The paper quantifies the macroeconomic cost of cartels using an oligopoly model with heterogeneous firms, endogenous markups and collusion. We integrate the empirical literature on cartels with recent macroeconomic studies and, most importantly, we distinguish between markups resulting from the unilateral exercise of market power and markups resulting from collusion among firms.
The analysis shows that cartels can improve or worsen the allocation of factors of production and that standard competitive oligopoly models underestimate the cost of markups in terms of welfare. Using micro data on French firms, our baseline estimates suggest that eliminating cartels would increase aggregate productivity and welfare by 1 per cent and 2 per cent, respectively.
