Are Cartel Laws Bad for Business? Evidence from the UK

This paper examines the impact of cartel policy on firms’ profits using a panel data set of UK manufacturing industries over 1954-1973. The introduction of cartel laws in the UK in the late 1950s caused an intensification of price competition in previously cartelised manufacturing industries, but it did not affect those industries which were not cartelised. The econometric results from a comparison of the two groups of industries suggest that the UK cartel legislation had no significant impact on firms’ profits, although it had a strong effect on market structure. These results are in line with theoretical models that endogenise market structure by means of a free-entry condition, such as Selten (1984) and Sutton (1991). Acknowledgments: I thank seminar participants at Essex University, the 1999 EARIE Conference, and the 1999 CEPR-NBER Conference on Applied Industrial Organization for helpful comments on an earlier version. An extended version of this paper will be part of a forthcoming book on the effects of cartel policy on firm strategy and market structure in British industry (Symeonidis 2001). Address for correspondence: Department of Economics, University of Essex, Wivenhoe Park, Colchester CO4 3SQ, U.K. E-mail: [email protected]