Franck: More on arithmetic and geometric mean returns

My article of a few days ago on the CAA's approach to the cost of equity included a conclusion that the CAA's error was not of great financial significance, because I thought that the CAA probably did not really need a reason to follow the Competition Commission's recommendations on return of capital, so that its reliance on a bad reason was probably not that important.

I am grateful to a reader of the original article (someone unrelated to BAA, CAA, the Competition Commission, airlines or any of their advisers) for pointing me to the evidence underpinning the Competition Commission's cost of capital estimates. I have not had time to chase every detail, but it is clear that my original beliefs about the Competition Commission's processes were misplaced. My previous view that it would be nearly impossible for BAA to challenge the CAA's reliance on the Competition Commission's recommendations was not right, and I have amended the article accordingly.

For further information or advice please contact Franck Latrémolière.

Filed under CAA, Competition Commission.

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