Cartels

Cartels sound unsavory, suggesting drug kingpins or despotic rulers of oil kingdoms. They are, in fact, illegal within the U.S. and most developed economies. But agreements among members of a given industry to shape markets to their mutual advantage are as natural a feature of capitalism as competition. Cartels exist openly in many places and covertly almost everywhere. The line between a cartel and a more legitimate joint trading or marketing venture can be a fine one, and cartels take many forms: production quotas, price fixing, import/export quotas. Even mechanisms as benign-sounding as product standards or “best price” agreements can be used to keep out new rivals. Some cartels operate inside a single nation; others span international markets. DeBeers controlled the diamond market for decades, and saw its hold loosened only by outside forces, including new competitors and determined prosecutors. More recently, charges or disputes about cartels have involved everything from potash mines in Belarus to currency traders’ chatrooms in cyberspace, minor league baseball contracts and foreign car dealerships in China. And then there’s OPEC, the 800-pound gorilla of the cartel world.

In July, the European Union announced record fines of 2.93 billion euros ($3.23 billion) against Daimler, DAF and other truckmakers for fixing prices of medium- and heavy-duty vehicles over 14 years. In 2015, five banks paid about $9 billion in fines to U.S. and European regulators after revelations that traders manipulated prices in the $5.3-trillion-a-day foreign-exchange market using instant message groups whose names included “The Cartel.” Six banks had already been fined 1.7 billion euros ($2.3 billion) by the European Union over collusion over the Libor benchmarks used to set interest rates. Since 2014, Saudi Arabia and other key members of the Organization of Petroleum Exporting States have showed three things: how far a determined cartel can swing a market, that cartels sometimes want to drive prices down as well as up and that even within cartels there are losers as well as winners. Determined to recapture market share being lost to new sources, including oil from shale, Saudi Arabia and other Arab producers opened the taps, sending oil prices down 46 percent by the end of the year. Among those hurt were OPEC members Iran and Venezuela — and Saudi Arabia, which in September 2016 agreed to a deal to limit output after its budget deficits soared.