> What you don't know, and is a closely guarded secret, is how Walmart arrived at that price.
This is often not that much of a secret either. In many cases it's as simple as: Look at what competitors are charging, set your price the same or slightly lower, and if that price isn't profitable then don't carry it.
Which is why concentrated markets are basically as bad as a monopoly. If all you have is Walmart and Whole Foods then Walmart can raise prices, Whole Foods sees this and raises theirs too, and then they both leave it there because that's better for both of them than the lower price. Doubling their margins is more profitable than increasing their market share from 50% to 75%. Tripling their sales isn't on the table because they each started with 50% and you can't have 150% of the market.
Whereas if there are a hundred stores, even if 80 of them try to match Walmart's price increase, 20 of them notice that they now can triple their sales or more by keeping the lower price, and that's more profitable than doubling their margins. At which point others get tired of losing most of their sales and lower their prices again.
And the latter is the kind of market Walmart actually operates in, which is why their marketing slogan is "low prices" and not "it's for your own good".
> Of course, some of them might chose option (a), undercutting all the others, but that's not a real problem in a cartel with so many small members (one cheating member won't significantly affect prices).
That's exactly when it's a problem, because they all have the same incentive: Let the members of the cartel increase the market price by withholding their units, while renting out all of yours. And then it's not just one landlord doing it because the only ones not doing it are "selfless" idiots who could be making more money by defecting against the cartel.