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In the past three decades, several case studies have documented specific industries and instances whereby collusion was welfare-enhancing rather than harmful as is usually assumed. Specifically, two distinct efficient cartel hypotheses claim that inter-firm coordination can increase economic efficiency in industries with a large degree of avoidable fixed costs and/or variable output.  This paper performs the first systematic empirical test of these hypotheses via an examination of cartel performance under the National Industrial Recovery Act of 1933, a two-year cartel experiment in the United States.  While I find a wide variation in welfare changes during cartelization, there is no compelling evidence that differences in fixed costs are the cause.  I do, however, find robust empirical support for the hypothesis that industries with highly variable output experience higher welfare gains (or less negative welfare declines) under collusion.

The Welfare Impact of Collusion under Various Industry Characteristics: A Panel Examination of Efficient Cartel Theory