a market. This clique can move prices, supplies and other essential business processes in the market by coordinating with each other.
- Many countries, like the United States, frown upon cartels. In fact, anti-trust laws in the U.S. make any cartel punishable by law.
- Cartels, like monopolies, usually produce products or services in a market that is difficult to enter. Typical results from a cartel can range from low-quality items, prices that are not reasonable, increase in the difficulty of the public in accessing said products or a combination of the three.
Cartels – the bad boys your mother warned you about.
If you have watched the show Breaking Bad, you may already be familiar with drug cartels. These are groups that control the supply of illegal drugs in an area and can flood the market with drugs to force prices down or limit the distribution even if there is an already abundant supply.
However, not all cartels are related to something illegal like drugs. Cartels can also exist in legal industries, such as agriculture or even telecommunications. The government protects consumers by making sure that big companies do not perform illegal or unfair business practices.
Some cartels exist due to geography and are formed due to the location of limited resources. For instance, there is OPEC. OPEC is a predominantly Middle Eastern organization of 14 countries that control almost half of the world’s oil production and 75% of the world’s proven oil reserves.
Of course, the companies that you will invest in will definitely NOT be drug cartels, unless they peddle the legal life-saving pharmaceutical drugs that treat your colds and headaches. The U.S. government has antitrust laws, which are laws that prohibits and punishes companies that make competition difficult due to unfair business practices.
Why are cartels prohibited?
Governments are generally against the formation of cartels due to the potential abuse of power.
Cartels can control the quality, the supply and even the progress of research. Once a monopoly is in place, there is little to no reason for researching and developing an existing product or service. These group of companies can dictate which shop can sell the goods or which areas can have better features, to the detriment of consumers. Cartels think to themselves: Why fix something that is not broken?
Healthy competition is important for a society to progress not only regarding technology but also about business practices. Cartels can agree among themselves to do the minimum required by law or to cut their prices and receive losses in the short term to prevent a new company from becoming their new competitor.
There are only very few people who profit from a cartel, and those are shareholders of the company.
Cartels are not just the bad kids your mother warned you to stay away from; these companies operate like vacuums, sucking everything from those below to feed those on top. While at first glance cartels may sound like a great way to earn some pocket change, the law will always catch up to those who are not behaving correctly.