The Effects Of The Business Cycle On Oligopoly Coordination: Evidence From The U.S. Aluminum Industry

Abstract

Haltiwanger and Harrington (1991) among others explore a theoretical study on the effects of demand fluctuations on the degree of oligopoly coordination. They specify that demand movements are deterministic as the assumption of independent, identically distributed demand shocks in each period is excluded. This paper empirically examines the hypothesis implied by the Haltiwanger and Harrington in which current prices and margins vary directly with expected future demand. We also explore the time series properties of demand shocks. Various lag structures are introduced into the estimation. The model is applied to the U.S. aluminum industry. Results support the predictions of the theoretical models.