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NOTE Why do cartels fall apart?

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In the late 19th century, what happened was that businesses, many businesses, tried to effect a cartel.

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It started with J.P. Morgan, who rose to prominence as an investment bank in the 1870s,

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who started to try to cartelize the railroad. Railroads were then the only really big business.

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He tried to cartelize the railroad industry.

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In other words, everybody should get together and restrict shipping or restrict production,

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which in railroads is shipping, and raise prices.

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And it was to sign each other quotas and raise freight rates, and everybody would be better off.

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Railroad has the incentive to say, these guys are restricting production, rates are up, they're restricting shipping, let me start undercutting them a little bit and I can pick up all that yummy business out there.

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And they did it secretly. In other words, if you let your competitors know that you've broken a cartel price, then they will follow you and the advantage will be lost.

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You do it secretly. It's called secret rebates. In the case of railroad, secret price cutting in general in industry.

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So let's cut the thing in secret, you tell your buyer, look Jim, I'll give you this for 15% less,

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but don't tell anybody, because that would ruin the whole thing. Okay, great.

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So each railroad picks up this great advantage, and industry in general has happened a few, 20 years later or so,

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until of course, inevitably, secrets are out, six months or a year later or whatever,

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your competitors find out about it, and the whole cartel breaks up in recrimination and hatred,

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and they're back down again to a lower rate, and now everybody hates each other.