Question

Why is a cartel like OPEC so difficult to maintain? What is the benefit to stay in the cartel for the members and what are costs/problems of staying?

Answer 1

A cartel is a gathering of organizations who have deliberately met up to hold hands to participate with each other regarding cost and amount setting and not take part in any value wars to augment however much benefits as could reasonably be expected.

It is difficult to keep up such a cartel since organizations meet up from various foundations and convey distinctive expenses and motivations to abscond. Although the firms cooperate so as to keep prices and profits high, it is also possible that some firms would want to defect from this behavior and reduce their prices so as to increase sales and thus disturb combined market equilibrium

Benefits: High prices, high prices, no price or quantity wars

Costs: No individual power, no individual say in price or quantity setting, if input costs are high individually, profits would be less as compared to other firms, constant fear of some member cheating