Question

Even when allowed to collude, firms in an oligopoly may choose to cheat on their agreements with the rest of the cartel. Why?

Answer 1

$Solution$

Members of the cartel may be tempted to break their agreement /cheat to limit production. A cartel member can raise its share of the cartel's earnings by producing more production than it has promised to generate. As a result, each cartel member has an inherent motive to cheat.