Describe the behavior of an oligopoly using an example such as OPEC.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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OPEC is an example of the power and the weakness of attempts to create cartels in a market that is oligopolistic.

In an oligopoly, there is the temptation to collude.  If the various (few) producers can collude and hold production down, they can keep the price of their product high.  OPEC has, at times, tried to do this.  They have been able to succeed on a few occasions, such as in the oil embargoes of the 1970s.

However, OPEC has had a very hard time enforcing production limits.  This is typical of cartels.  Every member of the cartel has an incentive to cheat and produce more than its quota so that it can make more money.  For this reason, OPEC has not always been successful when it tries to limit production and keep prices up.

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