Republic of the Philippines

Commission on Higher Education

Don Honorio Ventura State University
Candaba, Pampanga

College of Business Studies

CASE ANALYSIS
International Action Against Cartels

Submitted to:

Mr. RANIEL S. BONDOC, MBA

Instructor

Submitted by:
Jolina L. Taruc
 July 11, 2021
2nd Semester, S.Y. 2020-2021

I. INTRODUCTION

An international cartel is an arrangement to avoid some or all forms of competition, the parties to
which are business enterprises domiciled under more than one government and trading across
national frontiers. Such a cartel may include the major enterprises which operate in a given
industrial field throughout the world. But international cartels can operate upon a regional
instead of a world-wide scale. Such a restricted cartel is possible if the areas which it does not
dominate do not export the cartelized commodity or if the area included in the cartel is protected
against outside competition by natural or governmental barriers. Moreover, concerns which sell
throughout the world sometimes agree to limit their cartel activities to a region in which their
interests can be reconciled while they continue to compete in other regions.

Before 1945 most of the world thought that cartels brought widespread benefits. Backed by U.S.
economic might, after 1945 antitrust ideas spread across the world so that now Adam Smith’s
devastating verdict of them as “conspiracies against the public” has become the prevailing
interpretation. Business historians have shown, however, that this consensus about cartels as
conspiracy is historically the exception to the rule, a product of a post-1945 constellation of ideas
and events. Cartels are not necessarily the opposite of liberalism and competition, but a variation
on them. For better or for worse, they shaped economic and business history since the late 19th
century. From the company perspective, joining, managing, or combating cartels was a major
entrepreneurial act. Finally, business historians have shown the varied effects and services
provided by cartels (quality standards, technology transfers, or risk management) that extend
beyond the conspiratorial motivation to raise prices.

International cartel agreements, normally among firms enjoying monopoly positions in their own
countries, were first concluded in the period between World Wars I and II. Most such cartels,
especially those in which German firms were partners, were dissolved during World War II, but
some continued to exist. Later, some steps were taken in the chemical and allied fields to revive
some of the old cartel agreements. One cartel, the Organizational of Petroleum Exporting
Countries (OPEC), has endured as a powerful global entity. Formed in the 1960s, OPEC became
very effective in the 1970s, when it almost quadrupled the price of oil. Although the agreements
among its members have broken down from time to time, few economists dispute that OPEC
remains an effective cartel, as it controls the supply and charges, at times, more than double what
economists believe to be the competitive price of oil. Its longevity may stem from the fact that
OPEC is a combination of governments rather than corporations.

II. STATEMENT OF THE PROBLEM

[Link] is 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 order 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 can fix prices for the goods they produce and the services
they render, without competition. And it is a collection of independent businesses
or organizations that collude in order to manipulate the price of a product or
service. Cartels are competitors in the same industry and seek to reduce that
competition by controlling the price in agreement with one another. Tactics used
by cartels include reduction of supply, price-fixing, collusive bidding, and market
carving. In the majority of regions, cartels are considered illegal and promoters of
anti-competitive [Link] actions of cartels hurt consumers primarily through
increased prices and lack of transparency.

1.1 Who organize a Cartel

 A group of producer of good or service

The Organization of Petroleum Exporting Countries (OPEC) is the world's largest cartel. It is a

group 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 U.S. foreign trade laws protect it.
Amid the 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.

2. What are the effect of Cartel, in the Economy, to the market, and to consumers?

Cartels harm consumers and have pernicious effects on economic efficiency. A successful cartel
raises price above the competitive level and reduces output. Consumers choose either not to pay
the higher price for some or all of the cartelized product that they desire, thus forgoing the
product, or they pay the cartel price and thereby unknowingly transfer wealth to the cartel
operators. Further, a cartel shelters its members from full exposure to market forces, reducing
pressures on them to control costs and to innovate. All of these effects adversely affect efficiency
in a market economy.

It is not easy to quantify these effects, however. It would require comparison of the actual market
situation under the cartel to that which would exist in a hypothetical competitive market.
Competition officials usually do not undertake to make such a calculation, both because it is
difficult to do and because their laws usually do not require it. When an estimate of harm is
necessary, however, most officials employ a proxy, which is the unlawful gain accruing to the
cartel members from their activity. In its simplest form, this estimation is the product of the
cartel “mark-up” above the competitive price and the commerce affected (in units) by the cartel
agreement. Even this calculation can be difficult, as it requires an assessment both of the amount
of “affected commerce” and of what the “competitive” price would have been absent the
agreement.

3. Is Cartel, Legal or illegal?

Cartel is Illegal, because the Competition and Consumer Act not only prohibits cartels under
civil law, but makes it a criminal offence for businesses and individuals to participate in a cartel.
Cartels are immoral and illegal because they not only cheat consumers and other businesses, they
also restrict healthy economic growth by:

 increasing prices for consumers and businesses through artificially inflating input and
capital costs across the supply chain, including the cost of buildings and equipment rent,
interest and decreased opportunities over the life of an asset
  reducing innovation and choices by protecting their own inefficient members who no
longer have to compete so don’t bother to invest in research and development
 reducing investment by blocking new industry entrants that might invest in opportunities,
economic growth and jobs
 locking up resources because they interfere with normal supply and demand forces and
can effectively lock out other operators from access to resources and distribution
channels
 destroying other businesses by controlling markets and restricting goods and services to
the point where honest and well-run companies cannot survive
 destroying consumer confidence in an entire industry sector, including creating negative
consumer sentiment towards law-abiding businesses that are not involved in cartel
conduct.
 increasing taxes and reducing services by targeting the public sector and extracting extra
costs paid for by all consumers through rates and taxes
 decreasing infrastructure by rigging bids in public infrastructure projects which inflates
costs and ultimately reduces the public sector capacity to invest in beneficial projects.

III. RESOLUTION / RECOMMENDATION

 In this case study, Cartels has a big impact in our economy. It can affect the status of
every country that Cartels involved. Because cartel can destroy businesses and increasing
prices for consumers. That’s why in this study most developed free-market economies
restrictions exist to prevent cartels, groups of otherwise independent businesses that
collaborate to lessen or prevent competition.
 Also identifying the cartel, because the foremost step in breaking the cartel is to identify
the cartel to know the suspicious things.

 Approach the Government bodies to help each individual to battle illegal corporate

activity of cartel

IV. COURSES OF ACTION

Identifying and breaking up cartels is an important part of the competition policy in most
countries. And if the supplier is offering inconsistent prices, suspiciously high prices or there is a
huge difference in price of winning bid and other bids, surprisingly similar prices between bids,
fewer bids for a particular market or suspicious subcontracting agreements, then it should trigger
an alarm for you. Also the Governmental bodies have committed substantial amounts of time and
resources to battle illegal corporate activity to help every individual affects of cartel to make sure
the rights of every individual. Sophisticated regulatory schemes exist in most developed nations
to catch price fixing and antitrust behaviour in its infancy. Furthermore, the global marketplace
has been transformed by industry-wide codes of conduct and corporate ethical guidelines, which
can be found in almost every annual report. And yet, one only needs to follow the news to
recognize that illegal corporate activity, including cartels, still frequently occurs. 

V. CONCLUSION

 Cartels operate at a detriment to the consumer in that their activities aim to increase the
price of a product or service over the market price. Their behavior, however, is also
adversely impactful in other ways. Cartels discourage new entrants into the market,
acting as a barrier to entry. Lack of competition due to price-fixing agreements lead to a
lack of innovation. Cartel brings no good to the economy because it is how to manipulate
prices or to control the supply..
REFERENCES:

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