Legal Definitions - cartel

A cartel is a group of independent businesses or entities that secretly agree to cooperate rather than compete with each other. Their goal is to manipulate market conditions to their advantage, typically by controlling prices, limiting production, or dividing up customers or territories. This type of collusion is illegal because it stifles fair competition, harms consumers, and prevents other businesses from entering the market.

Common activities undertaken by cartels include:

• Price Fixing: Agreeing on a minimum price for goods or services, preventing genuine price competition.
• Bid Rigging: Conspiring to decide in advance which company will win a contract by submitting the lowest bid, often for government or large private projects.
• Market Allocation: Dividing up customers, geographic regions, or types of products among themselves, so each member has a guaranteed share without competition.
• Production Control: Limiting the supply of a product or service to drive up its price artificially.

Cartels are strictly prohibited under antitrust laws in many countries, including the United States, due to their detrimental impact on free markets and consumers. Businesses and individuals involved in cartel activities can face severe penalties, including substantial fines and imprisonment.

Here are a few examples to illustrate how cartels operate:

• Example 1: Airline Price Fixing

  Imagine a scenario where the three largest airlines operating flights between two major cities secretly meet and agree that none of them will offer tickets below a certain price point for a popular route. By doing this, they eliminate price competition among themselves. Travelers wishing to fly this route would have no choice but to pay the artificially inflated price, as all major carriers are charging similar rates due to the cartel's agreement, rather than market forces.

  This illustrates a cartel engaged in price fixing, where independent companies conspire to control the cost of a service, directly harming consumers by removing competitive pricing options.

• Example 2: Construction Bid Rigging

  Consider a situation where several independent construction companies regularly bid on large public infrastructure projects, such as building new highways or bridges for a state government. Instead of competing fairly, these companies secretly agree among themselves which company will submit the winning bid for each upcoming project. They might take turns, or one company might submit a deliberately high bid to ensure another company wins. This allows them to secure contracts at higher prices than they would in a truly competitive environment, ultimately costing taxpayers more money.

  This example demonstrates bid rigging and market allocation, as the companies collude to predetermine contract winners and divide up the available work, bypassing fair competition.

• Example 3: Industrial Chemical Production Control

  Suppose there are only a handful of global manufacturers for a specialized industrial chemical essential for many manufacturing processes. These manufacturers secretly agree to limit the amount of chemical they produce and sell each quarter. By restricting the overall supply available in the market, they can drive up the price of the chemical significantly. Businesses that rely on this chemical for their products are forced to pay these elevated prices, increasing their costs and potentially impacting the prices of their own goods.

  This scenario highlights a cartel's use of production control to manipulate supply and demand, thereby artificially inflating prices and generating excessive profits at the expense of other businesses and, ultimately, consumers.