THE EFFECTS OF THE BUSINESS-CYCLE ON OLIGOPOLY COORDINATION - EVIDENCE FROM THE US RAYON INDUSTRY

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