What conditions facilitate the formation of a cartel?
Cartels will generally form when a limited resource – whether that is oil, or protected intellectual property – is controlled by a few. There is no fixed definition of ‘a few’, except that it will be more than one (usually more than 2) and less than many. The most well known cartel, Organisation of Petroleum Exporting Countries (OPEC) has around 15 members, but can be much fewer. In Australia, 2 dominant grocery chains have been accused of cartel behaviour. The key with cartel formation will be incentives to co-operate, rather than compete. OPEC frequently agrees production levels to which all members must adhere; this allows them to control pricing and ensure that one single supplier does not flood a market with cheap oil. This keeps profits high for all members. However, the other key will be transparency – for a cartel to be effective, the action of individual members must be visible to the rest, or else they can cheat. Venezuela left OPEC (since rejoined) some years ago because it
