When cartel members agree to restrict output to increase the price of their product,a single member of the cartel has an economic incentive to violate the agreement by increasing its output so as to increase profits.

Question

Quizplus · Accepted Answer

This is known as the "prisoner's dilemma" in game theory. While it is in the best interest of the cartel as a whole to restrict output and increase prices, each individual member has an incentive to cheat the agreement and increase their own profits. This can lead to the breakdown of the cartel and ultimately lower prices for consumers.

When Cartel Members Agree to Restrict Output to Increase the Price