TY  - JOUR
AU  - Bagwell,Kyle
AU  - Staiger,Robert W.
TI  - Collusion over the Business Cycle
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5056
PY  - 1995
Y2  - March 1995
UR  - http://www.nber.org/papers/w5056
L1  - http://www.nber.org/papers/w5056.pdf
N1  - Author contact info:
Kyle Bagwell
Department of Economics
Stanford University
Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
Tel: (650) 723-3251
E-Mail: kbagwell@stanford.edu

Robert W. Staiger
Department of Economics
Stanford University
Landau Economics Building
579 Serra Mall
Stanford, CA  94305-6072
Tel: 650/723-0533
Fax: 650/725-5702
E-Mail: rstaiger@stanford.edu
AB  - We present a theory of collusive pricing in markets subject to business cycle fluctuations.  In the business cycle model that we adopt, market demand alternates stochastically between fast-growth (boom) and slow-growth (recession) phases.  We provide a complete characterization of the most-collusive prices and show that: (1) the most-collusive prices may be procyclical (countercyclical) when demand growth rates are positively (negatively) correlated through time, and (2) the amplitude of the collusive pricing cycle is larger when the expected duration of boom phases decreases and when the expected duration of recession phases increases.  We also offer a generalization of Rotemberg and Saloner's (1986) model, and interpret their findings in terms of transitory demand shocks that occur within broader business cycle phases.
ER  -