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Analysis of Cartel Stability Conditions
Consider two hypothetical industries.
Industry A consists of three large firms that produce a standardized, identical product. All sales prices are publicly posted and easily observable by competitors.
Industry B consists of fifteen smaller firms, each producing a slightly different version of a product with unique branding. Prices are often negotiated privately with individual buyers and are not publicly known.
In which industry would a secret agreement to fix prices and limit output be more likely to remain stable over a long period? Justify your conclusion by comparing the characteristics of both industries.
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