The website Wall St. Cheat Sheet recently posted this article – 3 Industries Run by Cartels. Normally when we hear the word cartel, many of us would think illegal drugs, but that is not included in the articles top 3.
1. The oil industry
The oil industry has always been amenable to cartels and monopolies. Before there was OPEC, there was Standard Oil. Started by well-known industrialist John D. Rockefeller, the company dominated oil markets and fuelled America’s growth at the turn of last century. Its operations spanned the oil industry’s entire value chain, from production to refining to distribution. Standard Oil was eventually disbanded for monopolistic practices in 1911. But, the company’s spin-offs, such as Chevron and Amoco (which was acquired by BP), continue to dominate the petroleum industry.
Of course, as recent developments have shown, OPEC’s power is on the wane. The emergence of Canadian and US Shale and Russian natural gas is providing competition to the organization’s hegemony. Still, it might be some time before OPEC loses control of the oil market.
2. The diamond industry
Up until the 1950s, a majority of diamonds were used for industrial applications. However, a sustained advertising campaign by Madison Avenue and high profile endorsements in popular culture (such as this one by Marilyn Monroe) made diamonds the de facto standard for engagement rings and expensive gifts.
De Beers was founded by British businessman Cecil Rhodes in the 1870s. He astutely realized that he could control prices in the diamond industry, which was just evolving then, by buying new mines. So, he bought up competition. By 1888, Rhodes owned the entire supply of diamond in the world. He even managed to convince the Oppenheimers, who owned a mine whose output equaled the combined output of Rhodes’ mines, to join him in 1902. From then onwards, De Beers (so named after one of the mines bought by Cecil Rhodes) dominated the industry. Through a mix of coercion, persuasion, and outright threats, the company acquired and controlled the industry’s complex supply chain.
The emergence of new mines coupled with bad public relations and hard bargains by governments has taken its toll on the company’s market share. Now, it produces only 35% of the world’s diamonds by volume.
3. The olive oil industry
The olive oil industry was one of the earliest examples of monopoly. Thales, one of the seven wise men of Greece in ancient times, used his skills in astronomy for business gains. He accurately predicted good harvest seasons and, subsequently, rented presses — which were used to squeeze oil out of the olives — during those seasons. As a result, all producers and distributors were forced to use his services for business.
Strictly speaking, the olive industry is not a cartel. However, three Mediterranean countries — Spain, Italy, and Greece — account for more than 75% of the world’s supply of this oil. Spain leads the pack by accounting for approximately 50% of the total production of world’s olive oil. Italy and Greece are a distant second and third with a share of 15% and 13% respectively. Olive oil prices and supply are determined by harvests in Spain. For example, the country’s poor harvest last year resulted in an increase in futures prices for olive oil.