Cartel stability with multiproduct firms

I examine the implications of the presence of multiproduct firms for cartel stability in a horizontally differentiated market. Under quantity competition, an increase in the number of varieties produced by each firm, for any given number of firms, increases the critical discount factor above which collusion is sustainable by trigger strategies, and thus makes collusion less likely. This is also the case under price competition, except for a special case where the number of firms is small and the products are close substitutes. These results may help explain apparent inconsistencies between theoretical predictions and empirical evidence on the effect of market structure and product differentiation on the likelihood of collusion. © 2002 Elsevier Science B.V. All rights reserved.