Asymmetry in the Response of Price-Cost Margins to the Level of Demand Across Booms and Slumps: the Case of U.S. Industries* I thank Editor of this journal and an anonymous referee for their helpful suggestions and
Haltiwanger and Harrington (1991) reveal that, while the gain from deviating from a collusive agreement in an oligopolistic industry is greatest during booms, it is most difficult to collude during recessions since forgone profits inflicted on defection are relatively low in recessions. Their numerical simulations show that firms price more countercyclically during recessions than during booms to deter relatively greater incentive to defect in recession. This paper tests for a potential asymmetry in the response of margins to the level of demand across booms and slumps, using panel data covering 180 U.S. four-digit level SIC manufacturing industries over the 1963-1987 period. The principal findings accept this theoretical prediction. [L1, L6]
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Volume (Year): 15 (2001)
Issue (Month): 4 ()
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- John Haltiwanger & Joseph E. Harrington Jr., 1991. "The Impact of Cyclical Demand Movements on Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 89-106, Spring.
- Cowling, Keith & Waterson, Michael, 1976. "Price-Cost Margins and Market Structure," Economica, London School of Economics and Political Science, vol. 43(171), pages 267-74, August.
- Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
- White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
- Glenn Ellison, 1994. "Theories of Cartel Stability and the Joint Executive Committee," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 37-57, Spring.
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