Would you expect cartel formation to be more likely in industries comprised of a few firms or in those that include many firms? Explain your answer.

The practice of cartel formation is illegal in most of the countries, and the primary condition for cartel formation is the existence of company to indulge in such illegal, or at least unethical practices. Also, because of the illegality and immorality involved, the cartel formation and operation activities can not be carried out in the open. For these reasons, it is not possible to operate a cartel with too many members in it. Therefore cartels are likely to be formed between limited number of firms. Each of these firms is not likely to be big or dominant enough to impact the market prices or supplies substantially, at the same time the all the firms in the market, acing together should be able to do so. Firms of this type and size exist only in an oligopolistic market. Therefore, cartels exist only in industry characterised by oligopolistic market with a few firms, each with limited power to influence the market supplies and prices.