A cartel allows firms to behave as a monopoly to earn high profits?

Question

Why is it then that firms in a cartel frequently cheat, leading to the collapse of the cartel? What can firms in a cartel do to prevent cheating from occurring in the first place?

Answer 1

Cartels work because, working in collusion, the members can act like a monopoly and charge high prices. But then they have the problem of splitting the take.

Firms cheat because if they cheat and the others in the cartel don't, then the cheats get to have it both ways: monopoly prices and more than their share of the take.

http://en.wikipedia.org/wiki/Cartel

Most cartels have not been very successful in holding out against cheats. OPEC is one of the more famous cartels. Do a web search on "OPEC cheat" and you'll get countless hits, including:

http://www.beginnermoneyinvesting.com/ht...

http://www.journals.uchicago.edu/doi/abs...

This article deems the De Beers diamond cartel the "most successful in history", yet argues that its days are numbered too:

http://mises.org/econsense/ch91.asp