Cartel theory is usually understood as the doctrine of economic cartels. However, since the concept of 'cartel' does not have to be limited to the field of the economy, doctrines on non-economic cartels are conceivable in principle. Such exist already in the form of the state cartel theory and the cartel party theory. For the pre-modern cartels, which existed as rules for tournaments, duels and court games or in the form of inter-state fairness agreements, there was no scientific theory. Such has developed since the 1880s for the scope of the economy, driven by the need to understand and classify the mass emergence of entrepreneurial cartels. Within the economic cartel theory, one can distinguish a classical and a modern phase. The break between the two was set through the enforcement of a general cartel ban after Second World War by the US government.
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Cartel theory in the context of Cartel
A cartel is a group of independent market participants who collaborate with each other and avoid competing with each other in order to improve their profits and dominate the market. They seek to limit competition, fix prices, and increase prices by creating artificial shortages through low production quotas, stockpiling, and marketing quotas. Jurisdictions frequently consider cartelization to be anti-competitive behavior, leading them to outlaw or curtail cartel practices. Anti-trust law targets cartel behavior in markets.
The doctrine in economics that analyzes cartels is cartel theory. Cartels are distinguished from other forms of collusion or anti-competitive organization such as corporate mergers. Cartels are inherently unstable due to the temptation by members of the cartel to cheat and defect on each other by improving their individual profits, which may lead to falling prices for all members. Advancements in technology or the emergence of substitutes can undermine cartel pricing power, leading to the breakdown of the cooperation needed to sustain the cartel. Outside actors often respond to the undersupply of a good by bolstering their production of the good, investing in technologies that use the good more efficiently, or investing in substitutes.