Oligopolistic pricing over the deterministic market demand cycle: some evidence from the US Portland cement industry

Abstract

Haltiwanger and Harrington (1991) [Haltiwanger, J., Harrington, J.E. Jr., 1991. The impact of cyclical demand movements on collusive behavior. Rand Journal of Economics 22, 89–104.] formulated a theory of self-enforcing collusion assuming a deterministic demand cycle. They predicted that under a self-enforcing non-cooperative pricing scheme, for any level of demand, the price in the rising part of the cycle would always be greater than the price in the falling part of the cycle. They also predicted that the path of collusive profits should reach its peak before market demand. We test their predictions using data from the Portland cement industry. The hypotheses are tested using a multi-equation system, differentiating the boom and the bust periods from 1974 to 1989. The results support both of Haltiwanger and Harrington’s hypotheses.