Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/242855 
Year of Publication: 
2021
Series/Report no.: 
Discussion Papers No. 21-04
Publisher: 
University of Bern, Department of Economics, Bern
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.
Subjects: 
Collusion
Interest Rate
Repeated Game
Survival Analysis
JEL: 
C41
D43
K21
L40
Creative Commons License: 
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Document Type: 
Working Paper

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