Why commodity cartels break apart

Viewed in Winton.com.

Commodity cartels, which were formed after World War II to attempt to establish stable (and lucrative) prices in some commodities, have largely failed in achieving that goal.

The Organization of the Petroleum Exporting Countries (OPEC), which was formed by large petroleum exporting countries to control the price of oil, had some success in the 1970s and still remains an active organizational force, but OPEC largely stands as an aberration.

For the most part, cartels have proved unsustainable and unsuccessful in their underlying mission.

Winton, which manages $20 billion in financial assets, points to five important reasons why cartels have largely failed in their mission.

Yet, while the cartel model has largely failed to sustain itself, it would be a mistake to write cartels off as an economic force.

In July, for instance, Ghana and Ivory Coast established a cartel to attempt to influence and stabilize the price of cocoa.

And while the cartel model has proven difficult to sustain, Winton argues, the cocoa cartel will not likely be the last industry to seek to organize them.

Commodities, such as those that are used in the development of electric car batteries, appear likely candidates to follow cocoa in establishing cartels.

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