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Managers’ expectations, business cycles and cartels’ life cycle

Author

Listed:
  • Carmen García

    (Universidad de Las Palmas de Gran Canaria)

  • Joan Ramon Borrell

    (Universitat de Barcelona, Institut d’Economia Aplicada (IREA) - Grup de Governs i Mercats (GiM)
    University of Navarra, IESE Business School, Public-Private Sector Research Center)

  • José Manuel Ordóñez-de-Haro

    (Universidad de Málaga, Dep. de Teoría e Historia Económica)

  • Juan Luis Jiménez

    (Universidad de Las Palmas de Gran Canaria)

Abstract

The literature presents mixed findings regarding the economic conditions under which cartels form and collapse, and regarding how stable they are across firm-specific and industry-wide business cycles. The relationship between cartel life cycles and business cycles has been insufficiently analyzed to date. In this paper, we study in depth whether collusion is pro-cyclical or counter-cyclical. We analyze the relationship between cartel start-ups/break ups and economic cycles using a dataset of sanctioned cartels by the European Commission (EC) that were active between 1997 and 2018, after the leniency program had already been introduced. We also double check whether this relationship has changed with respect to the pre-leniency period from 1991 to 1996. Our results show that cartels are more likely to be formed when the business has evolved positively in the previous months, and cartels are less likely to collapse when the business has evolved positively, and managers expect prices to decline. The EC’s sanctioning activity has been an effective deterrent and has had a destabilizing effect on cartels. However we found no evidence that managers’ expectations on prices affect cartel formation. All these results are an important issue for anti-cartel policy enforcement since knowing when cartels are more prone or less likely to occur would help authorities prevent their formation or their early detection.

Suggested Citation

  • Carmen García & Joan Ramon Borrell & José Manuel Ordóñez-de-Haro & Juan Luis Jiménez, 2022. "Managers’ expectations, business cycles and cartels’ life cycle," European Journal of Law and Economics, Springer, vol. 53(3), pages 451-484, June.
  • Handle: RePEc:kap:ejlwec:v:53:y:2022:i:3:d:10.1007_s10657-022-09730-z
    DOI: 10.1007/s10657-022-09730-z
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    More about this item

    Keywords

    Cartels; Business cycles; Business expectations; Antitrust;
    All these keywords.

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • K2 - Law and Economics - - Regulation and Business Law
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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