The relationship between cartels and economic fluctuations

Abstract

Various actions of market players, which violate fair competition, are harmful to the economy. But the most dangerous are cartels. It is recognized that cartels make a great harm to all market players and adversely affect national economy and its competitiveness. The question is whether the companies are more likely to make the cartel agreement in growing economy, or on the contrary – in recession? Various authors’ studies present different conclusions: 1) the economic downturn and demand uncertainty promotes the formation of cartels and 2) the economy increases, especially in emerging markets, firms tend to increase profits by making cartels. Probably there is no single answer, what relationship exists between the cartels and economic fluctuations, as it can be affected by various factors. This paper analyzes the situation of cartels in the country of small economy with developing culture of competition and evaluates the relationship between the cartels and the economic fluctuations. The empirical analysis is based on Lithuanian cases. This country is chosen because it corresponds to the features of the small economy with developing culture of competition. The specific of Lithuanian cartels justifies the necessity of evaluation the relationship between the cartels and the economic fluctuations. The lack of information is an obstacle to efficient and successful implementation of strategic decisions directing to the minimization of the number of cartel agreements and their negative impact on the economy. The research has shown that there is a moderate linear correlation between the cartels and the Lithuanian economic fluctuations.

DOI: http://dx.doi.org/10.5755/j01.ee.26.3.7331