The existing literature which analyses the relationship between the product differentiation degree and the sustainability of a collusive agreement on price assumes that firms cannot price discriminate, and concludes that there is a negative relationship between the product differentiation degree...

We show in a game-theoretic model that when quantity-setting firms first choose whether to discriminate or not and then set quantities, the unique equilibrium consists in all firms selling a uniform quantity to all consumers. This sharply contrasts with the case of price-setting firms.