Estimating Overcharges in Antitrust Cases Using a Reduced-Form Approach: Methods and Issues

Abstract

This paper presents several methods and discusses salient issues pertaining to the use of reduced-form models to estimate overcharges in antitrust matters (e.g., price-fixing) where “but-for” prices may be less than actual prices during the anticompetitive period. In particular, two common types of reduced-form estimations are discussed: the “dummy-variable approach” and the “forecasting approach”. Under either methodology, an error correction model is then specified as one way to address technical problems often found in applied time-series analysis—nonstationary data and the existence of short-term and long- term dynamics.

JEL classification codes:

• C22
• K21
• L4

Key words:

• price-fixing; time-series
• reduced-form
• estimated overcharges
• antitrust