In support of legal proceedings, Swiss Economics assisted a client in preparing an economic expert report analysing the impact of risks on expected margins. The report covered an overview of market conditions, a theoretical assessment of the required return and margins, and a discussion of how to conduct a rigorous econometric analysis of margins over time and across companies.

Methods

• Assessment of the relevant market environment, including market structure, competitive dynamics, customer characteristics, barriers to entry, and key drivers of profitability.
• Identification and evaluation of the principal sources of risk affecting market participants and their implications for expected financial performance.
• Development of an economic framework to analyse the relationship between risk and expected margins, drawing on established principles from industrial organisation and corporate finance.
• Theoretical assessment of the level of margins and returns required to compensate firms for bearing different forms of risk, including both market-wide and company-specific risks.
• Evaluation of the availability, consistency, and comparability of company and market data to support a robust econometric analysis.
• Analysis of the evolution of margins over time and differences in profitability across firms, taking account of market conditions, risk factors, and company-specific characteristics.
• Assessment of methodological considerations relevant to the econometric analysis, including data limitations, structural changes, and potential confounding factors.
• Integration of the market assessment, theoretical analysis, and empirical evidence to provide an overall economic evaluation of the relationship between risk and expected margins.
• Preparation of an expert report summarising the methodology, findings, and economic conclusions for use in legal proceedings.