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What is a 'Cartel'

A cartel is an organization created from a formal agreement between a group of producers of a good or service to regulate supply in an effort to regulate or manipulate prices. In other words, a cartel is a collection of otherwise independent businesses or countries that act together as if they were a single producer and thus are able to fix prices for the goods they produce and the services they render without competition.

BREAKING DOWN 'Cartel'

A cartel has less command over an industry than a monopoly — a situation where a single group or company owns all or nearly all of a given product or service's market. Some cartels are formed to influence the price of legally traded goods and services, while others exist in illegal industries, such as drugs. In the United States, virtually all cartels, regardless of their line of business, are illegal by virtue of American anti-trust laws.

Cartels have a negative effect for consumers because their existence results in higher prices and restricted supply. The Organization for Economic Cooperation and Development (OECD) has made the detection and prosecution of cartels one of its priority policy objectives. In so doing, it has identified four major categories that define how cartels conduct themselves: price fixing, output restrictions, market allocation and bid rigging (the submission of collusive tenders).

The World's Biggest Cartel

The Organization of Petroleum Exporting Countries (OPEC) is the world's largest cartel. It is a grouping of 14 oil-producing countries whose mission is to coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets. OPEC's activities are legal because it is protected by U.S. foreign trade laws.

Amid controversy in the mid-2000s, concerns over retaliation and potential negative effects on U.S. businesses led to the blocking of the U.S. Congress attempt to penalize OPEC as an illegal cartel. Despite the fact that OPEC is considered by most to be a cartel, members of OPEC have maintained it is not a cartel at all but rather an international organization with a legal, permanent and necessary mission.

Illegal Activities

Drug trafficking organizations, especially in South America, are often referred to as "drug cartels." These organizations do meet the technical definition of being cartels. They are loosely affiliated groups who set rules among themselves to control the price and supply of a good, namely illegal drugs.

The best-known example of this is the Medellin Cartel, which was headed by Pablo Escobar in the 1980s until his death in 1993. The cartel famously trafficked large amounts of cocaine into the United States and was known for its violent methods.

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