Cartels Uncovered

How many cartels are there? The answer is important in assessing the need for 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. We take the model to data from a period of legal cartels - Finnish manufacturing industries 1951 - 1990. Our estimates suggest that once born, cartels are persistent; by the end of the period, almost all industries were cartellized. Our model may be extended to identify key policy parameters from data generated under different competition policy regimes.