Estimating overcharges in antitrust cases using a reduced-form approach: Methods and issues

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 “dummyvariable 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 longterm dynamics.