When we hear the word ‘cartel’, we instinctively envisage drug gangs. Yet ‘kartell’ was used to describe a “commercial trust, an association of industrialists” in Germany in the 1900s.
The prosaic truth is that most cartels are not run by the likes of Pablo Escobar but by apparently legitimate companies that agree not to compete against each other. Such arrangements have been made by suppliers of drainage pipes, marine hoses and air cargo.
Here are seven of the most egregious attempts to con customers:
1. The light bulbs that were made to burn
The title of the document was innocuous – The Convention for the Development and Progress of the International Incandescent Electric Lamp Industry – as was the pledge to increase “light use to the advantage of the consumer.” The signatories – basically every major light bulb manufacturer in the world in the 1920s, including Osram, Philipps, Associated Electrical Industries, Tokyo Electric and overseas subsidiaries of General Electric – had a novel interpretation of consumer advantage: they agreed to manufacture light bulbs that burned out quicker. They even set up a supervisory body to exchange technical know and enforce standards that reduced the burning time of a light bulb from 2,500 hours to an agreed 1,000 hours. Every factory’s output was tested and companies were fined if their bulbs lasted too long. The makers achieved their central aim – selling more bulbs – until their cosy arrangement was finally undone by World War II. The cartel is often said to have the dubious distinction of pioneering the concept of built-in obsolescence.
2. The great oil carve up
In September 1928, on a grouse shoot in Scotland, three oil barons – Shell chairman Sir Henry Deterding, Sir John Cadman (who ran what is now BP) and Standard Oil boss Walter Teagle – agreed to divide any newly discovered oil resources on the basis of their existing market share. On that premise, they shared oil tankers, refineries, pipelines and refineries and controlled oil production, refining, transportation and sales outside the US (which had strict antitrust laws). This expanded cartel – known as the ‘seven sisters’ after the mythological Pleiades sisters who were turned into stars by Zeus – came to control 85% of the world’s oil. In the early 1950s, after prime minister Mohammed Mossadeq nationalised Iran’s oil industry, the alliance banned the country from using its facilities, basically bankrupting the government, which was toppled by a CIA and MI5-led coup. The ‘seven sisters’ were ultimately undone by Muammar Gaddafi who, in 1970, negotiated for Libya to receive a bigger slice of the revenue generated by its oil fields. After his success, other Middle Eastern governments demanded similar terms, a unity of purpose that gave OPEC immense bargaining power – as it showed when it boycotted Israel’s allies in the 1973 war.
3. The car industry’s criminal record
The 2010s have been one of the most dismal decades in the entire history of the automotive industry. Many leading car makers have used software to cheat tests to make their vehicles seem to emit less CO2 than they actually did. This April, the European Commission told BMW, Daimler and VW (Volkswagen, Audi and Porsche) that they were suspected of colluding to limit the development of emission-cleaning technology. The industry’s rap sheet is impressive: the Commission has already fined suppliers of automotive bearings, wire harnesses, flexible foam in car seats, parking heaters in cars and trucks, alternators and starters, air conditioning and engine cooling systems, lighting, brakes and spark plugs for operating as cartels. It is also only three years since MAN, Volvo/Renault, Daimler, Iveco and DAF admitted colluding to control the European market for medium trucks (which weigh between six and 16 tonnes) and heavy trucks (16 tonnes and over) between 1997 and 2011. Through meetings at trade fairs and emails, managers fixed prices, agreed timelines for the introduction of emission- reducing technology and discussed how best to pass on environmental costs to buyers. The Commission imposed a record fine of £2.5bn on the cartel.
4. Putting a cap on prices
We seldom think about capacitors but we couldn’t live without them. Used to store energy electrostatically in an electric field, these vital components keep smartphones, in-car electronics systems and wind turbines working. The European Commission was understandably not amused to discover that nine suppliers – Elna, Hitachi Chemical, Holy Stone, Matsuo, NEC Tokin, Nichicon, Nippon Chemi-Con, Rubycon and Sanyo (which was granted immunity for cooperating with investigators) – had been meeting regularly to share confidential information, discuss future supply and demand, decide pricing and implement their agreements. After unearthing incriminating emails which urged managers to “Discard after reading”, and concluding that the scam had hurt companies and consumers, the Commission fined the firms £203m. In the US, in response to a suit from electronics company Chip Tech, suppliers have so far offered £170m in settlement, but Cisco and Aptiv insist they are owed far more than that after being over-charged for capacitors.
5. The fake bids scandal
Most cartels, reflecting Benjamin Franklin’s remark that “Three can keep a secret, if two of them are dead”, are a conspiracy between a select, trusted few. The staggering aspect of the scheme to rig bids in the British construction industry, uncovered by the Competition and Markets Authority in 2009, is that 103 firms – including such big names as Kier, Balfour Beatty and Carillion – colluded on 199 tenders. Cover pricing – where bidders quote an artificially high price to create the illusion of competition – was particularly common. In 11 tenders, the lowest bidder faced no genuine competition because every other tender was fake. Six winning bidders had raised false invoices to recompense unsuccessful rivals. The conspiracy, which lasted from 2000 to 2006, affected buildings projects worth more than £200m. Despite the hefty £129m fine, bid-rigging still blights the construction sector: in March, the CMA fined five companies £7m for cover pricing on 14 contracts.
6. The most ancient cartel of all?
Regulators normally crack down on cartels but in Athens, in 386BC, they created one. When supplies of imported grain began to shrink, sending prices soaring and causing civil unrest, one enterprising official advised the merchants to collude in negotiations with the importers so they could strike a better deal. Unfortunately, the plan had not been approved by senior management. The merchants were accused of hoarding (indeed many seemed to have stocked up in anticipation of higher prices to come), almost executed and prosecuted in the earliest known anti-trust trial. Prosecutor Lysias accused the traders of profiting from – and sometimes faking – bad news to hike prices. We do not know the verdict, but most historians believe that the jury found them guilty. The regulator got off scot free.
7. The catastrophic tuna conspiracy
Chris Lischewski, the former CEO of tuna company Bumble Bee Foods, could spend 10 years in prison and be fined $1m after being convicted of price-fixing by a Los Angeles grand jury earlier this month. The case against Lischewski rested, in part, on evidence from two subordinates who agreed to help prosecutors after admitting their guilt. Bumble Bee recently filed for Chapter 11 insolvency after authorities imposed a $25m fine and grocers launched a slew of lawsuits against it. America’s canned tuna market was effectively controlled by three companies: Bumble Bee, Starkist and Chicken of the Sea (owned by Thai Union) and, between 2011 and 2013, they colluded to keep prices high to help Bumble Bee meet earnings targets. Starkist was fined $100m after coming clean. Chicken Of The Sea has not yet been fined because it alerted the authorities. Ironically, high prices have probably helped drive down America’s consumption of tuna per capita by 40% since 2000.
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