Quantitative Techniques for Competition and Antitrust Analysis

Peter Davis is deputy chairman of the United Kingdom's Competition Commission. He previously served on the faculties of MIT Sloan and the London School of Economics. He holds a PhD in economics from Yale University. Eliana Garces is a member of the cabinet of the European Commissioner for Consumer Affairs. She was previously a member of the Chief Economist's Team within the European Commission's Directorate General for Competition. She holds a PhD in economics from the University of California, Los Angeles.

Preface ix Acknowledgments xii Chapter 1: The Determinants of Market Outcomes 1 1.1 Demand Functions and Demand Elasticities 1 1.2 Technological Determinants of Market Structure 19 1.3 Competitive Environments: Perfect Competition, Oligopoly, and Monopoly 37 1.4 Conclusions 61 Chapter 2: Econometrics Review 62 2.1 Multiple Regression 63 2.2 Identification of Causal Effects 89 2.3 Best Practice in Econometric Exercises 113 2.4 Conclusions 119 2.5 Annex: Introduction to the Theory of Identification 121 Chapter 3: Estimation of Cost Functions 123 3.1 Accounting and Economic Revenue, Costs, and Profits 125 3.2 Estimation of Production and Cost Functions 131 3.3 Alternative Approaches 149 3.4 Costs and Market Structure 158 3.5 Conclusions 160 Chapter 4: Market Definition 161 4.1 Basic Concepts in Market Definition 162 4.2 Price Level Differences and Price Correlations 169 4.3 Natural Experiments 185 4.4 Directly Estimating the Substitution Effect 191 4.5 Using Shipment Data for Geographic Market Definition 198 4.6 Measuring Pricing Constraints 201 4.7 Conclusions 227 Chapter 5: The Relationship between Market Structure and Price 230 5.1 Framework for Analyzing the Effect of Market Structure on Prices 231 5.2 Entry, Exit, and Pricing Power 256 5.3 Conclusions 282 Chapter 6: Identification of Conduct 284 6.1 The Role of Structural Indicators 285 6.2 Directly Identifying the Nature of Competition 300 6.3 Conclusions 341 6.4 Annex: Identification of Conduct in Differentiated Markets 343 Chapter 7: Damage Estimation 347 7.1 Quantifying Damages of a Cartel 347 7.2 Quantifying Damages in Abuse of Dominant Position Cases 377 7.3 Conclusions 380 Chapter 8: Merger Simulation 382 8.1 Best Practice in Merger Simulation 383 8.2 Introduction to Unilateral Effects 386 8.3 General Model for Merger Simulation 401 8.4 Merger Simulation: Coordinated Effects 426 8.5 Conclusions 434 Chapter 9: Demand System Estimation 436 9.1 Demand System Estimation: Models of Continuous Choice 437 9.2 Demand System Estimation: Discrete Choice Models 462 9.3 Demand Estimation in Merger Analysis 491 9.4 Conclusions 499 Chapter 10: Quantitative Assessment of Vertical Restraints and Integration 502 10.1 Rationales for Vertical Restraints and Integration 503 10.2 Measuring the Effect of Vertical Restraints 518 10.3 Conclusions 553 Conclusion 555 References 557 Index 577