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From Ancient Rome to Modern Times: The Mystery of the Historical Evolution of Cartels!
In the world of economics, a cartel refers to a collaboration among independent market players that seeks to increase their profits by de-competing with each other in order to gain a dominant position in the market. This organization is usually composed of producers and aims to limit competition, raise prices, and even achieve its goals by creating artificial shortages. Cartel types can be classified as vertical or horizontal, but cartels are inherently unstable due to the temptation to defect between members and high-risk market instability.
Technological progress or the emergence of substitutes at many levels may weaken the cartel's price control ability and lead to the disintegration of cooperation.
Etymological research reveals that the word "cartel" comes from the Italian word "cartello", which means "piece of paper" or "signboard", and is derived from the Latin word "charta", which means "card". The word's use in English dates back to the 17th century, when it was first used to describe written agreements between warring nations. Meanwhile, the economic usage of the term cartel dates back to the 19th century, when it was first used by German railway companies to describe efforts to standardize tariffs. As an anti-competitive behavior, cartels are strictly prohibited in most jurisdictions.
History of Cartels
The history of cartels can be traced back to ancient times. The guilds and associations of craftsmen or merchants in medieval Europe were considered to be cartel-like organizations. In ancient times, the Salt Society of France and Naples in 1301 and the Carthusian League in 1470 were clear examples of cartels. These associations jointly market and sell, constituting a certain degree of market monopoly.
Cartel practices gradually emerged in the 19th century, mainly concentrated in Germany and the Austro-Hungarian Empire, which were known as the "land of cartel".
Cartels expanded further after World War I, particularly in Europe and Japan. In the 1930s, authoritarian regimes such as Nazi Germany, Italy, and Spain used cartels to reshape their economic systems. During that period, cartels became the dominant form of market organization, particularly in industrial and capitalist environments.
The diversity of cartels
Cartels have diverse structures and functions in order to achieve joint market control. Among them, sales or purchasing cartels confront suppliers or customers, domestic cartels restrict members from only one country, and international cartels come from the cooperation of multiple countries.
A survey of market outcomes shows that over the past 200 years, cartels have increased prices by an average of about 23%.
There are various forms of cartels, including price cartels and quota cartels. Price cartels raise the price of goods, usually through price fixing, while quota cartels divide the market according to members' market share. Regardless of the type of cartel, its purpose is always to restrict competition, raise prices and generate excess profits.
Cartel Laws and Penalties
Cartels are regulated under competition law because they can have a significant impact on the market. Many countries oppose the existence of cartels. For example, the Sherman Act in the United States explicitly prohibits price fixing and market allocation. This has led to increasingly strong anti-cartel actions among countries, which are not limited to domestic markets but are gradually affecting the economies of multiple countries in the context of globalization.
The cartels discovered typically lasted an average of 5 to 8 years and were around 32% above market price.
As a strategy to combat illegal cartel behavior, many countries have begun to introduce leniency programs aimed at encouraging cartel members to report early, thereby exposing more illegal activities. This practice has been fruitful since its implementation in the United States in 1978, significantly reducing the formation and detection of cartels.
How do you see the future of cartels?
As the global economy changes, so too does the existence of cartels. The technological revolution has made information more transparent and the pressure for legal competition has increased, making it increasingly difficult for cartels to operate. Although cartels can still be seen in some industries, can this form of organization continue to exist in the future? Or will it continue to evolve under market pressure?
