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Cartels as Shock Absorbers: Collusion Dynamics in Times of Macroeconomic Instability

Author

Listed:
  • Tove Forsbacka

    (NHH - Norwegian School of Economics and Business Administration, Department of Economics - Norwegian School of Economics and Business Administration)

  • Chloé Le Coq

    (CRED - Centre de Recherche en Economie et Droit - Université Paris-Panthéon-Assas, SSE - Stockholm School of Economics)

  • Catarina Marvão

    (TU - Technological University [Dublin], SSE - Stockholm School of Economics)

Abstract

This paper investigates how business cycles and interest rate fluctuations affect cartel dynamics. To do so, we apply a Hidden Markov Model to a unique dataset on a population of (legal) cartels in Sweden, from 1947 to 1993. We find that GDP shocks and higher interest rates, as a proxy for borrowing costs, increase cartel formation and reduce cartel dissolution, with stronger effects in the manufacturing sector. Thus, GDP shocks and higher interest rates lead to an increase in the number of cartels in the economy. These findings highlight how cartels act as shock absorbers, helping firms handle economic instability and reducing the impact of both positive and negative shocks.

Suggested Citation

  • Tove Forsbacka & Chloé Le Coq & Catarina Marvão, 2025. "Cartels as Shock Absorbers: Collusion Dynamics in Times of Macroeconomic Instability," Working Papers hal-04864772, HAL.
    • Handle: RePEc:hal:wpaper:hal-04864772
    Note: View the original document on HAL open archive server: https://univ-pantheon-assas.hal.science/hal-04864772v1
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