Cartels and Economic Collusion

Cartels and Economic Collusion

The Persistence of Corporate Conspiracies

Michael A. Utton

Adam Smith warned of the prevalence of corporate conspiracies more than two hundred years ago. Since then, interest in cartels has sometimes intensified (during the Great Depression, for example) and sometimes diminished, but the need for control has always remained on the antitrust agenda. This well-documented book reviews the economic case against corporate collusion, as well as the arguments made for a more permissive attitude.

Chapter 3: The Persistence of Cartels

Michael A. Utton

Subjects: economics and finance, competition policy, industrial economics

Extract

I. INTRODUCTION Although there were a number of famous international cartels before the First World War, it is generally agreed that they reached a peak in the inter-war period. Before we embark on our discussion of more recent developments it is instructive, therefore, to review briefly a period when collusion was widely seen as an almost natural part of the economic landscape. Instead of being viewed as a distortion of competition, which could lead to inefficiency, cartels were regarded in many quarters as a rational means of organising production to ensure that markets could clear in an orderly fashion with the minimum of waste and dislocation. Such arguments gained force in the 1930s with the onset and deepening of the world depression, when more and more governments either actively encouraged or even compelled firms to join national cartels, which could then negotiate internationally to divide up the world market. The extent and scope of cartels in this period was formidable. The range of products and the number of countries involved were probably greater than at any time before or since. What was also remarkable was the ingenuity of businessmen in devising schemes of control designed to fashion market structures to their advantage. In order to achieve their central purpose of obtaining monopoly rents by restricting output, an elaborate range of conditions was often contrived to ensure that prices were maintained. Outputs would be allocated between firms and between regions or countries, export quotas were fixed, restrictive cross-licensing of patents was...

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