Critical Loss V. Diversion Analysis: Another Attempt at Consensus

CPI Antitrust Journal, Vol. 1, April 2010

8 Pages Posted: 14 Jun 2010  

Malcolm B. Coate

U.S. Federal Trade Commission (FTC)

Joseph J. Simons

Paul, Weiss, Rifkind, Wharton & Garrison LLP

Date Written: April 19, 2010

Abstract

In their response to our paper “Critical Loss vs. Diversion Analysis: Clearing up the Confusion,” Farrell and Shapiro provide a graphical illustration of our Retention Ratio adjustment to their suggested revision of critical loss analysis. In this rejoinder, we suggest that competition among a group of firms selling differentiated products may lead marginal customers to consider a set of differentiated products to be closely competitive at the equilibrium prices and thus, these consumers may substitute away from any narrow collection of products in response to a uniform SSNIP. In effect, the diversion ratios, central to the Farrell and Shapiro analysis, may not be stable when all the prices in the hypothetical market are increased simultaneously. Thus, empirical evidence on market responses should be considered to trump theoretical computations suggesting narrow markets. We conclude by responding to the more direct issues raised in the Farrell and Shapiro comment.

Keywords: antitrust, critical loss, market definition, merger guidelines

JEL Classification: K21, L40

Suggested Citation

Coate, Malcolm B. and Simons, Joseph J., Critical Loss V. Diversion Analysis: Another Attempt at Consensus (April 19, 2010). CPI Antitrust Journal, Vol. 1, April 2010 . Available at SSRN: https://ssrn.com/abstract=1625004

Malcolm B. Coate (Contact Author)

U.S. Federal Trade Commission (FTC) ( email )

601 Pennsylvania Avenue, NW
Washington, DC 20580
United States

Joseph J. Simons

Paul, Weiss, Rifkind, Wharton & Garrison LLP ( email )

New York, NY 10019
United States

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