Under which of the following market conditions is it most difficult to maintain a cartel agreement?

Question

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When firms have different costs, some firms may be able to undercut the agreed-upon price and sell more, which will cause the other firms to cheat as well. In a situation where firms have similar costs (A and C), it may be easier for the firms to agree on a price and stick to it. In a situation with many firms producing homogeneous products, each firm is a perfect substitute for the other (E), so there is no incentive for any one firm to stick to the agreed-upon price, as they can sell at market price and still make a profit. Although having few firms in the industry (D) may make it easier to coordinate, it also means that each firm has a larger market share and therefore more to gain by cheating on the agreement.

Under Which of the Following Market Conditions Is It Most