Crisis Cartels: For Better or For Worse?

Lia Vitzilaiou, Mar 30, 2011

Cartels typically involve private agreements that limit quantities sold, thereby effectively raising prices; in turn this transfers income from buyers to sellers and reduces the allocative efficiency of the market mechanism. This market distortion is regarded as so detrimental to the institution of competition and to consumers, that strict enforcement of competition rules against cartels has been a top priority for most competition authorities globally.

The term “crisis cartel” is used in two ways in economic literature. First, it can refer to a cartel that was formed during a severe sectoral, national, or global economic downturn without state permission or legal sanction. A second use of the term “crisis cartel” has been to refer to situations where a government has permitted, even fostered, the formation of a cartel among firms during severe sectoral, national, or global economic downturns, or when national competition law allows for the creation of cartels during such downturns. For antitrust considerations, a crisis is generally defined as a deterioration in economic performance indicators, such as demand, beyond that associated with a typical business cycle downturn. During the last century, such cartels have appeared in times of crisis, with most characteristic examples being the 19th century German crisis, the post-war era Japanese crisis, the U.S. crisis during the great depression of the 1930s, and the East Asian financial crisis in

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