Why do cartels tend to break up?

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Why do cartels tend to break up?

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Answer 1

Answer #1

Cartels tend to break up because each firm has an incentive to cheat. Maximising Joint profit doesn't mean that the firms are also maximizing individual profit. When the firm knows that it can get more profit by cheating, cartels tend to break up.

Cartels break up more often when the number of firms is high, when the behavior of the firm is not observable by others, when there is no penalty on cheating etc.

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Answer 2

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Why do cartels tend to break up?

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Why do cartels tend to break up?

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