Forensic economists and forensic accountants frequently work together in competition damages claims, the economist constructs the counterfactual model while the accountant verifies assumptions against financial records.
Cartel Overcharge Methodology
Cartel overcharge calculations estimate the price premium paid by customers as a result of the cartel arrangement. Forensic economists construct a but-for counterfactual, what prices would have been absent the cartel, and compare this to actual prices paid.
Common econometric techniques include: difference-in-differences analysis (comparing price changes in affected vs unaffected markets); yardstick comparisons (using prices in similar but unaffected markets as a benchmark); and simulation models based on economic theory of competitive pricing.
The choice of methodology depends on data availability, market structure, and the nature of the cartel. CAT jurisprudence has established principles for assessing the reliability of different overcharge estimation approaches.
The Pass-On Defence
The pass-on defence allows cartel defendants to argue that the claimant passed the overcharge on to its own customers, reducing or eliminating its own loss. This defence has been significantly shaped by the EU Damages Directive and CAT case law.
Forensic economists address pass-on through pricing analysis and econometric modelling, examining whether and to what extent the claimant increased its own prices in response to the cartel overcharge.
The pass-on analysis is often the most contested aspect of competition damages claims, requiring rigorous economic evidence and frequently involving separate pass-on experts on each side.
CAT Proceedings
The Competition Appeal Tribunal (CAT) has jurisdiction over follow-on damages claims following infringement decisions by the CMA or European Commission. CAT proceedings require forensic economics experts familiar with the tribunal's approach to economic evidence.
CAT rules require expert reports to comply with CPR Part 35 standards. Experts attend joint meetings, produce joint statements, and may give oral evidence including hot-tubbing at CAT hearings.
The CAT has developed a substantial body of case law on damages quantification methodology, pass-on, and the standard of proof for economic evidence, which forensic economists must be familiar with.
Investment Treaty Economics
Investment treaty arbitration under ICSID and UNCITRAL rules requires forensic economists to quantify damages using the Chorzów Factory standard, full reparation for injury caused by the state's breach of the investment treaty.
Common methodologies include discounted cash flow (DCF) analysis, market-based valuations, and book value approaches. The choice of methodology depends on the nature of the investment, data availability, and tribunal preferences established in prior awards.
Investment treaty economics is heavily scrutinised, tribunals frequently appoint their own economic experts and conduct detailed analysis of the parties' DCF models, discount rates, and cash flow projections.
Counterfactual Methodology and Data Requirements
Counterfactual analysis is the foundation of forensic economics, constructing what would have happened but for the wrongful conduct. The reliability of any damages estimate depends on the quality of the counterfactual and the data supporting it.
Forensic economists require: pricing and volume data for the affected period; comparable market data for yardstick analysis; financial records to verify economic assumptions; and industry data for market definition analysis.
Early engagement with the forensic economist allows identification of data requirements and ensures relevant data is preserved and disclosed. Coordinate with forensic accountants to ensure financial data supporting the economic model is available and verified.