Another example of a cartel’s instability involves the world coffee market.
In 2000, the Association of Coffee Producing Countries (ACPC), a cartel
of 15 countries that produced approximately 75 percent of the world’s
coffee, agreed to restrict coffee output to keep coffee prices between
U.S.$0.95 and U.S.$1.05 per pound. Within two years, however, a
bumper crop in Brazil, the world’s largest coffee producer, led to the
inevitable pressure to cheat. Brazil had the incentive to sell its new
production rather than incur storage costs. Other countries, facing low
prices, had the incentive to increase their sales to bolster their incomes.
By 2003, the ACPC had closed down its operations. Perhaps the cartel
will be re-established at some point in the future when it has improved its
ability to enforce its members’ behaviour.
Restricting Entry
A successful cartel not only must police the behaviour of its members but
also be able to prevent the entry of new producers. An industry that is
able to support a number of individual firms presumably has no
overriding natural entry barriers. Thus, if it is to maintain its profits in the
long run, a cartel of many separate firms must create barriers that prevent
the entry of new firms that are attracted by the cartel’s profits. Successful
cartels are often able to license the firms in the industry and to control
entry by restricting the number of licences. This practice is often used by
doctors, lawyers, dentists, and engineers, whose professional
organizations restrict entry to those individuals who meet certain
qualifications. At other times, the government has operated a quota
system and has given it the force of law. If no one can produce without a