Final answer:
A successful cartel requires effective monitoring and enforcement to ensure member firms adhere to agreed production and pricing, maximizing profits by acting like a monopolist. Enforcement is challenging due to legal restrictions and the temptation for individual members to cheat.
Step-by-step explanation:
To be successful, a cartel must effectively coordinate the actions of its member firms to act as if they were a single producer. This involves setting a higher price than they would in a competitive market by agreeing on a lower quantity of output to supply, mimicking the behavior of a monopolist. Cartels seek to maximize their profits by reducing the intensity of competition amongst them. For the cartel to be successful, it needs a reliable mechanism to monitor its members and enforce the agreed-upon production and pricing strategies, because each firm has an incentive to cheat by undercutting the agreed price or producing more than its quota to benefit individually from expanded output.
However, enforcement is difficult as explicit collusion is illegal in many parts of the world, and finding hard evidence can be a challenge. Cartels often face internal destabilization due to the temptation for individual members to cheat for their own gain, which can lead to the cartel's breakdown. Therefore, successful cartels need a strong enforcement mechanism and a way to align the interests of its members to prevent cheating and maintain higher prices and profits over time.