Chapter 3 - Reliable Research Methods in Applied Econometrics for Competition Law

Summary

INTRODUCTION

One of the most pressing questions in modern social science is whether a legal and policy change can influence the legal and economic environment which governments in the European Union and United States strive to create to provide a level-playing field. Historically, EU competition law has aimed at controlling collusion and other anti-competitive practices that harm the benefit of consumers, preventing the abuse of dominant market position, controlling mergers and acquisitions and use all disposable means to prevent adverse effects of state aid. Article 102 of the Treaty on the Functioning of European Union stipulates that “any abuse by one or more undertakings of dominant position within the common market or in substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member states.” The nature of the competition law essentially concerns normative aspects of decision-making with respect to what competition law shall strive for. However, the quantitative background of the competition law often remains unclear since judges, investigators and policymakers typically possess little information and know-how on the quantitative empirical analysis of policy and legal changes and how these changes affect the institutional environment. The aim of this chapter is to fill the gap between qualitative aspects of the competition law and the quantitative analytical background of judicial decision making in the area of competition law. The chapter focusses on how the tools of applied econometrics can be utilised to help investigators, judges and policymakers disentangle the very essential questions on whether and to what extent the proposed change in the competition law can influence the outcomes of interest and how such experiments can be validated. The chapter provides an introductory treatment in applied econometric methods for antitrust investigators by focusing on the most common tools such as (i) linear regression analysis, (ii) panel data econometrics and (iii) difference-in-difference analysis. In the modern econometric paradigm, these tools allow judges and investigators establish the determinants and predictors of cartel-based collusion, abuse of state aid and also facilitate a broader understanding on how policy changes can be exploited to determine its effectiveness or failure.