Cartels’ Birth and Death Dynamics: Empirical Evidence

Abstract

This paper examines how the legal framework and macroeconomic environment impact cartel births and deaths. To avoid the inherent sample selection bias of prosecuted cartel studies, we use a unique dataset covering the population of Swedish legal cartels registered between 1947 and 1993. We explore the gradual tightening of Swedish competition law to study cartel dynamics. We first consider a count model focusing on the observed cartels. We then apply a hidden Markov model, which considers that cartel activity may have been imperfectly observed, since the probability of observing cartels varied with the register’s efficiency.
We find that the various competition laws had an overall deterrent effect, but new industries became collusive after the law of 1982; both cartel births and deaths are counter-cyclical; and higher interest rates increase cartel births and decrease cartel deaths, but these relationships are shown to be non-linear. Finally, we show that the likelihood of cartel survival is around 85%.

Keywords: Cartels, Legal contracts, Competition policy, Antitrust

JEL Classification: C14, C41, K21, K42, L41