CRA International,Inc. · NASDAQ:CRAI
CRA International,Inc — CRA Competition Conference 2005
11 slides from CRA International,Inc's conference presentation, Dec 15, 2005
Slide 1: Economic Models in Antitrust Analyses
Economic Models in Antitrust Analyses Their Use, Misuse and Prospects for the Future Gregory Vistnes CRA International Washington, DC CRA Competition Conference Brussels December 15, 2005
Slide 2: Overview
Overview • Models Playing an Increasing Role in Antitrust Analyses – Modeling assumptions increasingly replacing traditional presumptions • Predictions Often Sensitive To Modeling Assumptions – Assumptions are sometimes “hidden” in the economic model – Empirical support for assumptions can vary • Mi
Slide 3: Black Boxes vs. Explicit Models
Black Boxes vs. Explicit Models • Balancing of Presumptions, Assumptions and Evidence Permeates Antitrust Analysis, Including: – Choice of competitive effects theory – Reliance on economic analyses – Assessing the legitimacy of underlying assumptions – Testing the sensitivity of the model’s assumpti
Slide 4: Unilateral Effects ("UE") Models
Unilateral Effects (“UE”) Models • Unilateral (Non-Coordinated) Effects Theory – Key to 1992 US DOJ/FTC Merger Guidelines – Provided a unifying analytical framework – Moved policy away from presumptions – Explicit framework encouraged the testing of model’s assumptions and predictions • Unilateral E
Slide 5: UE Models Embody Several Assumptions
UE Models Embody Several Assumptions • Both Simple & Complex Models Driven By Assumptions: – Parameter values (assumed or empirically estimated) – Details of the competitive structure and dynamics • Modeling Assumptions Can Include: – What are customer preferences? Linear demand, constant elastici
Slide 6: Predictions Sometimes Differ From Observed Facts
Predictions Sometimes Differ From Observed Facts • Predictions Depend on Embedded Assumptions – Assumptions can affect direct of predicted effect – Assumptions can affect magnitude of predicted effect • Models’ Predictions Are Sometimes Refuted – Example: Simple Models Typically Predict That Mergers
Slide 7: An Illustrative Example
An Illustrative Example • Simple Models Predict Merger-Related Price Effects: – Assumption: Linear demand %P = (m * d ) / [2*(1 - d)] For m = 25% and d = 25% .... %P = 4.2% – Alternative Assumption: Constant elasticity of demand %P = (m * d) / (1 - m - d) SAME m = 25% and d = 25% .... %P
Slide 8: Coordinated Effects Theory
Coordinated Effects Theory • Increased Attention in US Due To Criticisms Of UE Theory – Historical reliance on behavioral presumptions and the “checklist” – Movement from presumption-based approach to more rigorous, fact-friendly analytical framework • US Agencies Now Ask Two Questions: – What const
Slide 9: Recent US Cases Reflect Both Theories
Recent US Cases Reflect Both Theories Unilateral Coordinated Both Sungard/Comdisco: Premdor/Masonite: Bayer/Aventis: 2002 (DOJ) 2001 (DOJ) 2002 (FTC) Nestle/Dreyer: UPM-Bemis: SGL/Graphite: 2003 (FTC) 2003 (DOJ) 2003 (DOJ) Aspen/Hyprotech*: Arch/Triton: Alcan/Pechiney: 2003 (FTC) 2004 (FTC) 2003 (DO
Slide 10: Cautionary Warnings Do Not Warrant Blanket Condemnation
Cautionary Warnings Do Not Warrant Blanket Condemnation • Even Incomplete Models Are Valuable – Incomplete models can still shed light on key incentives – A model is just a model – Expanding model necessitates additional assumptions • Distinguishing Between Alternative Assumptions May Not Always Be
Slide 11: Distinguishing Between Science and Alchemy
Distinguishing Between Science and Alchemy • Recent Cases Show Continued Reliance On Economic Models – Appropriate reluctance, however, to simply substitute economic assumptions for generalized presumptions • Proper Use of Economic Models Require Judicious Application and Interpretation – Balancing