Suppose that it is relatively easy for new ﬁrms to enter an industry. Some of the ﬁrms in this industry want to form a cartel. Which of the following is likely to be true?

Question

Quizplus · Accepted Answer

When it is easy for new firms to enter an industry, forming a cartel becomes less effective because new entrants can undermine the cartel's control over the market. This makes the market power of any potential cartel likely to be low, as they cannot easily control prices or output without being undercut or challenged by new entrants.

Suppose That It Is Relatively Easy for New ﬁRms to Enter