If there are many firms in an industry,there is little incentive for firms to engage in tacit collusion because a smaller proportion of the units of the product sold are affected by the price effect if a firm increases output.

Question

Quizplus · Accepted Answer

If there are many firms in an industry, each firm's market share is smaller, so if one firm increases its output and lowers its price, the effect on the overall market price will be less than if there were fewer firms with larger market shares. This makes it less likely that firms will be able to coordinate their pricing strategies and engage in tacit collusion.

If There Are Many Firms in an Industry,there Is Little