Last time I talked about why Economic Consulting (Econ Consulting) can be a great job out of undergrad. Posting about how good it is without giving you advice on how to actually get the job would be sheer mockery, so here are some tips and insights to get and nail your interview.

1. Hypothesis Debunking is the Name of the Game

In most econ consulting cases you will need to demonstrate your ability to construct and deconstruct arguments. This takes a slightly different form than in management consulting since econ consulting will require a different brand of creativity and logic. You will be tested more heavily on your ability to identify the data you would need to prove or disprove a position, as well as an ability to rip apart any flaws or inconsistencies in an argument.

Practicing your ability to use hypothesis based testing in your prep for management consulting can be a huge help (see my post here for tips on hypothesis based testing). In econ consulting cases, you’ll often be given a hypothesis to support or attack instead of needing to come up with one of your own, but sometimes you’ll need demonstrate your ability to create hypotheses, especially when trying to collect, rather than minimize, damages.

To make it through an econ case, make sure you develop your skills in identifying the needed information to prove or disprove a hypothesis, as well as your ability to communicate the structure of the argument clearly.

2. Keep Your Management Consulting Case Skills

Econ consulting doesn’t bind itself to a lot of the “rituals” often used in management consulting, but those “rituals” can be incredibly useful. One example of this is writing out a framework. You would typically write a framework in a management consulting case, but it’s not nearly as common or expected in econ consulting. Regardless, writing out a logical framework is an incredible problem-solving tool that you should use whenever it makes sense. Not only will this help you solve the problem in a clear and logical way, but your ability to take control and effectively use problem solving techniques will help you stand out from those who seem to just seem to “wing-it.”

A lot of the other skills help too. Things like “signposting” items of your explanations, using the “synthesis model,” avoiding assumptions, benchmarking appropriately, etc., will all help you convince the interviewer that you can dominate any problem they throw at you (see here and here for more info on the preceding).

Differences in culture between econ consulting and management consulting shouldn’t deter you from making use of good problem solving skills you learned in your preparation for management consulting. Just go in and solve problems to the best of your ability using whatever legitimate methods work for you.

3. Have Some Technical Skills

Although a lack of serious technical skills does not necessarily preclude you from an opportunity in econ consulting, it can certainly make your more competitive. Econ consulting firms often use heavy data manipulation software, such as SAS, STATA, and R. Even knowing some VBA for Excel or having a demonstrated ability to use the standard functions of Excel can help convince the firm that you might be useful more quickly.

Knowledge of econometrics can also help convince a firm that you’re a serious and valuable candidate. It’s worth noting, however, that none of these technical skills are in any way a guarantee. I knew nothing about econometrics or any of the above listed data manipulation programs except for a little VBA for Excel and still managed to land an internship over other candidates who had the technical experience. A demonstrated ability to solve problems is paramount since they know that, if you’re smart, they could teach you these technical skills should you need you to know them. Make sure you can demonstrate your ability to think logically, analytically, and articulately first.

4. Know Why You Want To Do Econ

My interviews with Cornerstone didn’t have a lot of time for “fit” questions (see here for more tips on these), but the few they asked were critical. In particular, they want to know why you would choose to go into econ consulting. Plenty of good answers exist. Some of these include: you’re considering getting a JD later on and want some analytical/hard skills before diving into law school; you have an econ degree and want to use it in the practical world before or instead of becoming an academic; you want to develop or make use of your hard-skills; you feel like you have a natural inclination for analytical or argumentative thinking and want to put those skills to use.

Whatever your reason, make sure you have it well articulated before going into the interview Some econ consulting firms are only recently getting accustomed to the idea that many of their hires from undergraduate institutions only plan on staying for a few years before getting higher education or changing jobs. Help the firm understand your commitment level, your alignment with the firm’s goals and culture, and your future plans early on so that they can trust you and know what to expect.

5. Common Econ Case Questions

This is probably the most useful part of this post. Econ consulting case questions are different from management consulting questions in content and in how you should approach them. Here are 4 common questions and some tips on how to approach them.

Damaged Contract

One very common prompt goes something like:

“your client is a theme park who contracted with a construction company to build a new roller coaster. The construction company will be completing the coaster 6 months behind the date specified in the contract. How much does the construction company owe your client in damages for the late completion?”

You might start this case by trying to identify the various channels that damages could come through. Here are some possible channels (without claiming to be comprehensive):

• People who would have come to the park if the coaster was built
  • Entrance fees (including the lost ability to raise the fee if the new ride was built)
  • Concessions/merchandise
  • Fees to ride the coaster (if any)
  • Fees for other rides (if any)
• People who avoided coming due to the construction
  • Entrance fees (including the lost ability to raise the fee if the new ride was built)
  • Concessions/merchandise
  • Fees to ride the coaster (if any)
  • Fees for other rides (if any)
• People who came but spent less
  • Possible raised entrance fee
  • Fees to ride the coaster (if any)
  • Lost concessions/merchandise/other rides if people leave early due to the construction inconveniences

Once you have an idea of where the losses may come from, you need a way of calculating them. In this case, like in many others, a lot of what you will do will include looking for comparables. Here, the trick is identifying the relevant comparables and understanding their potential shortcomings.

Some comparables include:

• Similar rides in the same park (other roller coasters built recently?)
• Similar parks that built similar rides
• Information from the ride and park after the coaster is completed

The trick to the comparables will be ensuring that their similarities are relevant. They could be similar in size, demographic served, geographic location, revenue, cost structure, etc. Although this case will likely just require you to identify some possible comparables to get the relevant information, some cases will require you to understand the essence of what needs to be similar between the comparables in order to use them comparably.

Once you’ve identified relevant comperables, you can use the financial (or other) information from those situations to make conjectures about this situation. The money earned in the first 6 months of completion may be a decent proxy for what the theme park missed out on during the extended construction. The percentage drop in attendance that other similar parks experience during construction may be a decent way to measure the effects on your park, etc.

Bad Info Not Shared

If you interview in person, you will very likely get a case like this with a particular type of chart. First, the prompt will probably go something like this:

“Your client is the CEO of firm A. This CEO learned some bad information about firm A’s earnings on October 1st. The CEO was supposed to share this information publicly on the same day, but did not share the info until November 1st. The shareholders are now suing the CEO for damages. How much does the CEO owe the shareholders?”

Notice the shift in who’s side you’re on from the last case to this one. In the last one, your objective would be to include as many damages as possible. In this case, your objective will be to prove that the damages are smaller than what the opposition says.

This case will often be accompanied by a chart that looks like this:

The version they show you may or may not have the dotted vertical lines or the labels, but it will probably have a column or area graph (in red on the example) below a line graph (in blue on the example). The line will correspond to the price that a share sold for at a specific time (close of day in this example), and the columns or area will correspond to the amount of shares sold at that time. This enables you to do an event analysis to try to find out why certain spikes or drops in price or volume would happen. In this chart, it appears pretty clear that the CEO announcement of the bad news probably caused a simultaneous drop in share price with a large volume of shares sold (though it might be worth looking for any other events that day that might have dropped the stock).

When it comes to calculating damages, you might first try to reduce the number of claimants. Initially, everyone who holds a share in this company will probably complain. To reduce this, you can first cut out anyone that held shares prior to the CEO discovering the problem. They could not be harmed by an event that would happen in the future.

You can also cut anyone who purchased the stock after the CEO announced the information. If anything, they benefited by being able to purchase at a lower price.

This should leave you basically with the people who purchased the stock between the time that the CEO discovered the information and when the CEO announced it. From here, you may also be able to limit the claimants to the ones who actually sold their share. Those who did not sell-off have not realized any losses yet, and as such will have a harder time demonstrating that they were materially damaged.

Whittling the potential claimants down to this may already be enough to make the case so small as to be not worth litigating and earn a favorable settlement for your client. Even if you’re in a good position, you’ll probably also have to calculate the price-per-share difference that the CEO is accountable for. For this, you’ll probably need to take the difference between the price it was selling for before the announcement, and the settled price after the announcement.

Note that the settled price will not necessarily be the immediate price after the announcement since the market often oversells on bad news before settling on a price more reflective of the actual damage done. Find a stable price point (which will typically be higher than the initial drop-off) to use in order to isolate the damages to what was actually caused by the CEO’s negligence/deviousness.

You should also account for any macro trends. Did the entire market drop 10% that day? You might be able to explain some of the drop with market factors rather than the CEO’s announcement. The CEO is only responsible for the damage that he caused, not for damage caused by the market or any other factor.

Avoiding Anti-Trust

Econometrics can provide some useful tools in measuring the presence (or lack of) a monopoly. Here’s another common prompt:

“Your client wants to purchase a smaller company that works in a similar industry. The government is concerned that this will violate anti-trust laws by giving you a monopoly over the market. How could you demonstrate that you will not be creating an illegal monopoly?”

For this case, you will essentially need to demonstrate that natural competition will continue even after the acquisition. Some (but not all) examples of what you may look into include

• Barriers to entry of the industry (if they’re low, then competition will likely continue)
• Number of other firms in the industry (if high, then competition will stick around)
• Customers served (you want to show that your client and the acquisition target serve different customers)
• Health of the two companies (would they die without each other?)

Then the trick will be gathering and using appropriate data to prove any of the above (or other) possibilities. For example, you might look deeper into the customers served by seeing if the two firms sell in different geographies, or to different demographics, or in different stores. You might also use cross-price elasticity to show that the demand for one company’s product doesn’t change when the price for the other company’s product changes, demonstrating on economic principles that they don’t compete directly.

By demonstrating that the companies aren’t really the same, you can show that the merger or acquisition will not violate any anti-trust laws. Do everything you can to show dissimilarities between the firms (you might consider this an exercise in identifying and proving anti-comparables).

Patent Infringement

I didn’t see as many cases on this when I was interviewing, but it’s such a common case in the real work that I would bet that these cases make it into case interviews frequently. The prompt might be something like:

“Your client is being sued for infringing on another entity’s patent. Assuming that your client actually infringed on the patent, how can we calculate the damages owed the plaintiff?”

There are two traditional ways to calculate the damages for a patent infringement: calculating a reasonable royalty, or calculating the lost profits.

1. Reasonable Royalty

To calculate this, you’ll need to identify the quantity of infringing products sold by your client, the sales (or profit) per unit of each product, and then calculate a royalty rate.

The royalty rate gets tricky. This is the percentage of sales or profit that your client owes the plaintiff, and should be based on what the two entities would have agreed on had they made a deal before any infringement ever happened. Again, you’ll look for comparables, either in what the plaintiff normally charges as a royalty rate on this or similar products, what your client typically pays to license similar patents. You might also look at the contribution of value the patent adds to the product.

The “contribution of value to the product” refers to the fact that an infringing product may only use the patent in a small portion of the product. A certain design or functionality aspect may be patented on a larger, more complex product. As such, the patent holder may not be entitled to a cut of all the sales/profits, but to the portion of sales/profits that your client sold as a result of the patent. This can be incredibly hard (if not sometimes impossible) to calculate, and as such may not be used in a case, but it can be useful to bring up as an idea. Not all arguments need to hold up in court; sometimes an argument just needs to be scary enough to provoke a favorable settlement out-of-court.

2. Lost Profits

The idea behind the “lost profits” calculation is that the plaintiff would have been able to sell products containing the patent for him or herself if not for your client’s actions. To calculate this, you’ll need to identify the quantity of items sold by your client, and the portion of those items that the plaintiff could have reasonably served. From there, you’ll need to identify the likely profit per unit that the plaintiff would have realized.

The real fun of this calculation is figuring out how much the plaintiff could have served and the plaintiff’s probable profit. To do this, you’ll again look for comparables. You might look at similar products the plaintiff sells (or the product itself if the plaintiff actually sells it), as well as any adjustments to cost structure that the plaintiff would have needed to make to sell the increased capacity. If you can’t look directly at the plaintiff, you might look at the profits of your client, or profits of other companies that are similar in important ways (product, size, market, location, etc.)

If you can show that the plaintiff’s costs would be so high that it would not have made a profit, you might be able to eliminate this method as a way of calculating damages and assume that the plaintiff would have licensed it in a reasonable royalty.

If the plaintiff would make a profit, then you need to find out the likely quantity of items it would have sold. To do that, you can look at feasibility restrictions (the plaintiff may not have any way of selling to any of your clients due to an inability to make enough, or deliver them to certain locations, etc.) as well as information on how the plaintiff currently sells its products. The plaintiff would not likely have sold all of the items that your client did, so make sure you whittle down the possibilities in all the logical ways. If your client is the infringer, you’ll typically want to try to get this number as low as possible, unless the reasonable royalty rate is high enough that recompensing lost profits is more favorable.

Once you know the likely profit per unit and the number of units the plaintiff would have sold, you can calculate the lost profit by multiplying them together. After doing this, don’t forget that any items that your plaintiff could not have sold would likely have earned royalties from your client. Lost profit models often need to add in a reasonable royalty component to cover all the damages.

Conclusion

Econ consulting can be a lot of fun, and if you found the example cases interesting you really might enjoy it. If you’re serious about getting in to econ consulting, make sure you prepare for the cases. You might not need to follow as many “rituals” as is typical in management consulting, but making use of good problem solving techniques, as well as having a familiarity with the problems, can give you a solid shot at an offer.

Keep seeking truth.