报告：Government Resource Constraints, Cartel Enforcement, and Firm Performance
摘要：Collusion in product markets can help firms earn higher profits, but it may also lead to resource misallocation and higher transaction costs, leaving the average impact on firms’ financial performance unclear. I empirically examine collusion’s financial impact on firms by relying on a difference-in-differences approach based on an exogenous decrease in cartel enforcement resources due to government budget constraints. I first show that the reduction in enforcement resources diminishes the likelihood of cartel detection in the affected territories. Following weaker cartel enforcement, on average firms have lower profits and higher costs, suggesting that the negative impact of collusion dominates. The negative impact is more pronounced for 1) firms that experienced more significant reduction in the level of scrutiny, 2) firms relatively downstream in the production chain, consistent with the argument that downstream firms are more likely to be victims of cartel overcharge, and 3) firms with lower ability to collude, consistent with the prediction that non-cartel members get harmed in a more collusive product market environment. I further document that firms react to the higher transaction costs associated with collusion by undertaking vertical mergers. Overall, this study highlights the economic consequences of weak cartel enforcement.