Estimating common impact in class action litigation: A two‐step method

Abstract A central question in class action litigation is all or nearly all proposed class members were injured by the alleged conduct, that is, does “common impact” exist. In this paper, we demonstrate that a two‐step econometric methodology can be used to estimate customer‐level overcharges, providing a basis for evaluating whether common impact exists. The estimates obtained from this methodology possess desirable properties. We also address several common misunderstandings and misinterpretations of the two‐step approach in practice.