Scandinavian Working Papers in Economics

Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics

No 10/2010: Cartels Uncovered.

Ari Hyytinen , Frode Steen () and Otto Toivanen
Additional contact information
Ari Hyytinen: University of Jyväskylä
Frode Steen: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Otto Toivanen: HECER & CEPR

Abstract: How many cartels are there? The answer is important in assessing the efficiency of competition policy. We present a Hidden Markov Model that answers the question, taking into account that often we do not know whether a cartel exists in an industry or not. Our model identifies key policy parameters from data generated under different competition policy regimes and may be used with time-series or panel data. We take the model to data from a period of legal cartels - Finnish manufacturing industries 1951 - 1990. Our estimates suggest that by the end of the period, almost all industries were cartelized.

Keywords: Antitrust; cartel; competition; detection; Hidden Markov models; illegal; legal; leniency; policy; registry.

JEL-codes: L00; L40; L41; L60

47 pages, March 16, 2010

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