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.