DP7761 Cartels Uncovered

Author(s):	Ari Hyytinen, Frode Steen, Otto Toivanen
Publication Date:	March 2010
Keyword(s):	antitrust, cartel, competition, detection, Hidden Markov models, illegal, legal, leniency, policy, registry
JEL(s):	L0, L4, L40, L41, L60
Programme Areas:	Industrial Organization
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=7761

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.