Question

When OPEC raised the price of oil dramatically in the mid-$1970s$, experts said it was unlikely that the cartel could stay together over the long term—that the incentives for individual members to cheat would become too strong. More than forty years later, OPEC still exists. Why do you think OPEC has been able to beat the odds and continue to collude? Hint: You may wish to consider non-economic reasons.

Short answer

After $40$years, OPEC has been able to beat the odds and continue to collude because of the nature of demand curve i.e. kinked demand curve which causes a very little increase in quantity sold. OPEC countries have also an advantage of natural resources.

Step-by-step solution

Step 1. Incentive to cheat

Firms in an oligopoly can collude and form a cartel to act like a monopoly market and keep the quantity low and price high. Since, such agreement is generally not legal, there is a very high chance of cheating.

Step 2. Reason for still existing OPEC

The non-economic reason for the countries not cheating and breaking away from the cartel is because they are not only a collusion but they also act as a strategic alliance between these oil producing and exporting nations and cater to their broad interests. These countries also have cultural, regional, and religious similarities, which can also be another reason for cooperation.