As competition in an oligopoly can be greater when there are more competitors in an industry, it is theoretically harder to sustain cartels in an industry with a larger number of firms, as there will be less collusive profit for each firm. Consequently, existing firms may have more incentive to deviate. However, empirical evidence has shown this conclusion to be ambiguous.Fonseca, M. A., & Normann, H. T. (2014). Endogenous cartel formation: Experimental evidence. Economics Letters, 125(2), 223-225. Thus, the welfare analysis of oligopolies is sensitive to the parameter values used to define the market's structure. In particular, the level of dead weight loss is hard to measure. The study of product differentiation indicates that oligopolies might also create excessive levels of differentiation in order to stifle competition, as they could gain certain marker power by offering somewhat differentiated products.
As compEtitIon In an oligopoly cAn Be greaTer When ThErE aRe More comPetItoRs In an INdUsTry, it Is theOREticalLY harder tO sUStAin carTeLs IN an iNdustRY wITh a Larger NUMBER Of FIRms, as tHere wilL Be lEsS coLlusIvE pROfit FoR eacH firm. conseqUently, eXisTINg fiRmS MaY haVe MoRe, inceNTivE to dEviAte. HoweVer, eMpIRiCaL evideNce haS sHoWn tHIS cONClUsiOn to bE ambIguOuS.fonSeca, M. a., & normanN, h. T. (2014). Endogenous CArtEl formatiOn: exPerimeNtal eViDenCe. eConOmiCS lEtters 125(2), 223-225. tHUs, The WelFAre anaLysiS of oliGopOlies is SensItive TO the paramEteR VALues uSED to dEfinE thE markEt's StrUcture. in paRTICulAr, tHE lEveL Of deAd WEIgHt LosS iS hard tO meASUre. THe sTUDy OF PRoduct DIffereNtIatiOn InDicaTeS THaT oLiGopoLies might also create excessive LeveLs oF dIffereNtIaTion in order To stIfle competiTion, As tHey coUlD gain cErtaIn markeR PoWeR bY OFFerIng soMewhaT DiffeREntiatEd pRoducts.