The Optimal Number of Firms with an Application to Professional Sports Leagues By SangHoo Bae* and Jay Pil Choi** Abstract This paper analyzes a cartel’s optimal choice of the number of firms in Salop’s (1979) circular city model under different assumptions about cooperative behaviors among firms. We consider two scenarios: (1) a cartel operates under a fully collusive regime in which it controls the number of firms and their pricing, and (2) a cartel operates under a semi-collusive regime in which it controls only the number of firms and pricing is left to individual firms. We compare the outcomes in both scenarios to the socially optimal and free entry outcomes. We then apply these comparisons to the case of a professional sports league’s optimal choice of the number of franchises. JEL Classification: D4, L1, L83 Keywords: professional sports leagues, circular city. *SangHoo Bae Department of Economics, Clark University Worcester, MA 01610 E-mail: sbae@clarku.edu **Jay Pil Choi Department of Economics, Michigan State University East Lansing, MI 48824 E-mail: choijay@msu.edu We thank Carl Davidson and Thomas Jeitschko for useful comments and encouragement. We also thank two anonymous referees and Editor for providing very helpful and constructive comments that greatly improved the exposition of the paper.