Cartel Agreements Tend To Break Down

Hüschelrath, K., Veith, T. Kartellbildung, Breakdown of cartels and price behaviour: evidence from the German cement industry. J Ind Compet Trade 16, 81-100 (2016). doi.org/10.1007/s10842-015-0204-x In principle, it is also possible that non-members of the agreement suffered from the agreement (for example. B if the agreement successfully imposed exclusionary practices). See Friederiszick and Röller (2010) for a general discussion and Scott Morton (1997) for empirical evidence. High prices also encourage consumers to look for substitutes. In 1975, when the CIPEC copper cartel attempted to raise prices by limiting exports, producers moved to aluminum, which eventually led to the organization`s downfall. However, a short-term shortage of substitutes is not enough to ensure permanent antitrust power when consumers can find an offer elsewhere or reduce consumption. After OPEC raised oil prices in the 1970s, consumers saved oil and began importing from countries like Britain. One of the mechanisms used by cartels to influence prices is the clearing warehouse in which members commit to buying and selling a product at predefined price levels.

Due to long investment times, markets can stay out of the agreed balance for a long time. If prices are permanently below the support margin, a stabilization of buffer stocks around the so-called long-term price can be financially painful. The tin market is a clear example of this. In the 1970s, the Support Margin of the International Tin Council pushed up the market price and forced it to a very high stabilization margin when the market collapsed in the early 1980s due to the recession. At the same time, the U.S. pulled out of ITC, withdrew the financing needed to buy back the surplus tin, and forced it into a series of complex futures transactions that seriously overexcited it. . . .

Comments are closed.