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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.

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topic 11 market definition

Antitrust 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

market definition and context
Market Definition and Context

F

G

Firms in the market

A, B, C, D, E

H

Firms outside of the market: F, G, H, …

market definition sets hard boundaries b etween products that are in or out of the market
Market Definition Sets Hard Boundaries Between Products that are “In” or “Out” of the Market.

Out

Out

In

Product in question

Continuum of product substitutes—farther away are less substitutable

identifying relevant substitutes by asking what would constrain an increase in price
Identifying Relevant Substitutes by Asking What Would Constrain an Increase in Price

Demand-side

Supply side

Will producers of other products divert capacity?

How will marginal customers react?

Product market

Would firms in one area supply another?

Will customers buy from other areas?

Geographic market

demand side substitution and the marginal consumer
Demand-side substitution and the marginal consumer

F is an “average consumer” of beer (from O to C)

O

A,B, C, D are at “the margin” of buying or not buying beer.

F

A

C

D

B

G

G is not a consumer of beer at current prices

which products to consider as demand and supply substitutes for bmw s mini cooper
Which products to consider as demand and supply substitutes for BMW’s MINI Cooper

Mini Cooper

Other small cars

Supply of new small cars

Mid-size cars

All cars

All means of transportation

how to proceed demand side then supply side
How to proceed? Demand-side then supply-side

Potential substitute products

Candidate Market

1

A

B

C

2

Demand-side

A+B+C

D

X

A+B+C

3

S1

Supply-side

A+B+C+S1

S2

X

relevant market at end of analysis
Relevant Market at End of Analysis

G, H

A, B, C, D, E, F

L

K

I

critical loss analysis
Critical Loss Analysis

Implementing the Hypothetical Monopolist (SSNIP) Test

critical loss analysis is a method for implementing ssnip test in practice
Critical loss analysis is a method for implementing SSNIP test in practice

Price

Profit = ($20 - $10) x 100 = $1,000

$20

$10

MC

Quantity

100

critical loss analysis is a method for implementing the ssnip test
Critical loss analysis is a method for implementing the SSNIP test

Price

$22

$20

$10

MC

Quantity

100

83.33

If fewer than 16.7 units of sales switch than a 10% price increase is profitable

slide28

Critical Loss Analysis is a Method for Implementing the SSNIP Test

Price

$22

$20

Dmore elastic

$10

MC

Dimplied by critical loss

Dmore inelastic

Quantity

100

83.33

Regression analyses, natural experiments, and internal market studies can help determine actual loss.

comparison of actual versus critical loss determines if market is large enough to be monopolized
Comparison of Actual Versus Critical Loss Determines if Market is Large Enough to be Monopolized.

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.

Critical Loss