LAW & ECONOMY: COMPETITION POLICY - INFRINGEMENT - PRICE OVERCHARGES - ESTIMATION - METHODS

A practical review of methods to estimate overcharges using linear regression

Arguably the most widely used techniques for estimating price overcharges from competition law infringements are the dummy variable and the forecasting approaches using linear regression analysis. While rarely used in practice, in this note we make use of the fully interacted dummy variable approach to review some basic properties of all three approaches. We show under which conditions and for which estimands of interest these approaches are equivalent and when they differ. We also note some interesting additional choices an interaction approach allows.

I. Introduction 1. The first step in the quantification of damages from competition law infringements such as horizontal agreements is the estimation of the price overcharge for the market transactions affected by the infringement. A widely used approach to estimating this price overcharge is the comparison of prices of market transactions affected by the infringement (“affected transactions”) with prices of market transactions not affected by the infringement (“comparator transactions”), most often those in the same market before and/or after the infringement. For this comparison to provide a credible estimate for the causal effect of the infringement on prices, differences in price that are not due to the infringement but to other price determining factors must be taken into account.

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Christopher Milde, Roman Inderst, A practical review of methods to estimate overcharges using linear regression, May 2019, Concurrences Review N° 2-2019, Art. N° 90011, pp. 28-37

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