Decartelization
Encyclopedia
Decartelization is the transition of a national economy from monopoly
control by groups of large businesses, known as cartel
s, to a free market
economy. This change rarely arises naturally, and is generally the result of regulation by a governing body.
A modern example of decartelization is the economic restructuring of Germany
after the fall of the Third Reich in 1945.
To truly understand the term “decartelization” requires familiarity with the term “cartel”. A cartel is a formal (explicit) agreement among firms. Cartels usually occur in an oligopolistic industry, where there are a small number of sellers and usually involve homogeneous products. Cartel members may agree on such matters as price fixing
, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, and the division of profits or combination of these. The aim of such collusion is to increase individual member's profits by reducing competition. Competition laws forbid cartels. Identifying and breaking up cartels is an important part of the competition policy in most countries, although proving the existence of a cartel is rarely easy, as firms are usually not so careless as to put agreements to collude on paper.
In the case with the Third Reich in Germany, the people had no choice. In fact, many people were opposed to the idea of these “cartels” controlling the German economy. During the war, there was a school called Soziate Marktwirtschaft, the "socially conscious free market." Members of this school hated totalitarianism and had propounded their views at some risk during Hitler's regime. Wrote Henry Wallich, "During the Nazi period the school represented a kind of intellectual resistance movement, requiring great personal courage as well as independence of mind." The school's members believed in free markets, along with some slight degree of progression in the income tax system and government action to limit monopoly.
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
control by groups of large businesses, known as cartel
Cartel
A cartel is a formal agreement among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production. Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve homogeneous products...
s, to a free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...
economy. This change rarely arises naturally, and is generally the result of regulation by a governing body.
A modern example of decartelization is the economic restructuring of Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
after the fall of the Third Reich in 1945.
To truly understand the term “decartelization” requires familiarity with the term “cartel”. A cartel is a formal (explicit) agreement among firms. Cartels usually occur in an oligopolistic industry, where there are a small number of sellers and usually involve homogeneous products. Cartel members may agree on such matters as price fixing
Price fixing
Price fixing is an agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand...
, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, and the division of profits or combination of these. The aim of such collusion is to increase individual member's profits by reducing competition. Competition laws forbid cartels. Identifying and breaking up cartels is an important part of the competition policy in most countries, although proving the existence of a cartel is rarely easy, as firms are usually not so careless as to put agreements to collude on paper.
Historical background
Examples of alleged and legal monopolies:- The salt commissionSalt commissionThe Salt Commission was an organization in Tang China used to raise tax revenue from the state monopoly of the salt trade.-History:Following the An Lushan Rebellion revenues from the land tax began to fall. The equal-field system that sustained the land tax was undermined by the aristocracy and...
, a legal monopoly in China formed in 758. - British East India CompanyBritish East India CompanyThe East India Company was an early English joint-stock company that was formed initially for pursuing trade with the East Indies, but that ended up trading mainly with the Indian subcontinent and China...
; created as a legal trading monopoly in 1600. - Dutch East India CompanyDutch East India CompanyThe Dutch East India Company was a chartered company established in 1602, when the States-General of the Netherlands granted it a 21-year monopoly to carry out colonial activities in Asia...
; created as a legal trading monopoly in 1602. - U.S. SteelU.S. SteelThe United States Steel Corporation , more commonly known as U.S. Steel, is an integrated steel producer with major production operations in the United States, Canada, and Central Europe. The company is the world's tenth largest steel producer ranked by sales...
; anti-trust prosecution failed in 1911. - Standard OilStandard OilStandard Oil was a predominant American integrated oil producing, transporting, refining, and marketing company. Established in 1870 as a corporation in Ohio, it was the largest oil refiner in the world and operated as a major company trust and was one of the world's first and largest multinational...
; broken up in 1911. - National Football LeagueNational Football LeagueThe National Football League is the highest level of professional American football in the United States, and is considered the top professional American football league in the world. It was formed by eleven teams in 1920 as the American Professional Football Association, with the league changing...
; survived anti-trust lawsuit in the 1960s, convicted of being an illegal monopoly in the 1980s. - Major League BaseballMajor League BaseballMajor League Baseball is the highest level of professional baseball in the United States and Canada, consisting of teams that play in the National League and the American League...
; survived U.S. anti-trust litigation in 1922, though its special status is still in dispute as of 2008. - United Aircraft and Transport CorporationUnited Aircraft and Transport CorporationThe United Aircraft and Transport Corporation was formed in 1929, when William Boeing of the Boeing firms teamed up with Frederick Rentschler of Pratt & Whitney to form a large, amalgamated firm, uniting business interests in all aspects of aviation—a combination of aircraft engine and airframe...
; aircraft manufacturer holding company forced to divest itself of airlines in 1934. - American Telephone & TelegraphAmerican Telephone & TelegraphAT&T Corp., originally American Telephone and Telegraph Company, is an American telecommunications company that provides voice, video, data, and Internet telecommunications and professional services to businesses, consumers, and government agencies. AT&T is the oldest telecommunications company...
; telecommunications giant broken up in 1982Bell System divestitureThe Bell System divestiture, or the breakup of AT&T, was initiated by the filing in 1974 by the U.S. Department of Justice of an antitrust lawsuit against AT&T. The case, United States v...
. - MicrosoftMicrosoftMicrosoft Corporation is an American public multinational corporation headquartered in Redmond, Washington, USA that develops, manufactures, licenses, and supports a wide range of products and services predominantly related to computing through its various product divisions...
; settled anti-trust litigation in the U.S. in 2001; fined by the European Commission in 2004, which was upheld for the most part by the Court of First Instance of the European Communities in 2007. The fine was 1.35 billion USD in 2008 for noncompliance with the 2004 rule.[8][9] - De BeersDe BeersDe Beers is a family of companies that dominate the diamond, diamond mining, diamond trading and industrial diamond manufacturing sectors. De Beers is active in every category of industrial diamond mining: open-pit, underground, large-scale alluvial, coastal and deep sea...
; settled charges of price fixing in the diamond trade in the 2000s. (See De Beers Diamonds Antitrust LitigationDe Beers Diamonds Antitrust LitigationThe De Beers diamonds antitrust class action sought to end an alleged 60-year conspiracy to fix the price of rough diamonds in the U.S. by the De Beers group of companies. The litigation includes several cases including Hopkins v. De Beers Centenary A.G., et al., No. CGC-04-432954, which commenced...
.) - Apple Inc., Accused of forming a Vertical Monopoly, with iPod, iTunes, iTunes Music Store, and the FairPlay DRM System.
- Joint Commission; has a monopoly over whether or not US hospitals are able to participate in the Medicare and Medicaid programs.
- Telecom New ZealandTelecom New ZealandTelecom New Zealand is a New Zealand-wide communications service provider , providing fixed line telephone services, a mobile network, an internet service provider , a major ICT provider to NZ businesses , and a wholesale network infrastructure provider to other NZ CSPs...
; local loop unbundlingLocal loop unbundlingLocal loop unbundling is the regulatory process of allowing multiple telecommunications operators to use connections from the telephone exchange to the customer's premises...
enforced by central government.
Debate
The general debate with decartelization is a national economy controlled by monopolies and cartels, versus a free market economy. With a free market economy, the pros are very clear. It encourages individual initiatives; it determines price of goods through competition, and motivates people to work towards financial freedom. Most individuals would prefer a free market economy, where there are many buyers and sellers in each market, and the prices are determined based on competition alone. The problem is, it is not up to the individuals. In most cases of cartels, these secret arrangements are done “under the radar”, and these major companies know how to cover their tracks. It is very difficult to prove that companies have formed a cartel; therefore it is very difficult to dismantle one.In the case with the Third Reich in Germany, the people had no choice. In fact, many people were opposed to the idea of these “cartels” controlling the German economy. During the war, there was a school called Soziate Marktwirtschaft, the "socially conscious free market." Members of this school hated totalitarianism and had propounded their views at some risk during Hitler's regime. Wrote Henry Wallich, "During the Nazi period the school represented a kind of intellectual resistance movement, requiring great personal courage as well as independence of mind." The school's members believed in free markets, along with some slight degree of progression in the income tax system and government action to limit monopoly.
External links
- http://eh.net/bookreviews/library/0934
- http://www.effectually.org/Cartel/encyclopedia.htm
- http://wiki.answers.com/Q/What_was_the_german_economy_like_after_World_War_2
- http://getthenationnow.com/archive/detail/13368696
- http://www.ushmm.org/wlc/article.php?lang=en&ModuleId=10005141
- http://books.google.com/books?id=bNa982ALww0C&pg=PA287&lpg=PA287&dq=decartelization&source=web&ots=H-l6keX60O&sig=phk9iVFEXfiRia__qz010KU_IXE&hl=en#PPA286,M1
- http://www.econlib.org/LIBRARY/Enc/GermanEconomicMiracle.html