In which types of industry are cartels more likely to occur?

Cartels are more likely to occur in industries with few competitors due to several interconnected factors. In such environments, the limited number of firms makes it easier for companies to communicate and coordinate their prices and production levels without the fear of losing market share to numerous rivals. Firms in these markets can benefit from the increased pricing power that comes from cooperation, which can lead to higher profits for all cartel members.

Additionally, when there are only a small number of players in an industry, there is a greater incentive for those firms to collude, as each company's actions have a significant impact on the overall market. This dynamic can create a stability that is conducive to cartel formation, as firms may prefer to work together rather than compete against one another aggressively.

In contrast, in industries with many competitors or high levels of innovation, the opportunities for effective collusion diminish. The presence of numerous players increases competition, thereby making it difficult to maintain a coordinated approach. Similarly, industries characterized by heavy regulation tend to have oversight mechanisms that can discourage or penalize collusion. Thus, these attributes reinforce why cartels are predominantly found in markets with few competitors.