An Introduction to Econometric Analysis

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CHAPTER 1

AN INTRODUCTION TO ECONOMETRIC

ANALYSIS

Econometrics is defined as the application of statistical methods to

economic data. While succinct, this definition does little to explain how

econometrics actually works or why it might be useful. The value of

econometrics is that it allows one to draw inferences about economic

relationships from observed data on market outcomes, even when those

outcomes are the result of complex interactions among numerous

economic forces.

This introductory chapter explores the ways in which econometrics

can be helpful in an antitrust analysis and the steps that are typically

involved in conducting an econometric study. It then provides a short

history of statistics and econometrics to illustrate the problems that these

fields were developed to solve and the concepts and techniques that

emerged. These concepts and techniques will be explored in greater

detail in subsequent chapters of this book.

A. How Econometrics Can Be Helpful in an Antitrust Analysis

From the point of view of an attorney, why would one want to use

econometrics at all? Even in its simplest form, econometrics can be

highly complex; it may appear to be a perplexing “black box” over which

the attorney has little control. A judge or jury may face even greater

obstacles to understanding an econometric study given the constraints an

expert faces in attempting to convey complicated material through live

testimony at trial.

However, econometrics can add substantial value to an antitrust

analysis because it provides objective, scientific, and quantitative

answers to key antitrust questions. That is, when applied properly and

explained clearly, econometrics can help to resolve disputed issues

persuasively.