Collusion and Antitrust Filings over the Business Cycle
We develop and test a novel prediction of the theory of collusion over the business cycle. Building on Haltiwanger and Harrington (1991), we present a model of collusive behaviour in the presence of persistent demand and an Antitrust Authority (AA) in a Cournot framework. The level of collusion is higher during a boom relative to a recession as collusion occurs more frequently when demand is increasing (entering into a collusive arrangement is more profitable and deviating from an existing cartel is less profitable). The model predicts that the number of discovered cartels and hence an- titrust filings should be procyclical because the level of collusion is procyclical. Using a unique data set of United States Antitrust filings, we present robust evidence con- sistent with the model's prediction. We find that antitrust filings are procyclical even after controlling for AA's monitoring intensity. The evidence suggests that procyclical competition policies may be a cost minimizing solution to asymmetries in collusive behaviour over the business cycle.
|Keywords||Collusion, Cournot Competition, Antitrust Filings, Business Cycle|
|JEL||Stochastic and Dynamic Games; Evolutionary Games (jel C73), Oligopoly and Other Imperfect Markets (jel L13), Business Fluctuations; Cycles (jel E32)|
|Publisher||Department of Economics|
|Series||Carleton Economics Working Papers (CEWP)|
Khan, H.U, & Strathearn, Matthew. (2018). Collusion and Antitrust Filings over the Business Cycle (No. CEP 18-13). Carleton Economics Working Papers (CEWP). Department of Economics.