Hmmm....how benign are cartels really, how do they impact pricing of products, and are there some case studies concerning to cartels to consider?
Cartel from Wikipedia
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A cartel is a formal (explicit) agreement among competing firms. It is a formal organization of producers that agree to coordinate prices,.[1] Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve homogeneous products. Cartel members may agree on such matters as price fixing, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, and the division of profits or combination of these. The aim of such collusion (also called the cartel agreement) is to increase individual members' profits by reducing competition.
OPEC as described by Wikipedia
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The Organization of the Petroleum Exporting Countries (OPEC, pronounced /ˈoʊpɛk/ OH-pek) is a cartel of twelve countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965,[2] and hosts regular meetings among the oil ministers of its Member Countries. Indonesia withdrew in 2008 after it became a net importer of oil, but stated it would likely return if it became a net exporter in the world again.[3]
According to its statutes, one of the principal goals is the determination of the best means for safeguarding the cartel's interests, individually and collectively. It also pursues ways and means of ensuring the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations; giving due regard at all times to the interests of the producing nations and to the necessity of securing a steady income to the producing countries; an efficient and regular supply of petroleum to consuming nations, and a fair return on their capital to those investing in the petroleum industry.[4]
OPEC's website.
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Striving for Stability in Global Energy Markets
OPEC from EIA (accessed 4/21/2010)
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Based on projections from the EIA April 2010 Short-Term Energy Outlook (STEO), members of the Organization of the Petroleum Exporting Countries (OPEC) could earn $769 billion of net oil export revenues in 2010 and $828 billion in 2011. Last year, OPEC earned $573 billion in net oil export revenues, a 41 percent decrease from 2008. Saudi Arabia earned the largest share of these earnings, $154 billion, representing 27 percent of total OPEC revenues. On a per-capita basis, OPEC net oil export earning reached $1,554 in 2009, a 42 percent decrease from 2008.
Standard Oil from Wikipedia
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Standard Oil was a predominant American integrated oil producing, transporting, refining, and marketing company. Established in 1870 as an Ohio corporation, it was the largest oil refiner in the world[3] and operated as a major company trust and was one of the world's first and largest multinational corporations until it was broken up by the United States Supreme Court in 1911. John D. Rockefeller was a founder, chairman and major shareholder, and the company made him the richest man in modern history.
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In response to state laws trying to limit the scale of companies, Rockefeller and his associates developed innovative ways of organizing, to effectively manage their fast growing enterprise. In 1882, they combined their disparate companies, spread across dozens of states, under a single group of trustees. By a secret agreement, the existing thirty-seven stockholders conveyed their shares "in trust" to nine Trustees: John and William Rockefeller, Oliver H. Payne, Charles Pratt, Henry Flagler, John D. Archbold, William G. Warden, Jabez Bostwick, and Benjamin Brewster.[7] This organization proved so successful that other giant enterprises adopted this "trust" form.
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In one example of Standard's aggressive practices, a rival oil association tried to build an oil pipeline to overcome Standard's virtual boycott of its competitors. In response, the railroad company at Rockefeller's direction denied the association permission to run the pipeline across railway land,[citation needed] forcing consortium staff to laboriously decant the oil into barrels, carry them over the railway crossing in carts, and pump the oil manually into the pipeline on the other side. When Rockefeller learned of this tactic, he instructed the railway company to park empty rail cars across the line, thereby preventing the carts from crossing his property.[citation needed]
Standard's actions and secret[citation needed] transport deals helped its kerosene price to drop from 58 to 26 cents from 1865 to 1870. Competitors disliked the company's business practices, but consumers liked the lower prices. Standard Oil, being formed well before the discovery of the Spindletop oil field and a demand for oil other than for heat and light, was well placed to control the growth of the oil business. The company was perceived to own and control all aspects of the trade. Oil could not leave the oil field unless Standard Oil agreed to move it:[citation needed] the "posted price" for oil was the price that Standard Oil agents printed on flyers that were nailed to posts in oil producing areas, and producers had no power to negotiate those prices.[citation needed]
Sherman Anti-Trust Act from Wikipedia
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The Sherman Antitrust Act (Sherman Act,[1] July 2, 1890, ch. 647, 26 Stat. 209, 15 U.S.C. § 1–7) requires the United States Federal government to investigate and pursue trusts, companies and organizations suspected of violating the Act. It was the first Federal statute to limit cartels and monopolies, and today still forms the basis for most antitrust litigation by the United States federal government.
