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Cheating in an economic cartel is 

the act of a member secretly breaking the agreed-upon rules, usually by lowering prices or increasing output, to gain a temporary advantage in market share and profits. This creates a strong incentive for individuals to cheat because they can increase their own profits in the short term, but it can ultimately lead to the cartel’s collapse if cheating is detected and other members retaliate with price wars or by also breaking the agreement. 

This video explains how cheating cartels are affecting the gaming economy:

Why cartel members cheat

• Short-term profit maximization: By secretly lowering prices, a firm can attract more customers and increase its sales volume. Similarly, a firm can boost its profit by producing more than its agreed-upon quota while others restrict production.
• Gain market share: A cheating firm can capture a larger share of the market that would otherwise be divided among all cartel members.
• Undermine the agreement: Cheating firms can take advantage of the higher prices set by the cartel to increase their profits before the agreement breaks down. 

Consequences of cheating

• Loss of trust: Cheating undermines the trust and cooperation necessary for a cartel to function, potentially leading to its collapse.
• Price wars: If one member is caught cheating, other cartel members may retaliate by lowering their prices, which can lead to a destructive price war that eliminates the profits of all firms involved.
• Cartel breakdown: If enough members cheat, the cartel’s ability to maintain high prices and restrict output is destroyed, and the market reverts to more competitive behavior. 

This video shows an example of a gaming clan called “The CHEATING Cartel” in the game Rust:

Factors influencing cheating

• Discount rate: A high discount rate (valuing present profits more than future ones) increases the incentive to cheat.
• Probability of detection: A low probability of cheating being detected makes cheating more attractive.
• Number of firms: The incentive to cheat is stronger when there are many firms in the cartel because the impact of one firm cheating on the overall market price is smaller, and there are more potential opportunities for cheating.