Estimating Cartel Damages with Model Averaging Approaches

Abstract

This research suggests an easy-to-implement forecast combination procedure to deal with the model uncertainty issues when evaluating the cartel damages. We combine the Mallows model averaging (MMA) method with both the dummy variable (DV) and forecasting approaches to investigate the famous citric acid cartel case during the 1990s. The path of but-for prices generated from the MMA method with DV specification lies in-between those generated from the forecasting and DV methods, supporting the theoretical properties of the MMA method which weights over different forecasts generated from different candidate models. This indicates that the but-for prices generated from the MMA method could serve as a useful robustness check for cartel damage estimations.