Cartel, << kahr TEHL or KAHR tuhl, >> is an association formed among producers in a particular industry to collude (work together in secret) rather than compete with one another when selling to buyers. Firms in a cartel agree to set the selling price for their goods above what it would be if they were in competition. Thus, firms in a cartel earn higher profits. Because the higher price hurts consumers, however, many governments have made cartels illegal.
To obtain a higher selling price for its product, a cartel limits the output of each member. It also assigns each member a share of the market. The cartel will likely fail if too many members fail to follow these arrangements. Cartels are possible only in industries with a few firms selling a product. In industries with many firms, the firms will be less likely to agree on market shares. It is also more difficult to ensure that many firms are following the cartel agreement. One well-known cartel is the Organization of the Petroleum Exporting Countries (OPEC).
Many cartels existed in the United States in such industries as steel in the 1800’s. The United States and many countries made cartels illegal in the late 1800’s and early 1900’s.
