Question

Explain why cartels are naturally unstable. Do these factors explain the decline of OPEC as an international cartel?

Answer 1

Cartels rely on cooperation among member nations or fellow players in the market.

If all players decide to play cooperatively, then all of them will make profits

If either of them deviates and cheats from cooperative behavior, then he will make extra profits but profits of other players will fall.

Likewise, if all players decide to cheat, profits of each and all players will fall.

This makes cooperation mutually beneficial for all of them.

However, the greed to earn more makes each player tend to cheat, which makes market coordination and cooperation highly difficult and unstable. There is always a fear that one of them would cheat. This makes the market structure and output unstable.

Yes, these factors do explain the decline of OPEC as a cartel as it was becoming highly difficult to make each player cooperate.