Taking the con out of econometrics? Challenges to using “Difference in Differences” in competition cases

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Economic analysis of merger and competition cases has been shaped by the “credibility revolution” that revolutionised economics as a discipline and won Angrist, Card and Imbens the Nobel Prize last week. Tools like “difference-in-differences” are now widely used and the emphasis has shifted towards empirical evidence over theory and to identifying causal effects rather than mere correlations.

But antitrust practitioners should not rest on their laurels: recent developments have identified new pitfalls which could easily undermine analysis done in the context of merger and antitrust assessments. Solutions are at hand, but empirical analysis needs to be done with care and, just as antitrust economics took on board the lessons of the credibility revolution, it needs to incorporate these latest insights and methodologies.

In this competition memo Dr Oliver Latham and Dr Javier Brugués discuss the impact of the credibility revolution on analysis in antitrust and merger cases, the use of difference-in-differences to assess the impact of market entry, and how to correct for potentially serious errors when conducting such analyses.

To read the memo please click here.

The views in this article are those of the authors and do not represent the views of any client or of CRAs other experts.