Definitions

What is Drug Cartel Characteristics and objectives

Cartel

A cartel is a union of a number of companies that agree to cooperate to limit competition and increase their profits. Usually, when they unite and control the market, they agree to set prices, control production, allocate territories and prevent the entry of new competitors in the market. In this article we will provide you the information about the Drug Cartel.

A cartel is like a secret group of companies that agree to work together and not compete with each other. They do this so they can control the market and make sure they make more money. This means they can set higher prices for consumers and limit the number of products sold.

Cartels often operate in oligopolistic markets , in which a small number of companies dominate the market and have great market power. In these markets, cartel members may agree to limit production or set higher prices to increase their profits.

Cartels are illegal in most countries because they limit competition and can increase prices to consumers. Governments and antitrust authorities often take steps to investigate and penalize cartels to protect consumers and promote fair competition in the marketplace. However, there are other legal cartels, such as the Organization of Petroleum Producing Countries (OPEC), which, for various reasons, are allowed and their operation is legal.

Drug cartel

The drug cartel is one of the best-known types of cartel, due to its constant appearance in the press and on television

Although it may seem like a complex organization, and although in practice it is, it is not at all different from the cartels and types of cartels we have seen so far. 

Drug cartels are criminal organizations that, just like in the legal market, come together in the illegal market to control drug trafficking in a city or country. In the same way that occurs with other types of cartels, drug cartels control production, control distribution, and fully control the value chain, therefore they also control prices, among other issues. 

Just as OPEC does with oil, the drug cartels do with drugs. By controlling the drug market and the value chain, from beginning to end, they can control prices, making sure that they do not fall and their profits are reduced in a market of free competition.

Cartel examples

There are many examples in history, as well as current ones, of cartels that have operated throughout the world. Most have been convicted or sanctioned, but some are known to the general public and continue to operate as legal cartels. 

Here are some examples of cartels:

  • Oil Cartels – One of the best known cartels is the Organization of the Petroleum Exporting Countries (OPEC), which was formed in 1960 to coordinate the oil policy of its members and stabilize oil prices on the world market.
  • Drug Cartels – Drug cartels, such as the Sinaloa cartel in Mexico, are organizations that control the production, trafficking, and distribution of illicit drugs throughout the world.
  • Cement cartels : Several cement cartels have been exposed around the world, such as the cement cartel in Spain, which was uncovered in 1991 and led to the conviction of several companies and executives.
  • Electronics cartels – Several electronics cartels have been uncovered around the world, such as the computer monitor cartel, in which various companies agreed to fix prices and limit production of computer monitors.
  • Construction cartels – Various construction cartels have been uncovered around the world, such as the construction cartel in Germany, in which various companies agreed to fix prices and allocate construction projects among themselves.
  • Automotive industry cartels : In 2016, a cartel of truck manufacturers in Europe including DAF, Daimler, Iveco, MAN, Scania and Volvo/Renault was uncovered. These companies agreed to fix prices and delay the implementation of new technologies.
  • Food industry cartels : In 2010, several poultry companies in the US were found to have conspired to limit production and fix prices. In another example, chocolate companies in Canada were found to have conspired to fix prices in the 1990s.
  • Air transport cartels : In 2016, the European Commission fined several airlines, including Air France-KLM, British Airways and Lufthansa, for their participation in an air cargo cartel. The airlines agreed to fix prices and coordinate their commercial activity.
  • Energy cartels : In 2010, it was discovered that several electric power companies in South Korea had conspired to limit the supply of electricity and fix prices.

Characteristics of a drug cartel

Next, let’s see the main characteristics of a cartel, in order to better understand the concept.

The main characteristics of a cartel are the following:

  • They are a group of companies that cooperate : The companies that are part of the cartel agree to cooperate with each other to limit competition and increase their profits.
  • They maintain secret agreements : The members of the cartel agree in secret to fix prices, control production, allocate market territories and prevent the entry of new competitors in the market.
  • Their objective is to control the market : The members of the cartel have great market power, which allows them to control production and set prices in the market.
  • In addition to increasing your profits : The consequence of controlling the market is to increase the profits of its members, which often implies setting higher prices for consumers.
  • They are usually illegal : In most countries, cartels are illegal because they limit competition and can result in higher prices for consumers.
  • They are sanctioned by governments and authorities : Governments and antitrust authorities often take steps to investigate and sanction cartels to protect consumers and promote fair competition in the marketplace.

What are the objectives of a cartel?

The main objective of a cartel is to increase the profits of its members. Cartel members work together to limit competition and control the market, which allows them to set higher prices and make more profit from it.

To achieve this objective, the cartels agree on a series of measures, such as setting prices, controlling production, assigning territories or preventing the entry of new competitors in the market. These measures, given that they give them full market power, result in higher prices for consumers and an inefficient allocation of resources, since companies are not competing on equal terms within the market.

However, it is important to keep in mind that the formation of a cartel is not always illegal or necessarily negative, as we said before. 

Some cartels may work to stabilize prices and avoid volatility in the markets, which can be beneficial to both producers and consumers. For example, the Organization of the Petroleum Exporting Countries (OPEC) is a cartel that works to regulate oil production and stabilize crude oil prices.

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