ROME, July 17 — The word itself comes from the Italian cartello, a leaf of paper or placard. That linguistic root, from Latin charta, is a reminder that a cartel begins as a written arrangement. The mechanics, however, have always been about something far more concrete: controlling supply to fix price.
A cartel is a group of independent market participants that colludes to avoid competition. The aim is straightforward—improve profits and dominate a market.
The method is equally blunt: limit competition, fix prices, and create artificial shortages through low production quotas, stockpiling, and marketing quotas. The catch is that jurisdictions frequently consider this anti-competitive behavior, outlawing or curtailing such practices through antitrust law. The economic doctrine that analyzes these arrangements is cartel theory.
Cartels are distinct from other forms of collusion, such as corporate mergers. On closer reading of the history, the inherent instability of these arrangements becomes clear.
Members face a constant temptation to cheat and defect, which can lead to falling prices. Advancements in technology or the emergence of substitutes can also undermine cartel pricing power, causing cooperation to break down. Outside actors, facing undersupply, often respond by bolstering production, investing in more efficient technologies, or developing substitutes.
From War to Markets
The term’s journey into economics is instructive. From the 1690s onward, “cartel” was used in English for written agreements between warring nations on the treatment of prisoners. By 1899, it had generalized to intergovernmental agreements between rival nations.
The use for economic groups derived in the 1800s from the German Kartell, first used between German railway companies in 1846 for tariff and technical standardization. The first reference specifically to restriction of competition came from Austro-Hungarian political scientist Lorenz von Stein, who wrote on tariff cartels.
Cartels are not a modern invention. They have existed since ancient times. Guilds in the European Middle Ages were cartel-like in their function.
Tightly organized sales cartels operated in the late Middle Ages mining sector. The 1301 salt syndicate in France and Naples, and the 1470 Alaun cartel between the Papal State and Naples, both featured common sales organizations called Societas Communis Vendicionis—the Common Sales Society.
The Lands of the Cartels
Laissez-faire conditions dominated the 18th and 19th centuries. Around 1870, cartels appeared in formerly free-market industries. The core area was central Europe; the German Empire and Austria-Hungary were nicknamed “lands of the cartels.” Cartels were also widespread in the United States.
The United States Gunpowder Trade Association, a national cartel, was dissolved by U.S. courts in 1912. Today, cartels can be international or national.
The most prominent international example remains OPEC, which colludes on oil production. The International Rubber Regulation Agreement is another historical case. On the national level, the NCAA restricts athlete compensation, a practice that fits the cartel definition of limiting competition among its members.
The tension is structural. The goal of higher profits through coordinated action is permanent.
The temptation for individual members to break ranks and capture more market share is equally permanent. Follow the money, and the story of every cartel is the same: a fight between collective discipline and individual greed. The question for regulators and markets is always when, not if, that fight will break the arrangement.
