exceptions made for firms exporting their product). When they are
discovered today, they are rigorously prosecuted. We will see, however,
that such agreements are not illegal everywhere in the world, particularly
when they are supported by national governments.
We saw in Chapter 10 that when several firms get together to act in this
way, they create a cartel. Cartels show in stark form the basic conflict
between cooperation and competition that we just discussed.
Cooperation among cartel members allows them to restrict output and
raise prices, thereby increasing the cartel members’ profits. But it also
presents each cartel member with the incentive to cheat. The larger the
number of firms, the greater the temptation for any one of them to cheat.
After all, cheating by only one firm may not be noticed because it will
have a small effect on price. Conversely, a cartel made up of a small
number of firms is more likely to persist because cheating by any one
member is more difficult to conceal from the other members.
The most famous example of a cartel—and the one that has had the most
dramatic effect on the world economy—is the Organization of the
Petroleum Exporting Countries (OPEC). OPEC first attracted world
attention in 1973, when its members agreed to restrict their output of oil.
At the time, the OPEC members’ collective output represented about 55
percent of total world oil output, and their actions caused the world price
of oil to rise by about 300 percent. In 1979–1980, similar actions led to a
further doubling of the world price. The next 30 years, however,
presented serious challenges to OPEC. First, the incentives for individual
cartel members to cheat became unavoidable, and the cartel almost