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http://dx.doi.org/10.15266/KREEA.2014.23.2.187

Theoretical and Empirical Issues in Conducting an Economic Analysis of Damage in Price-Fixing Litigation: Application to a Transportation Fuel Market  

Moon, Choon-Geol (College of Economics & Finance, Hanyang University)
Publication Information
Environmental and Resource Economics Review / v.23, no.2, 2014 , pp. 187-224 More about this Journal
Abstract
We present key issues to consider in estimating damages from price-fixing cases and then apply the procedure addressing those issues to a transportation fuel market. Among the five methods of overcharge calculation, the regression analysis incorporating the yardstick method is the best. If the price equation relates the domestic price to the foreign price and the exchange rate as in the transportation fuel market, the functional form satisfying both logical consistency and modeling flexibility is the log-log functional form. If the data under analysis is of time series in nature, then the ARDL model should be the base model for each market and the regression analysis incorporating the yardstick method combines these ARDL equations to account for inter-market correlation and arrange constant terms and collusion-period dummies across component equations appropriately so as to identify the overcharge parameter. We propose a two-step test for the benchmarked market: (a) conduct market-by-market Spearman or Kendall test for randomness of the individual market price series first and (b) then conduct across-market Friedman test for homogeneity of the market price series. Statistical significance is the minimal requirement to establish the alleged proposition in the world of uncertainty. Between the sensitivity analysis and the model selection process for the best fitting model, the latter is far more important in the economic analysis of damage in price-fixing litigation. We applied our framework to a transportation fuel market and could not reject the null hypothesis of no overcharge.
Keywords
antitrust damage; price-fixing litigation; overcharges; but-for price; yardstick method; the benchmarked market; Friedman test for homogeneity for related samples; autoregressive distributed lag (ARDL) model; functional form; statistical significance; transportation fuel market;
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