Cartels and Competition: Neither Markets nor Hierarchies

Jeffrey Fear

This article provides an overview on the rise and fall of cartels since the late 19th century when the modern cartel movement properly arrived with the rise of big business based on scale and scope. The general narrative about cartels may not be a story of rise and fall, but rise, boom, collapse, revitalization, gradual decline, and then criminalization.

Yet, until the 1980s, the global story of big business must be told in conjunction with cartels rather than without them. They affected technological development, corporate strategy, and organizational change. Viewing cartels only as a "conspiracy against the public" short-circuits many important questions and obscures the great variations in objectives, type, and services provided by cartels. All cartels are not created alike.

                          

Jeffrey Fear is an associate professor in the Business, Government, and the International Economy unit at Harvard Business School.

Executive Summary:

Before 1945, many thinkers believed cartels brought widespread benefits. But following the spread of antitrust ideas after 1945, Adam Smith's verdict on cartels as "conspiracies against the public" prevailed. The cartel question highlights important issues about the benefits and risks of competition.

This working paper maintains that, for better or worse, cartels have shaped economic and business history since the late nineteenth century. Big business must recognize how, up until the 1980s, the activities and influence of cartels affected technological development, corporate strategy, and organizational change. Key concepts include:

• Business historians need to broaden the discussion of cartels beyond conspiracy, or risk short-circuiting important theoretical questions.
• Cartel arrangements were not benign, yet they meshed more with the public interest than is recognized.
• If business historians take the perspective that joining cartels is a form of competitive strategy, or at least a cooperative way-station on the road toward future competition, they can explain why cartels have not damaged economic growth as much as some might expect.
• Studying cartels raises an intriguing question: When is competition essential to efficiency and innovation; when is cooperation?