This document provides an introduction to the concept of cartels in economics. It defines a cartel as a group of firms in the same industry that collude to maximize profits. Cartels are able to earn profits that are 300-3000 times higher than non-cartel firms through raising barriers to entry and controlling prices and competition in their market niche. The document will examine the mathematical structure of cartels and provide two real-world examples of famous cartels, including the Medellin drug cartel and investment banking, to demonstrate how cartels operate.

1. FAMOUS
CARTELS
©
North
Delta
College
2015
Mathema'cs
applied
to
Business
Theory
1

2. INTRODUCTION
We
will
study
in
this
presentaFon
an
ideal
economical
structure:
The
Cartel.
The
very
first
surprising
fact
is
that
this
ideal
structure
do
exist
in
the
outside
reality.
There
are
a
good
handful
of
examples
of
real
Cartels
in
the
real
Economy.
A
Cartel
is
a
group
of
firms
in
the
same
industry
regrouped
by
common
vested
interest
and
making
superior
profit
in
their
niche
market.
When
we
say
superior
profit,
it
is
not
just
15%
or
20%
or
25%
above
average.
It
is
truly,
300
Fmes,
3000
Fmes
etc…
As
unbelievable
as
it
may
seem,
such
firms
do
exist
and
protect
their
profit
by
creaFng
the
Cartel.
Indeed,
the
hen
with
golden
egg
do
exist
in
Economics.
Without
geVng
to
its
metaphysical
implicaFon,
let
us
admit
here
there
exists
a
point
of
infinite
aWracFon
in
the
Economical
realm.
The
main
landmark
of
this
presentaFon
will
be
to
demonstrate
2
non-­‐trivial
examples
of
cartels
which
should
normally
put
the
reader
into
deep
meditaFon
if
not
aware
of
the
fact.
So
welcome,
dear
reader,
to
“Famous
Cartels”,
the
presentaFon
that
will
show
you
another
facet
of
Economics.
Mathema'cs
applied
to
Business
Theory
2

3. SUMMARY
Mathema'cs
applied
to
Business
Theory
3
PART
1
:
MATHEMATICAL
STRUCTURE
OF
A
CARTEL
A)
DefiniFons
B)
Inner-­‐Structure
C)
Economical
implicaFons
D)
Why
break
the
Cartel
PART
2
:
THE
CARTEL
OF
MEDELLIN
PART
3
:
INVESTMENT
BANKING
PART
4
:
OXFORD/CAMBRIDGE
FINAL
STATEMENT
A)
DescripFon
B)
Why
is
this
a
Cartel?
C)
Economical
&
Societal
impact
of
this
Cartel
D)
How
to
break
this
cartel?

4. PART
1
:
MATHEMATICAL
STRUCTURE
OF
A
CARTEL
A
Cartel
is
a
very
special
kind
of
economic
enFty
where
a
group
of
firms
doing
business
in
the
same
niche
industry
see
their
revenues
and
profits
mulFplied
hundred-­‐fold
when
the
other
compeFtors
(those
not
in
the
Cartel)
are
sFll
struggling
doing
100
or
1000
Fmes
less
business
although
the
company
sizes
are
the
same.
It
is
therefore
a
very
strange
phenomenon,
very
close
to
a
verFcal
irrupFon
in
the
Economical
realm
and
is
never
fortuitous.
We
will
try
to
understand
it
in
the
following
slides.
Mathema'cs
applied
to
Business
Theory
4
DefiniFons
Figure
1:
The
Cartel
Inside
the
Cartel:
Superior
profit
Outside
the
Cartel:
Normal
Universe
Firm
I
Firm
H
Firm
G
Firm
F
Firm
E
Firm
D
Firm
C
Firm
B
Firm
A

5. Inner-­‐Structure
How
does
the
Cartel
work?
The
firms
in
the
Cartel
have
access
to
a
product
or
services
extremely
coveted,
and
having
noFced
it,
have
raised
barriers
of
entry
for
any
newcomers
for
having
access
to
that
product
or
service.
The
consequences
of
that
logic
are
3-­‐fold
1.
The
prices
of
the
goods
jerk
up
because
customers
are
sFll
ready
to
pay
for
it
like
in
a
good
old-­‐fashioned
Monopoly
except
here
there
is
not
one
but
several
firms
acFng
as
one
but
legally
separated
so
anF-­‐trust
laws
do
not
apply
2.
No
other
economic
agent
can
challenge
the
credibility,
reputaFon
and
brand
idenFty
of
the
firms
in
the
cartel.
3.
There
is
absolute
control
of
the
exisFng
members
of
the
cartel
over
who
enters
the
cartel
Mathema'cs
applied
to
Business
Theory
5
PART
1
:
MATHEMATICAL
STRUCTURE
OF
A
CARTEL
Figure
2:
The
hidden
protected
Grail
Firms
in
the
Cartel
The
Holy
Grail
Stringent
Barriers
to
Entry

6.
Mathema'cs
applied
to
Business
Theory
6
Economical
ImplicaFons
The
4
Ps
Prices:
As
we
have
noFced,
the
Prices
go
up.
In
fact
they
even
sky-­‐rocket.
Profits:
Profits
inside
the
cartel
are
thus
of
a
pharaonic
kind
and
reserved
to
them
only
in
the
whole
industry.
Power:
Obviously
if
there
is
so
much
money
to
be
made,
there
are
power
issues
here.
Not
directly
poliFcal
power
but
a
more
opaque
form
of
power
placing
the
chiefs
of
the
Cartels
above
the
law
or
at
least
far
above
your
regular
poliFcian.
PresFge:
The
firms
outside
the
Cartel
are
at
a
degree
0
of
presFge
in
their
industry.
Conversely,
the
brand
idenFty
of
the
Cartel
is
a
near
miss
to
some
form
of
religious
icons.
PART
1
:
MATHEMATICAL
STRUCTURE
OF
A
CARTEL
Figure
3:
The
4
Ps
The
4
Ps
of
a
Cartel
Prices
sky-­‐rockeFng
Profits:
Pharaonic
Power
of
an
unusual
kind
PresFge
almost
God-­‐like

7. Cartels
are
indeed
dangerous
enFFes,
precisely
because
their
power
is
opaque,
because
their
economical
logic
favours
exclusion,
and
their
control
grip
over
the
populaFon
nothing
less
than
a
perverted
form
of
totalitarism.
Therefore
a
genuine
effort
has
to
be
put
in
order
to
break
the
cartel.
The
strategy
for
achieving
this
depends
on
each
individual
cartel.
We
will
now
in
the
rest
of
the
presentaFon
give
the
3
most
famous
examples
of
Cartels.
Mathema'cs
applied
to
Business
Theory
7
Why
break
the
Cartel
PART
1
:
MATHEMATICAL
STRUCTURE
OF
A
CARTEL
Figure
4:
Breaking
the
Cartel

8. DescripFon
A
drug
cartel
is
consFtuted
by
a
certain
number
of
firms
controlling
the
producFon
and
distribuFon
of
certain
illicit
narcoFc
and
running
the
whole
business
against
InternaFonal
law.
The
Cartel
of
Medellin
is
the
first
Cartel
which
comes
to
the
mind
of
anyone
as
it
has
had
media
presence
over
the
years
due
to
an
addiFonal
aggravaFng
factor.
It
is
THE
Cocaine-­‐based
drug
cartel
and
has
therefore
to
recourse
to
violence
to
achieve
its
objecFves.
Basically,
a
drug
cartel
consists
of
the
following
logisFcs
units:
-­‐
Drug
producers
-­‐
Drug
distributors
-­‐
Armed
miliFas
-­‐
Financiers
Mathema'cs
applied
to
Business
Theory
8
PART
2:
THE
CARTEL
OF
MEDELLIN

9. Why
is
this
a
Cartel?
Drug
Cartels
like
the
Cartel
of
Medellin
have
all
the
ingredients
of
a
good
old
cartel.
Coveted
product:
whether
it
is
Cocaine
or
any
form
of
illegal
drug,
the
client
is
ready
to
pay
for
it
so
prices
can
sky-­‐rocket,
sFll
demand
will
be
there.
Barriers
to
Entry:
Barriers
to
entry
in
the
Cartel
are
maintained
through
different
means.
Through
armed
intervenFon
in
the
producFon
area
or
throughout
the
distribuFon
channel,
Or
through
brand
reputaFon
prevenFng
the
cartel
to
replicate
elsewhere
or
through
technical
know-­‐how
of
how
to
process
the
drug.
Legal
structure
of
the
Cartel:
There
is
tacit
agreement
among
members
of
the
cartel
about
prices
and
modus
operandi
of
the
operaFons.
Furthermore
they
meet
regularly
as
physically
they
are
very
olen
located
at
the
same
place.
Mathema'cs
applied
to
Business
Theory
9
PART
2:
THE
CARTEL
OF
MEDELLIN

10. Economical
&
Societal
impact
of
this
Cartel
As
the
drug
cartels
make
fabulous
amount
of
money
illegally,
they
have
3
kinds
of
impact:
In
the
home
countries,
where
the
narcoFc
is
produced,
there
is
suddenly
influx
of
capital,
job
creaFon
although
safety
record
go
down
the
drain
In
the
country
where
the
drug
is
sold,
a
parallel
market
is
created
for
the
distribuFon
of
the
drug
to
its
customers,
with
hooked
up
clients
ready
to
pay
that
much
for
their
drug.
However
most
of
the
economic
benefits
go
back
to
the
cartel’s
headquarters
in
the
home
country.
There
is
also
excess
sFmulaFon
of
a
very
different
market,
below
radar,
The
market
of
illicit
narcoFcs.
Mathema'cs
applied
to
Business
Theory
10
PART
2:
THE
CARTEL
OF
MEDELLIN

11. How
to
break
this
Cartel?
As
the
main
commodity
sold
in
the
drug
cartel
is
illegal,
breaking
the
cartel
means
physically
dismantling
it
as
by
law
already
it
shouldn’t
be
there.
SomeFmes,
the
army
has
to
be
sent
to
clean
off
the
city
or
ciFes
where
from
the
cartel
is
operaFng.
Legal
threat
has
liWle
impact
on
a
drug
cartel
as
their
whole
supply
chain
and
distribuFon
system
uses
illegal
means
and
their
consumers,
knowingly,
buying
the
product
on
a
non
recognized
market.
Mathema'cs
applied
to
Business
Theory
11
PART
2:
THE
CARTEL
OF
MEDELLIN

12. This
is
a
less
well
known
fact
to
the
general
public.
The
Fer
1
investment
banks
form
a
Cartel.
What
do
we
mean
by
Investment
Banks
and
what
do
we
mean
by
Tier
1?
Investment
Banks
offer
very
strange
kind
of
services
for
those
used
only
to
retail
banking.
They
help
firms
in
raising
capital
in
the
financial
markets
allowing
them
to
do
complex
legal
and
financial
operaFons
such
as
IPOs
(IniFal
Public
Offering)
or
M&As
(Mergers
and
AcquisiFons)
etc.
which
requires
if
not
skills
at
least
impeccable
reputaFon
to
get
investors
confidence.
But
to
really
have
a
Cartel
,
one
needs
an
auto-­‐declared
club
membership.
Here
it
is
the
acceptance
by
people
in
the
industry
that
you
are
a
Fer
1
investment
bank
(the
list
is
in
any
Business
school’s
brochure).
As
this
acceptance
is
ipso
facto
in
the
hand
of
people
already
involved
with
banks
in
the
Fer
1
list,
we
have
here
a
very
sectarian
cartel
with
virtually
no
newcomers.
Mathema'cs
applied
to
Business
Theory
12
PART
3
:
INVESTMENT
BANKING
DescripFon

13.
Mathema'cs
applied
to
Business
Theory
13
Again,
all
the
good
ingredients
are
there
Coveted
product:
Firms
and
MulFnaFonals
are
ready
to
pay
immense
fees
or
share
fortunes
for
raising
capital
and
aWract
investors
as
their
own
fortunes
depend
on
it.
Barriers
to
entry:
As
menFoned,
the
reputaFon
of
the
bank
is
a
key
factor
in
this
industry.
And
to
build
reputaFon
one
needs
a
major
IPO
or
a
major
M&A
to
build
credibility.
This
IPO
or
M&A
will
only
come
to
you
if
you
have
prior
reputaFon.
We
are
therefore
indeed
in
a
very
closed
circuit.
Collusion:
The
IPOs
fees
are
virtually
the
same
for
all
the
banks
in
the
cartel
without
any
physical
concertaFon.
How’s
that?
Through
tacit
collusion.
This
collusion
is
the
binding
force
of
the
Investment
Banking
Cartel.
PART
3
:
INVESTMENT
BANKING
Why
is
this
a
Cartel?

14. The
first
consequence
of
having
this
cartel
of
I-­‐banks
in
our
Economy
is
that
the
whole
financial
system
in
the
Western
Hemisphere
is
in
the
hands
of
a
handful
of
banks
and
their
decision-­‐makers.
The
first
problem
of
this
elite
is
thus
its:
i) Difficulty
to
renew
its
thinking:
The
same
people,
same
firms
are
there
since
ever.
Making
the
same
mistakes
in
2008
as
they
did
in
1929.
ii) Its
short-­‐sightedness
with
regard
to
Economic
maWers,
as,
as
we
noted
in
i),
their
tenets
are
rigid
despite
crashes
and
failures.
Their
control
over
Economics
thinking
is
absolute
in
the
West,
especially
in
the
US.
The
blend
of
capitalism
they
promote
is
the
Wall
street
capitalism,
although
already
in
2015,
many
other
versions
have
been
defended.
Mathema'cs
applied
to
Business
Theory
14
PART
3
:
INVESTMENT
BANKING
Economical
&
Societal
impact
of
this
Cartel

15. Mathema'cs
applied
to
Business
Theory
15
The
problem
with
most
of
the
Cartels
is
that
they
have
an
open
door
for
you
to
join
in.
Except
this
one.
The
Tier
1
Investment
Banking
Cartel
is
a
closed,
secluded
fortress.
Therefore
it
has
to
be
broken.
The
best
way
to
oppose
it,
is
to
promote
exactly
the
reverse:
A
mass-­‐market
capitalism
through
crowd-­‐funding,
microfinance,
and
a
socially
inclined
entrepreneurship
where
the
people
ulFmately
themselves
will
choose
a
different
form
of
banking
and
finance.
This
will
bring
back
capitalism
to
its
original
roots
which
were
to
radically
transform
the
society
by
the
individual
and
be
a
genuine
changing
force
instead
of
promoFng
the
status
quo
and
the
empty
rhetoric
we
hear
regularly
in
the
mass
media
about
the
Economy
and
its
real
driving
forces
which
have,
in
fact,
always
been:
-­‐ The
Individual
-­‐ The
Small
Business
-­‐ A
fiery
spirited
Entrepreneurship.
PART
3
:
INVESTMENT
BANKING
How
to
break
this
Cartel?

16. The
next
example
might
be
a
slight
surprise
to
many,
but
anyone
familiar
with
the
Oxford
/
Cambridge
system
will
de
facto
place
them
in
the
Cartel
category.
How
does
this
system
work?
The
Collegiate
system.
Let
us
Explain
it
in
the
case
of
Oxford.
To
be
part
of
Oxford
University
you
have
to
be
part
of
one
of
its
colleges.
The
list
of
these
colleges
is
finite
and
fixed
at
any
given
Fme
but
new
colleges
can
be
accepted
in
the
system
provided
many
condiFons
but
in
parFcular
the
excellence
of
their
academic
teams
and
their
evenness
in
this
respect
with
the
other,
exisFng
colleges
in
the
list.
These
colleges,
de
facto
form
a
Cartel.
Similar
logic
with
Cambridge.
Mathema'cs
applied
to
Business
Theory
16
PART
4
:
OXFORD/CAMBRIDGE
DescripFon

17. Mathema'cs
applied
to
Business
Theory
17
More
subtle
this
Fme,
but
the
mathemaFcal
economical
structure
is
replicated
here
once
more.
Coveted
product:
The
Brand
name
is
such
that
everyone
wants
an
Oxford/Cambridge
educaFon.
EducaFon
being
the
entry
key
to
so
many
roles
in
our
socieFes,
the
Oxbridge
colleges
are
indeed
siVng
on
a
gold
mine.
Barriers
to
entry:
Academic
excellence
is
a
rare
gil.
And
as
standards
go
up
with
Fme,
meeFng
the
cartels’
requirement
is
indeed
something
of
an
herculean
task.
Link
between
the
members
of
the
Cartel:
Tacit
connivance.
Here
again,
the
colleges
are
quite
loosely
connected.
However
they
know
their
privilege
and
have
instaured
a
very
special
bond
between
them:
The
Oxbridge
culture.
You
automaFcally
know
if
you
are
in
or
out,
if
you
are
a
new
entrant
college
trying
to
join
in
the
system.
PART
4
:
OXFORD/CAMBRIDGE
Why
is
this
a
Cartel?

18. Is
it
the
Oxbridge
system
which
has
skyrocketed
higher
educaFon
fees
in
the
English
speaking
world?
Hard
quesFon!!
We
will
let
the
reader
make
his
own
judgement.
One
thing
is
certain,
it
is
the
grip
these
colleges
have
over
the
English
speaking
realm.
Whatever
might
be
the
pretenFons
of
Harvard,
MIT,
Stanford
to
form
the
world
elite,
the
key
levers
in
the
Anglo-­‐Saxon
world
are
in
reality
very
much
in
the
hands
of
people
coming
from
one
of
these
colleges.
To
the
benefit
of
this
cartel
we
must
sFll
admit.
Contrarily
to
other
systems,
this
cartel
is
indeed
always
open.
And
is
not
the
product
of
a
centralized
bureaucraFc
regime
as
the
colleges
are
fairly
independent
among
each
others
and
from
external
controls.
This
is
precisely
its
strength
and
why
it
has
endured
for
nearly
800
years.
Try
to
compare
this
to
the
French
Grandes
Ecoles!!
Mathema'cs
applied
to
Business
Theory
18
PART
4
:
OXFORD/CAMBRIDGE
Economical
&
Societal
impact
of
this
Cartel

19. How
does
one
enter
the
cartel
first
of
all?
By
creaFng
a
brand
new
college
in
Oxford
town
or
Cambridge
town
and
geVng
accepted
by
the
respecFve
UniversiFes
as
having
an
Oxford
or
Cambridge
level
educaFon.
In
that
case,
why
break
this
cartel?
We
firmly
believe,
the
EducaFonal
system
needs
a
total
reshaping.
First
of
all
the
English
speaking
genius
siVng
in
rural
Africa
or
China
shouldn’t
have
to
move
to
Oxford
to
get
an
Oxford
EducaFon.
It
should
come
to
him.
Second,
it
should
be
free!!
Like
in
the
French
system!!
That
is
where
E-­‐learning
comes
in
and
has
the
soluFon.
E-­‐learning
can
provide
virtually
cost
free
educaFon
all
over
the
world,
without
discriminaFon,
24/7
and
in
an
user-­‐friendly
way
for
the
potenFal
student.
Furthermore,
through
chat
rooms
and
tools
like
Skype
it
can
also
provide
tutorials
and
thus
support
its
teaching
1
to
1
and
come
very
close
to
an
Oxbridge
type
of
EducaFon
without
entering
the
Cartel.
Mathema'cs
applied
to
Business
Theory
19
PART
4
:
OXFORD/CAMBRIDGE
How
to
break
this
Cartel?

20. Final
Statement
We
have
therefore
seen
in
this
presentaFon
a
very
curious
economical
EnFty:
the
Cartel,
with
ogre-­‐like
appeFte
for
money
and
power.
The
new
result
of
this
presentaFon
is
to
integrate
explicitly
Investment
Banking
and
the
Oxbridge
system
into
the
Cartel-­‐type
structure
by
unfolding
their
inner
logic
and
inner
moFves.
By
doing
so,
we
are
doing
far
more
than
just
widening
already
opened
doors.
The
Cartel
logic
is
the
real
structure
behind
Oxford
or
Goldman
Sachs
and
explains
the
nearly
mythical
status
they
enjoy
in
the
Anglo-­‐Saxon
socieFes
(The
first
in
the
UK/
Commonwealth,
the
other
in
the
US).
It
is
quite
interesFng
to
note
the
top
of
the
pyramid
in
Western
socieFes
is
held
by
different
sorts
of
but
always
Cartel-­‐like
structures.
(The
same
holds
in
the
French
system).
Mathema'cs
applied
to
Business
Theory
20
FINAL
STATEMENT