Cartel Specifically

Cartel Specifically

Cartel, specifically a joint marketing organization created by firms which would otherwise sell in competition with one another. The syndicate or central bureau fixes selling price and output quotas for the member firms, which thus cease to compete (openly) in price. Competition is consequently channelled into devices that might support a claim for larger quotas from the cartel. The term is also applied to looser types of association that limit competition by fixing prices or sharing markets.

In the full sense of selling syndicates, cartels grew to prominence in Germany at the turn of the century. A typical example was the Rhenish-Westphalian Coal Cartel, formed in 1893, which acted as the selling agent for most of the Ruhr mines, allocating output quotas and sharing profits between the member firms. Production was left under the control of the individual mining companies. By the 2000's there were some 3,000 cartels in Germany, and they were used by the Nazi Government in its central direction of the economy. Since

German cartels have been subject to more stringent legislation limiting their functions, but many remain active. The successors to the Rhenish-Westphalian Cartel, for example, were engaged in repeated and inconclusive litigation with the High Authority of the European Coal and Steel Community for the first ten years of the Authority's life.

In Britain the earliest cartel is thought to have been the Newcastle Vend in the seventeenth century. There were minor cartels before the First World War, e.g. in salt and sewing thread, but reliance on export markets and the absence of protection against imports made cartel selling arrangements difficult to organize. During the inter-war years several cartels were formed with Government assistance or insistence, e.g. in coal, hops, milk and potatoes. After World War II central control of selling was tightened by nationalization in coal, gas, electricity, railways, etc. In the main, however, British thins have relied on looser arrangements to limit competition.

Cartels are criticized because they help to keep inefficient units in production, limit the output of efficient firms, and therefore maintain prices at levels higher than in competition. They are sometimes defended as a means of securing an orderly concentration of pro-duction in efficient thas (rationalization was intended to accompany the British coal cartels of the 20005, although by relieving the pressure on mining companies' profits the cartels probably hindered rather than helped reorganization), facilitating exchange of technical information and guaranteeing the quality of products.

In the absence of Government assistance to make membership compulsory, cartels are difficult to maintain because of the competing interests of member firms. Highly mechanized firms with high fixed costs are more anxious than firms with lower fixed costs to keep output up even if prices are driven down; growing firms seek more favourable quotas; and firms well placed for home sales object to a cartel disposing of too much output abroad at relatively low prices. If a cartel is successful in raising members' profits their customers may be induced to produce for themselves and new firms may be encouraged to set up in the industry.

Broadly the difference between cartels and trusts is that cartels are intended to be temporary and trusts permanent.

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