Collusion Over the Business Cycle

54 Pages Posted: 25 Jul 2000 Last revised: 26 Apr 2021

See all articles by Kyle Bagwell

Kyle Bagwell

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Robert W. Staiger

Stanford University; University of Wisconsin - Madison - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: March 1995

Abstract

We present a theory of collusive pricing in markets subject to business cycle fluctuations. In the business cycle model that we adopt, market demand alternates stochastically between fast-growth (boom) and slow-growth (recession) phases. We provide a complete characterization of the most-collusive prices and show that: (1) the most-collusive prices may be procyclical (countercyclical) when demand growth rates are positively (negatively) correlated through time, and (2) the amplitude of the collusive pricing cycle is larger when the expected duration of boom phases decreases and when the expected duration of recession phases increases. We also offer a generalization of Rotemberg and Saloner's (1986) model, and interpret their findings in terms of transitory demand shocks that occur within broader business cycle phases.

Suggested Citation

Bagwell, Kyle and Staiger, Robert W., Collusion Over the Business Cycle (March 1995). NBER Working Paper No. w5056, Available at SSRN: https://ssrn.com/abstract=225835

Kyle Bagwell (Contact Author)

Stanford University - Department of Economics ( email )

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Robert W. Staiger

Stanford University ( email )

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University of Wisconsin - Madison - Department of Economics ( email )

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