We analyze how the size of a cartel affects the possibility to sustain a collusive agreement. We develop a multi-period oligopoly model with homogeneous, quantity-setting firms, a subset of which are assumed to collude, while the remaining (fringe) firms choose their output levels noncooperatively. We show that, in our model, collusion is easier to sustain the larger the cartel is. The implications of this result on the incentives of firms to participate in a cartel are analyzed. We obtain that a firm is only willing to collude when otherwise collusion cannot be sustained.
Investigaciones Economicas is edited by Antonio Cabrales and Pedro Mira
More articles in Investigaciones Economicas from Fundación SEPI Address: Investigaciones Economicas Fundación SEPI Quintana, 2 (planta 3) 28008 Madrid Spain Series data maintained by Isabel Sánchez-Seco ().