The SSNIP test and market definition with the aggregate diversion ratio: A reply to katz and shapiro

Journal of Competition Law and Economics

Volumn 4, Issue 2, 2008, Pages 263-270

  Daljord, Øystein ^a   Sørgard, Lars ^a   Thomassen, Øyvind ^b  

^a NORWEGIAN COMPETITION AUTHORITY   (Norway)

^b UNIVERSITY OF OXFORD   (United Kingdom)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 50349090359     PISSN: 17446414     EISSN: 17446422     Source Type: Journal    
DOI: 10.1093/joclec/nhm032     Document Type: Article

References (17)

1. See for instance Marc Ivaldi and Szabolcs Lö rincz, "A Full Equilibrium Relevant Market Test: Application to Computer Servers," CEPR Discussion Paper no. 4917, February 2005 and Kai-Uwe Kuhn: "Reforming European Merger Review: Targeting Problem Areas in Policy Outcomes," Michigan Law and Economics Research Paper no. 02-01, 2002.
2. Michael L. Katz and Carl Shapiro: "Critical Loss: Let's Tell the Whole Story," Antitrust Magazine, spring 2003.
3. See, for instance, Michael D. Whinston, "Antitrust Policy toward Horizontal Mergers," in Mark Armstrong and Robert Porter (eds), Handbook of Industrial Organization, 2007, North-Holland, Amsterdam.
4. There is also a debate on whether the price increase is the optimal one, or the price increase is profitable as such. Arguably, the 1992 Horizontal Merger Guidelines endorse an optimality criterion, see Barry C. Harris and Joseph J. Simons "Focusing Market Definition: How much Substitution is Necessary?", in Richard O. Zerbe (ed), Research in Law and Economics, vol. 12, 1989. U.S. DOJ Antitrust Division Economic Analysis Group Discussion Paper no. 02-9, 2002 for a discussion. We follow the approaches in Harris and Simons and Katz and Shapiro, and consider the profitability of a price increase not the optimal price increase. For a discussion of the optimality criterion
5. see Simon Bishop and Mike Walker, The Economics of EC Competition Law: Concepts, Application and Measurement. Sweet & Maxwell, London, 2002.
6. Note that Katz and Shapiro created controversy over how much structure to impose when deriving the market delineation criterion; see the debate in the following papers: David T. Scheffman and Joseph J. Simons, "The State of Critical Loss Analysis: Let's Make Sure we Understand the Whole Story," Antitrust Source, November 2003
7. Barry Harris: "Recent Observations on Critical Loss," FTC/DOJ Joint Workshop on Merger Enforcement, February 2004 (available at www.usdoj.-gov)
8. John D. Harkrider: "Operationalizing the Hypothetical Monopolist Test," FTC/DOJ Joint Workshop on Merger Enforcement, February 2004 (available at www.usdoj.gov); Michael Katz and Carl Shapiro: "Further Thoughts on Critical Loss," Antitrust Source,March 2004. The question of structure, though, differs from the question of whether one should increase one, some, or all prices.
9. See Katz and Shapiro (2003, supra note 2), p. 54.
10. See Harris and Simons (1989, supra note 4).
11. See Whinston (2007, supra note 3).
12. There might even be cases where a some-prices test is best suited to identify the relevant competitive constraints.
13. See Øystein Daljord, Lars Sørgard and Øyvind Thomassen, "Market definition with shock analysis," Mimeo, 2007, for an empirical application of these principles. See also the rebuttal expert report from July 13, 2007 by Kevin Murphy in the Whole Foods acquisition of Wild Oats case, where he applies the method proposed by Katz and Shapiro.
14. For a critical review of some examples, see Ioannis Kokkoris, "Critical Loss, Critically Ill?," European Competition Law Journal 9, 517-24, 2005
15. and Daniel P. O'Brien and Abraham Wickelgren, "A Critical Analysis of Critical Loss Analysis," Antitrust Law Journal, 71, 161-84, 2003.
16. Katz and Shapiro (2003, supra note 2), at p. 53.
17. Id., see note 25.