Definition: A group of independent firms that collude to restrict output and raise prices, acting like a monopoly.
Cartels coordinate to maximize joint profits by limiting production and setting prices above competitive levels. They face two challenges: agreeing on quotas and preventing cheating. Cartels are illegal in most countries, but international ones (like OPEC) persist. Game theory explains why cartels are unstable—each member has incentive to cheat.
OPEC coordinates oil production among member countries to influence global prices. Domestic price-fixing schemes (like airlines colluding on fees) face antitrust prosecution.
Cartels connect to oligopoly and game theory on AP Micro. You
Category: Microeconomics