On the price effects of collusion and the number of firms

This note considers a theoretical model where firms are able to coordinate on distinct output levels than the monopoly outcome. In our model, the degree of collusion (captured by the coefficient of cooperation) and the number of firms are only imperfect substitutes in order to maximize consumer surplus. The main implication of this finding is that policy measures devoted to increase the number of competitors are more effective when the degree of collusion is small whereas the efforts to discourage collusion should be applied especially in markets with many firms. The results are also robust to other ways to parameterize the product-market competition.