The Effects of the Business Cycle on Oligopoly Coordination: Evidence from the U.S. Rayon Industry

Gallet, Craig A.; Schroeter, John R.

Review of Industrial Organization Vol. 10 no. 2 (April 1995): 181-196.

Recent game-theoretic studies of the effects of the business cycle on oligopoly coordination predict that coordination is weakest when demand is high and expected future profit is lower. An empirical model that uses a conjectural elasticity term to measure the degree of coordination is developed to test for these two effects. The rayon industry of the 1930s is one that exhibited significantly non-competitive condudct that appears to have varied, in degree, with fluctuations in demand. Application of the empirical model to data from this industry produces results that support the predictions of recent theoretical models.