If you have happened to pass by a gas station recently, it is probably evident that OPEC is not having a good year— United States gas prices now hover around $1.86 on average, down from $2.05 a year ago. Though the shale revolution in the United States has significantly boosted the global supply of oil, OPEC has refrained from cutting production. While officials in many smaller countries such as Algeria have strongly criticized this policy, Saudi Arabia has remained committed to keeping prices low in order to maintain its market share. Shale has provided the oil industry with a more elastic supply; an increase in prices could result in a relatively rapid reversal of the current slowdown of American shale. Though OPEC bears the brunt of the advancements in the energy industry, it is not alone in its troubles— broader technological progress and political change have pressured a range of other cartels around the world this year.
Although a maple syrup cartel sounds like the subject of an SNL skit or Monty Python routine, the industry is dominated by a Quebec cartel called the Fédération des Producteurs Acéricoles du Quebec (FPAQ). FPAQ controls about three quarters of the world’s maple syrup supply and places brutal fines, surveillance, and syrup confiscation injunctions on producers who attempt to circumvent its demands. Nonetheless, a massive increase in New York State maple syrup production has threatened FPAQ’s industry leadership and its ability to dictate syrup prices. New York State’s maple syrup production increased over half in the past five years and more than 10% this year alone. As the influx of New York maple syrup puts downward pressure on prices, FPAQ has found itself in a similar position to OPEC. In response to American competition, FPAQ has attempted to reduce the supply of maple syrup on the market by pumping syrup into its “strategic reserves.” These reserves have increased from about 3.3 million gallons in 2012 to a whopping 25 million gallons today. Still, the effectiveness of sopping up maple syrup from the market is limited by rapid technological advancements in the industry. Vacuum pumps now allow New York producers to tap trees more efficiently, enabling them to swiftly scale up production in the case of an FPAQ cutback. Perhaps New York State will soon deserve the Canadian flag’s maple leaf more than our northern neighbor.
Though you may not consider your education to be a commodity subject to the same market forces as oil or maple syrup, some policymakers claim that it is provided under a similar cartel structure. Education reformers argue that competitive institutions collectively corner the roaring market for elite education (check your tuition bill as evidence), while the greater body of accredited institutions also collectively maintains unjustifiably high prices and stagnant learning models. Given skyrocketing tuition costs, this issue has increasingly reached the forefront of political debates about education. Republican presidential candidate and current front-runner Marco Rubio has repeatedly labeled traditional institutions of higher learning jointly as members of a cartel. Writing in the National Review, for example, Rubio argued that “innovative providers cannot compete with the cartel of existing brick-and-mortar colleges and universities that dominates the accreditation process and shields our higher-education system from reform, competition, and accountability.” In fact, Rubio recently introduced a bill in Congress that would disrupt colleges’ and universities’ established accreditation privileges and allow them to opt out of accreditation. Under this legislation, the ability to grant officially accredited degrees would be contingent on colleges meeting specific, predetermined standards of student and alumnus success.
Republicans are not the only ones attempting to disrupt the education cartel. Though President Obama long hoped to rank colleges with outcome-based metrics – a project somewhat similar in spirit to Rubio’s outcome-based accreditation system – this policy received bitter objections from educational institutions across the country. Nonetheless, the Executive Branch has engaged in a more mild effort to reduce the market power of institutions that do not deliver educational and professional opportunities that justify their costs. In September, the White House unveiled the Department of Education’s College Scorecard: a website that clearly presents college performance data and allows users to easily compare various institutions’ statistics. President Obama has asserted that the website will facilitate a more symmetric distribution of information in the market for education, holding institutions accountable to their record of student success. Such efforts to encourage results-driven innovation and pricing in the education market have the potential to place downward pressure on tuition costs and upward pressure on college value.
Far from the halls of American academia, Mexican drug cartels have also suffered from changes in public policy. As Catalina previously explained in the Columbia Economics Review, the legalization of marijuana in several states has contributed headwinds to Mexican drug cartels’ brisk business – and the possible upcoming legalization of marijuana in Mexico would do so further. Because Americans can now legally purchase higher-quality marijuana in states such as Colorado, demand for illicit Mexican imports has diminished.
Though these diverse examples of growing cartel vulnerabilities may seem disparate, they share the same underlying causes. In each instance, the high prices charged by each cartel—or, some might argue in the case of education, the low quality of service— have incentivized innovators, politicians, and businesspeople to circumvent cartel hegemony with technology or policy reform. OPEC’s gas prices spurred the explosion of American shale oil technology and exploration; FPAQ’s maple syrup quotas caused both vacuum pump use and New York production to be very profitable; unsatisfactory education costs and student outcomes have caused politicians to search for new ways to publicize and draw upon troves of data; and the fight for marijuana legalization was certainly aided by the tax windfall states could expect to receive. The erosion of these very distinct cartel advantages is probably not a coincidence.
In a world awash with vast information that can be transmitted across the globe in an instant, the exorbitant profits and economic inefficiencies associated with cartels have become increasingly transparent. When it is evident that entities are using their market power to maintain artificially high prices, the allure of technologically, entrepreneurially or politically upending such markets overpowers these constraints. Cartels should beware that they are not immune to the need to adapt to changing markets and remain at the fore of innovation. In an age when billion-dollar Silicon Valley companies are challenging all sorts of long-established industries, even cartels need to think like a startup.