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Free markets, not rules, are best cartel-busters

Reading Time:3 minutes
Why you can trust SCMP
Jake Van Der Kamp

Cartels in business are a funny thing. Everyone says we should tighten up our rules to stop them from manipulating prices, but the only thing that really works is loosening the rules to bring in more competitors.

Take the grandaddy of them all, the Organisation of Petroleum Exporting Countries. It was itself a response by Middle Eastern countries to a cartel of private oil companies that for many years had managed to keep prices at the pump up and prices at the well-head down.

But then Libyan leader Muammar Gaddafi demonstrated that producing countries could stand up to Western consumers (one reason that they hate him so much in the United States) and the others jumped in to form Opec and send oil prices rocketing in the wake of the 1973 Yom Kippur War.

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By rights it should have been one of the most successful cartels ever formed. There is no international anti-trust law, nothing at all to prevent countries from getting together and rigging prices if they want for as long as they want.

So if anti-trust law is all that stops cartels from operating, then oil prices right now would be at least US$100 a barrel and we would all be driving electric cars recharged on nuclear or hydro power.

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But while there is no international antitrust law there are also no international laws that prevent new producers from entering the business or that say countries cannot cheat on their cartel arrangements.

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