How is a monopoly different from a cartel?

A monopoly and a cartel can end up producing the same outcome for buyers, a price above the competitive level and less output than a competitive market would supply, but they get there in different ways. A monopoly is one firm that owns the entire market, so there is no coordination problem: the firm alone decides price and quantity. A cartel is several independent firms, each with its own plant and its own costs, that agree to jointly hold down output and raise price as if they were one firm. A monopoly does not need to trust anyone. A cartel has to trust every member to keep the deal.

The trouble is that every cartel member has a private incentive to break the deal, and a simple two firm example shows why. Suppose two firms split a market and each agrees to hold output low enough to keep price high, earning 50 in profit apiece under the agreement. If one firm secretly produces more while the other holds the line, the cheater grabs extra sales and pushes its own profit to 70, while the firm that kept the agreement falls to 30 because its rival is now selling more at what used to be the shared high price. If both firms give in to that temptation and expand output, price falls back toward the competitive level and both end up earning only 40, less than the 50 they got by cooperating. Each firm, reasoning on its own, sees that cheating pays more than holding the line no matter what the other firm does, so both cheat, and the cartel slides toward the low mutual payoff even though both firms would have been better off keeping the original agreement.

OPEC is the standard classroom example of a cartel because its members are separate, sovereign oil producing countries that meet to agree on production quotas, not a single firm setting output on its own. The same incentive problem shows up there: when the group agrees to cut output to support the price of oil, any single member can profit by quietly pumping more than its quota while the rest of the group holds back, and that temptation is exactly why OPEC's output agreements are hard to enforce and get violated. This is a general feature of how cartels behave, not a claim about any specific price or output level, which is why economists reach for OPEC as the case that most clearly separates cartel behavior from ordinary monopoly behavior.

In the United States and most other countries, agreements among competing firms to fix prices or restrict output are treated as an illegal conspiracy under antitrust law, while simply being the sole seller in a market is not automatically illegal on its own.

This is the same game theory that AP Microeconomics covers under oligopoly: firms that could all earn more by cooperating still have an individual incentive to defect, which is a prisoner's dilemma, and a cartel is one real world example of it. For the full treatment, including the payoff matrix format used on the exam, see the oligopoly explainer.