1. Cartels are inherently unstable because they rely on their members to co-operate for the good of the cartel and forsake individual profit as a result. In a cartel, there is incentive for any one (or two) members to cheat since downward price movement--even small downward price movement--will result in significantly higher profits for the cheater. However, this only remains valid so long as a very few members cheat and those members control only a small amount of the total market. If one of the major producers cheats, the downward price pressure becomes more significant and the entire cartel can fall apart.
There is strong incentive for members not to cheat, however. By remaining true to the cartel, all members realize high profits and, over the long term, these profits will far outpace what the members would receive if they resorted to competition. Competition (cheating) will result in higher profits in the short term, but as the cartel dissolves, prices will be force downward and profits will erode and possibly even disappear.
Given this situation, there must be powerful reasons for members of cartels to cheat, and reviewing some of the successful cartels, these reasons can be identified. OPEC, for example, was successful at controlling prices only in the 1970s, more than 10 years after it was formed. This is because the oil producing nations did not agree on price controls up to that point, and the political environment in which the cartel operated did not support cartel behavior. In the 1970s, however, the majority of the members (and those which controlled the largest share of oil) had a single cause which they could support--anti Israeli sentiment. The cartel raised prices and revenues to the Middle East (and other) member countries increased significantly.
But the cartel's success was short-lived. The war between Iran and Iraq presented strong incentive for these two members to cheat in that they could use t...