Most agreements are difficult and tense, and some agreements are completely collapsing. Once created, cartels are difficult to maintain. The problem is that cartel members will be tempted to defraud their production limitation agreement. By producing more production than agreed, a cartel member can increase its share of the cartel‘s profits. As a result, every member of the cartel is encouraged to cheat. If all members were deceived, the agreement would obviously cease to gain monopolies and there would be no more incentive for companies to stay in the agreement. The problem of fraud has tormented both the OPEC cartel and other cartels and may explain why there are so few cartels. In this case, existing companies enter into price agreements. This behaviour is considered illegal under British and European competition law. But it can be difficult and complex to prove that a group of companies has deliberately united to raise prices. Oligopolistic companies partner with a cartel to increase their market power and members work together to jointly determine the level of production of each member and/or the price each member will charge.
Cooperation allows cartel members to behave like a monopoly. If z.B. each company sells an undifferentiated product such as oil in an oligopoly, the demand curve that each company faces will be horizontally at market price. However, if oil producers form a cartel like OPEC to determine their production and price, they will collectively face a declining market demand curve, as will a monopoly. In fact, the decision to maximize the profits of the cartel is the same as that of a monopoly, as Figure shows. Cartel members choose their combined production at the level where their combined marginal income corresponds to their common marginal costs. The price of the agreement is determined by the market demand curve at the level of production chosen by the agreement. The gains of the agreement correspond to the area of the rectangular box, called abcd in the figure. Note that a cartel such as a monopoly will choose to produce less production and demand a higher price than could be found in a fully competitive market. Assessment of the costs and benefits of collusion — Video Evaluation Review: The fear of fines or other controls means that there is a strong incentive to conceal vertical agreements when companies in the same sector engage in anti-competitive practices at different stages of the supply chain. The dispute between the US competition authorities and Apple, accused of trying to push up the prices of e‑books through agreements with major book publishers, is a good example. Several factors can cause problems in the context of a collusive agreement between suppliers: when a few large companies dominate a market, there is always the potential for companies to reduce uncertainty and behave in a form of collusive behavior.
Incomplete information about the motivation of other companies can lead to tacit agreements in a market or sector when horizontal agreements involve price agreements/market manipulations between companies in the same sector and during the same production phase.