Collusion and Antitrust Filings over the Business Cycle

Hashmat Khan () and Matthew Strathearn ()

No 18-13, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: 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 (search for similar items in EconPapers)
JEL-codes: C73 E32 L13 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2018-12-20
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-mac
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Published: Carleton Economic Papers

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