Cartel

A cartel is a group of companies or countries that attempt to restrict the supply of a commodity in order to increase its price. This arrangement works best when the entities involved control the majority of the commodity in question. When operated properly, a cartel arrangement should result in prices above what the market price would otherwise have been, yielding above-average profits for its members.

Cartels are usually illegal when the arrangements are among companies, due to the passage of antitrust laws in many countries. This does not prevent cartels from being formed illegally, typically through informal arrangements between firms that are difficult to prove.

Cartels are not so avoidable when the arrangements exist at the country level. For example, the Organization of Petroleum Exporting Countries (OPEC) is a cartel that has been attempting to restrict the oil output of its member nations for many years.

Cartel arrangements can break down when members attempt to sell increased quantities of goods at the higher price points established by the cartel. This is most likely to happen when a member is in financial difficulties and needs to generate extra profits. For example, some OPEC member countries have difficulty balancing their budgets, and so resort to additional oil sales in order to increase their profits, despite the restrictions imposed on they by OPEC.