Role of Public and Private Cartels - Essay Example

Cartel It is notably clear that the modern world economy is to the influence of globalization, technological advances, new market strategies, and business aspects. Individuals and corporations are using all means to establish a competitive advantage with a view of surviving and enjoy maximum returns. A cartel is one of means that individuals and corporates use to gain competitive market advantage. A cartel refers to an association or formal agreement between manufacturers, suppliers, businesses, or countries (“Office of Fair Trading” 1) to cease competition between them and regulate supply, production, and marketing (“Investopedia” 1) with a view of inflating prices and eliminating competition. A cartel includes a secretive agreement between competing parties on total industry output levels, price fixing, credit conditions, and division of profits, bid rigging, discounts, customers, and areas to receive the supply, market shares, and/or businesses to win contracts (“Office of Fair Trading” 1). The main objectives of a cartel agreement are to inflate prices, increase individual profitability, and reduce competition in the industry. Cartels have adverse effects on the industry as they reduce choices, inflate market prices, and inhibit the overall economy (“Australian Competition and Consumer Commission” 1). As such, cartels are illegal in most countries and take place in secrecy where it is not easy to establish their existence. However, a cartel has less influence on an industry than a monopoly. A cartel can be local, national or international where ion the recent times cartels steal billions of dollars from the vulnerable customers every year (“Australian Competition and Consumer Commission” 1). We can classify cartels into public and private cartels. The government takes place in a public cartel where it implements the cartel agreement and defends the cartel from any liability as it seeks to benefits all the citizens. On the other hand, a private cartel is illegal under the antitrust laws as it seeks to benefit only the parties in the cartel agreement to the disadvantage of everybody else. As such, the Competition Act, Article 101 TFEU of the EC Treaty, the Enterprise Act (“Office of Fair Trading” 1), and EU competition law prohibit cartels that allows for price fixing, market sharing, limitation of production or supply or bid rigging (“European Commission” 1). Nevertheless, we still have cartels in the world, which include the controversial Organization of Petroleum Exporting Countries (OPEC), which is the world's largest cartel under the protection of U.S. foreign trade laws. As such, based on my understanding of a cartel, we can experience a cartel in different industries. This is because cartels can actually occur in almost any industry where it involves good or services at the manufacturing, distribution, or marketing levels. However, some industries are more prone to cartels compared to others because of their mode of operations or their organizational structure. Ideally, industries with few competitors, where the products have similar characteristics, where communication channels between competitors are already established, or where the industry is suffering from over supply are prone to cartels (“Office of Fair Trading” 1). More specifically, cartels usually take place in an oligopolistic industry where there are few sellers, barriers to entry, and homogeneous products. Like in most European nations, cartels are illegal in the United States of America. However, although many consider the Organization of Petroleum Exporting Countries (OPEC)as a cartel, the U.S. foreign trade laws protects it claiming it is an global organization with a legal, long-term, and significant objective. Nevertheless, cartels like drug cartels and all naked cartels are illegal in U.S. Notably, various agencies and legislations like the Competition and Consumer Act prohibits cartels under civil law and makes it a criminal offence for individuals and corporations to engage in cartels in U.S. This is because cartels are unethical as they steal from consumers and other businesses as well as limiting economic growth. They also reduce innovations and choices in the industry as they protect their members who no longer invest in research, technology, and innovations (“Australian Competition and Consumer Commission” 1). The cartels hinder the normal supply and demand forces thus limiting our access to resources and distribution channels, which limits fair competition in the market. They equally destroy consumer confidence in the industry since they steal from the customers that generate mistrust on the entire market. The rigging of bids in public infrastructure projects inhibits infrastructure in U.S and leads to decreased capacity of the public to engage in beneficial projects (“Australian Competition and Consumer Commission” 1). The cartels lead to inflated prices for consumers and other businesses thus limiting the purchasing power and fair competition. Moreover, cartels are illegal in U.S because they reduce investments as they hinder entry into the industry thus inhibiting economic growth, employment opportunities, and investment opportunities. They also have a resultant effect of destroying other legitimate businesses, which cannot survive under an environment controlled by cartels. Ultimately, cartels lead to an increase in taxes, rates, and reducing service delivery as there are controls to supply and access to such services and hence their illegality in U.S (“Australian Competition and Consumer Commission” 1). Cartels can significantly manipulate markets. Cartels have the capacity to manipulate markets since they control the production, distribution, and marketing of products in the market. For instance, big banks and government agencies can make a cartel agreement with an aim of manipulating commodities prices (“Global Research” 1). They will achieve this by taking over important aspects of the physical economy in the energy sector where they control the mining, transportation, and ownership of such physical aspects. The big banks are rigging currency markets and interest rates of the pegged assets thus inflating their prices (“Global Research” 1). They also manipulate markets by manipulating derivatives through gamed self-reporting. Cartels manipulate the markets of gold and silver by charging storage fees to store inexistent gold and raiding allocated gold accounts thus fixing their prices. They also use high technologies to manipulate stocks, commodities, choices, and bonds (“Global Research” 1). Cartels use gaming laws to cheat homeowners and charging veterans unlawful mortgage fees thus manipulating the financial markets. They can also push terrible investments and bet against them for purposes of drawing huge returns. Ultimately, big banks can act as cartels where they bribe and bully ratings agencies to inflate ratings on their risky investments thus manipulating the financial markets (“Global Research” 1). As such, cartels can manipulate any market. Works Cited “Australian Competition and Consumer Commission.” Cartels. 2013. 24 October 2013. “European Commission.” Cartels. 2013. 24 October 2013. “Global Research.” Big Banks Manipulated Energy Markets In California and the Midwest … Ripping Off Tens of Millions of Dollars in 9 Months. July 30, 2013. 24 October 2013. “Investopedia.” Cartel. 2013. 24 October 2013. “Office of Fair Trading.” What is a cartel? 2013. 24 October 2013. Read More