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Cartel Stability in Times of Low Interest Rates

Author

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  • Severin Lenhard

Abstract

We study the interest rate s effect on the stability of cartels. A low interest rate implies a high discount factor and thus increases cartel stability. If firms access the capital market, an additional effect comes into play: a low interest rate lowers investment costs, resulting in more profitable deviations from the collusive agreement. We propose a new measure for a cartel s stability regarding the two opposing effects. Stability is U-shaped in the interest rate. We test our theory using a dataset of 615 firms and find supporting evidence. We conclude that the current unusually low interest rate facilitates collusion.

Suggested Citation

  • Severin Lenhard, 2021. "Cartel Stability in Times of Low Interest Rates," Diskussionsschriften dp2104, Universitaet Bern, Departement Volkswirtschaft.
    • Handle: RePEc:ube:dpvwib:dp2104
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    More about this item

    Keywords

    Collusion; Interest Rate; Repeated Game; Survival Analysis;
    All these keywords.

    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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