Tuesday, April 6, 2010
Posted by D. Daniel Sokol
Ari Hyytinen, University of Jyvaskyla - School of Business and Economics, Frode Steen, Norwegian School of Economics and Business Administration (NHH) - Department of Economics, and Otto Toivanen, University of Helsinki - Department of Economics have authored Cartels Uncovered with some starteling results.
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.