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Evaluating Market Power Using Competitive Benchmark Prices Rather than the Hirschman-Herfindahl Index


Jerry A. Hausman


Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

J. Gregory Sidak


Criterion Economics, L.L.C.

2007

Antitrust Law Journal, Vol. 74, No. 2, pp. 387-407, 2007

Abstract:     
Whenever feasible, market power determinations should rest on competitive benchmark prices rather than the typical market concentration approach. Government regulators in many countries have issued guidelines on the evaluation of market power in the merger context and other areas that define relevant markets and calculate market shares - along with a summary measure of market concentration, usually the Hirschman-Herfindahl index (HHI). However, competition authorities recognize that high concentration measures are generally not a sufficient condition to infer market power. Use of other structural factors in a market often does not lead to any clearer conclusion. We show that prices that consumers pay for the product in question often offer a superior quantitative measurement that leads to a clearer conclusion than the HHI approach. Further, because prices form the basis for the evaluation of consumer welfare (consumers surplus), they also provide important information for competition authorities, whose goal is typically the protection of consumer welfare. To demonstrate our argument, we examine a decision by the Irish telecommunications regulator, ComReg, which used the EU competition guidelines and the HHI approach to determine that Ireland's two largest mobile providers, Vodafone and O2, had joint dominance and were exercising significant market power. We demonstrate how our benchmark prices approach is superior to the HHI approach. We thank the ABA for granting permission to post the article.

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Date posted: March 23, 2007 ; Last revised: November 2, 2009

Suggested Citation

Hausman, Jerry A. and Sidak, J. Gregory, Evaluating Market Power Using Competitive Benchmark Prices Rather than the Hirschman-Herfindahl Index (2007). Antitrust Law Journal, Vol. 74, No. 2, pp. 387-407, 2007. Available at SSRN: http://ssrn.com/abstract=971114

Contact Information

Jerry A. Hausman
Massachusetts Institute of Technology (MIT) - Department of Economics ( email )
50 Memorial Drive
Room E52-271a
Cambridge, MA 02142
United States
617-253-3644 (Phone)
617-253-1330 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
J. Gregory Sidak (Contact Author)
Criterion Economics, L.L.C. ( email )
1717 K Street, N.W.
Washington, DC 20006
United States
(202) 518-5121 (Phone)
HOME PAGE: http://www.criterioneconomics.com
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