High-density abalone farming is restricted by the carrying capacity of water bodies where abalone is farmed. An analysis based on the cobweb model under restriction of environmental carrying capacity suggests that a disequilibrium in abalone market is likely to occur, caused collectively by the market failure due to the interaction of environmental carrying capacity restriction, externalities, and market condition. Where the equilibrium output represented by the junction of supply curve and demand curve exceeds the maximum sustainable output, externalities and limited carrying capacity will lead abalone market to an unstable state where the rise of equilibrium price and the deterioration of environment quality will reinforce each other and produce a positive feedback, i.e., an increase in price is likely to cause a corresponding decline in production, which, in turn, lead to a further increase in price until the industry runs into collapse.