A ntitrust Economics 2013. David S. Evans University of Chicago, Global Economics Group. Elisa Mariscal CIDE, Global Economics Group. Topic 11: Market Definition. Topic 11| Part 1 26 September 2013. Date. Overview. Key Questions to Think About. Things You Really Need to Know.
Firms in the market
A, B, C, D, E
Firms outside of the market: F, G, H, …
Product in question
Continuum of product substitutes—farther away are less substitutable
Will producers of other products divert capacity?
How will marginal customers react?
Would firms in one area supply another?
Will customers buy from other areas?
F is an “average consumer” of beer (from O to C)
A,B, C, D are at “the margin” of buying or not buying beer.
G is not a consumer of beer at current prices
Other small cars
Supply of new small cars
All means of transportation
Potential substitute products
A, B, C, D, E, F
Implementing the Hypothetical Monopolist (SSNIP) Test
Profit = ($20 - $10) x 100 = $1,000
If fewer than 16.7 units of sales switch than a 10% price increase is profitable
Dimplied by critical loss
Regression analyses, natural experiments, and internal market studies can help determine actual loss.
Actual loss greater than critical loss Implies price increase is unprofitable so assumed “market” can’t be profitably
Monopolized and is therefore too small.
Actual loss less than critical
Loss implies that price increase is profitable so assumed “market” can be profitably monopolized. Market is therefore at least this narrow.