Why is oligopolistic collusion more difficult when
there is product variation than when the products of
all firms are identical?
In large cities, taxi fares are often set above the
market equilibrium rate. Sometimes, the number
of licenses is limited in order to maintain the
above-market price. Other times, licenses are
automatically granted to anyone wanting to
operate a taxi. When taxi fares are set above
market equilibrium, compare and contrast resource
allocation under the restricted license system
(assume the licenses are tradable) and the freeentry system. In which case will it be easier for
customers to get a taxi? In which case will the
amount of capital required to enter the taxi business
be greater?