Working Paper: CEPR ID: DP7761
Authors: Ari Hyytinen; Frode Steen; Otto Toivanen
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: L0; L4; L40; L41; L60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| macroeconomic conditions (E66) | cartel formation (L12) |
| GDP shocks (F62) | cartel formation (L12) |
| competition policy effectiveness (L49) | cartel prevalence (L41) |
| weaker enforcement (P14) | higher cartelization rates (L12) |
| cartel formation (L12) | cartel persistence (L12) |