Abstract

http://ssrn.com/abstract=1547085
 
 

Footnotes (97)



 


 



Critical Loss Analysis in Market Definition and Merger Control


Kai Hüschelrath


Centre for European Economic Research (ZEW)

2009

ZEW - Centre for European Economic Research Discussion Paper No. 09-083

Abstract:     
The last couple of years have seen an increasing interest in critical loss analysis, both, in academia and in practice. This development is documented by various research papers, high-level exchanges between antitrust experts as well as an increasing number of case decisions – in the United States as well as in Europe – which make use of some form of critical loss analysis.

Generally, critical loss analysis is considered as one empirical method to investigate the closeness of competitive interaction triggered by supply-side and demand-side substitution. The critical sales loss is the decrease in sales resulting from a particular price increase that is just large enough so that a hypothetical monopolist or a merged entity, respectively, would not impose a price increase of at least that amount. If the actual loss following such a price increase is found to be less than the critical loss, the price increase would pay; otherwise it would not.

In this context, it is the aim of this article to describe the general method of critical loss analysis, to assess important properties of the concept, to show how critical loss analysis has to differ between market definition exercises and the evaluation of the competitive effects of horizontal mergers and to discuss applications of critical loss analysis in recent cases.

As a general result it can be said that an application of critical loss analysis in practice is often not as straightforward as the presentation of the general theoretical concept might suggest. In fact, the method has to be applied with great care in order to receive meaningful results. On the one hand, it is shown that the critical loss might be sensitive to changes in the calculation method as well as the underlying demand and cost functions. On the other hand, the success of a critical loss analysis critically depends on the accuracy of the estimation of the actual loss. As indicated by both high-level theoretical exchanges (sketched partly in Section D.) and the review of two recent antitrust cases (sketched in Section E.), this often turns out to be the key challenge in a critical loss analysis.

Number of Pages in PDF File: 36

Keywords: Antitrust, competition policy, market power, market definition, merger control, unilateral effects

JEL Classification: L40, L41, L50, K21

working papers series





Download This Paper

Date posted: February 4, 2010  

Suggested Citation

Hüschelrath, Kai, Critical Loss Analysis in Market Definition and Merger Control (2009). ZEW - Centre for European Economic Research Discussion Paper No. 09-083. Available at SSRN: http://ssrn.com/abstract=1547085 or http://dx.doi.org/10.2139/ssrn.1547085

Contact Information

Kai Hüschelrath (Contact Author)
Centre for European Economic Research (ZEW) ( email )
P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany
Feedback to SSRN


Paper statistics
Abstract Views: 824
Downloads: 150
Download Rank: 118,875
Footnotes:  97

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.297 seconds