Question

Explain the difficulty in keeping a cartel (collusion).

Answer 1

Cartel means a group of firm's that get together to make output and price decision.its very difficult to maintain cartel because cartel members will be tempted to cheat on their agreement to limit production.By producing more output then it has agreed to produce,a cartel member can increase it's share of the cartel's profit.hence there is a built-in incentive for each cartel member to cheat,the cartel would cease to earn Monopoly profit and there would no longer any incentive for firm's to remain in the cartel.