Cartels, Economy and Economic Competition

Cartels, Economy, and Economic Competition

For most people, economics is a rather boring, incomprehensible, mathematical system. We have always been given information in this direction or the economy has always been explained in such a way that we can perceive it as such those descriptions. However, according to economist Alfred Mill, economics is a system that can be understood in principle without knowing any mathematics. Another taught judgment since elementary school is that “cooperation is always good”. Maximum benefits can be obtained and more importantly, people would get closer to each other. Of course, in most areas, it is quite difficult to object to this. However, when it comes to economics, some collaborations may reduce the benefit. Now let’s prove together that the economy can be understood without using any numbers and that cooperation can have bad results in the economy.

Economic Race

As it is known, after the Industrial Revolution, economic movements gained serious speed and before this revolution, the economic race mostly included countries, but now businesses started to compete among themselves. The concept of the market gained meaning and thus the consumer became the focus of this entire industry. After this situation, the common goal of all companies and businesses was to increase the number of people who would consume their own products. That’s why the advertising industry was born. The math for business was actually pretty simple. As long as the profit increased, they didn’t need to ask too many questions. So the only thing that matters to a business is profit or benefit, both of which can be used in the same sense for a business.

10 Big Companies Managing the World Food Industry

When we come to today’s world, most industries are actually managed by five to six large companies or businesses. For example, as a result of the research conducted by OXFAM in 2014, it has been shown that the entire world food industry is managed by 10 big companies such as Nestle, Coca-Cola, Unilever, Danone, Associated British Foods, Kellogg’s, Mondelez, MARS, General Mills and Pepsico. Yes, only these ten brands are owners of every other brand you know. For example, Algida is a brand affiliated with Unilever. All those brands you know are actually sub-companies or brands belonging to these 10 companies. Thus, these companies manage the entire industry. These sectors (oligopoly sectors) dominated by these few large manufacturers are pleasing to the consumer. The reason for this is that these large companies are in constant competition with each other.

Competition: Good or Bad?

For example, let’s consider two fast-food companies. Considering that these companies sell more or less the same product, they need to improve the products or conditions they offer in order to attract consumers. They need to pay extra attention to cleanliness in their restaurants, they can’t raise prices too high or they constantly offer new and good products because if they don’t, the competitor can steal their customers. Thanks to such factors, the existence of competition directly benefits consumers. Let’s give another example as follows. When TRT (National Broadcasting Channel of Turkey) was the only channel in its time, that is, there was no other channel to watch, it could attract a serious amount of audience no matter what it put on TV. However, as new channels arrived, the way to gain viewers was to create good content. In other words, the formation of competition directly causes the consumer to buy better quality products cheaper.

What Happens If Competition Decreases?

First, we need to understand how competition can be reduced. I just explained that the existence of competition directly helps the consumer to find good products at low prices. Well, when we look at it from the point of view of companies, competition also means low profits. Therefore, when a choice must be made between competition and cooperation, companies will tend to prefer direct cooperation. In this case, it provides cartelization, and cartelization provides direct rights over the market. Let’s fix this first. The formation we call a cartel is not a mafia or a group of people who do illegal activities. Cartels are manufacturers that cooperate rather than compete. Now let’s come to the harm of this to the consumer. For example, let’s say the average price of a menu in a fast food chain is 10$. Both companies that manage the market I just described could not go above 10$ because if one goes over the limit, the consumer would attack the other. However, if these two or more companies decide to merge, that is, if fast food companies join hands, they can sell fast food for 30$ if they want. Thus, even if half of their customers leave, they will earn 3 times more money than the remaining half.

Competition is Always Beneficial for the Consumer!

Let’s give another example from chocolate. Let’s assume that when you enter the market, various chocolate brands are sold for an average of 5$. While chocolate is a daily product that is in almost every household regardless of income, let’s imagine that these companies will combine and sell the same chocolate for 100$. In this case, since no one else can sell chocolate, chocolate will still be purchased, only it will now be in the luxury class. The point I am trying to explain is that the fact that companies make agreements will never yield results for the benefit of the consumer. In fact, during the time of the economist and philosopher Adam Smith, who lived in the 1700s, argued that competition would always be beneficial for the consumer. Another modern-era example is OPEC. OPEC was a transnational cartel that directly decided the price of oil. All oil reserves and markets belonged to them, and these were the periods when oil prices were the highest in the world.

However, today there is serious competition but cartelization has decreased considerably. The reason for this is that large companies have already handled the sectors and have achieved a serious profit rate of all kinds. In addition, the risk of creating a cartel is that new companies can enter the market in charismatic ways and offer the convenience that the cartels do not offer to the consumer. For this reason, companies are moving away from cartelization. In addition, since the world has completely centered individuals, it does not prefer imposing cartelism.

So in summary, economics is not just a numerical science that calculates input and output. In addition, competition in the economy is always for the benefit of the consumer. We hope to see the days when the competition is at its peak!

References and Further Readings

10, D., & Kramer, A. (2021, April 22). These 10 companies make a lot of the food we buy. Here’s how we made them better. Retrieved April 30, 2021, from https://www.oxfamamerica.org/explore/stories/these-10-companies-make-a-lot-of-the-food-we-buy-heres-how-we-made-them-better/

Mill, A., & Mayer, D. A. (2016). Economics 101: From consumer behavior to competitive markets–everything you need to know about economics. Avon, MA: Adams Media.

You can access the sources of the images used by clicking on the images.

The proofreading has been done by Asu Pelin Akköse and Mete Esencan.