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We study the cost of cartels in an oligopoly model with het-
erogeneous firms, endogenous markups, and collusion. Cartels
can amplify or dampen misallocation, by charging supracompetitive markups and reallocating demand towards non-colluding firms.
Using French micro data, our calibrated model suggests that cartels
operating in the most productive industries may decrease aggregate
productivity by up to 0.4% and welfare by up to 0.7%. We also find
that standard competitive oligopoly models may understate the cost
of markups by about 20%.
