Cartel Sustainability and Cartel Stability

Abstract

The paper studies how does the size of a cartel affect the possibility that its members can sustain a collusive agreement. I obtain that collusion is easier to sustain the larger the cartel is. Then, I explore the implications of this result on the incentives of firms to participate in a cartel. Firms will be more willing to participate because otherwise, they risk that collusion completely collapses, as remaining cartel members are unable to sustain collusion.

Keywords: Collusion, Partial cartels, Trigger strategies, Optimal punishment

JEL Classification: L11, L13, L41, D43