A Practical Guide to the Hypothetical Monopolist Test for Market Definition

Abstract

The hypothetical monopolist test has been used to define antitrust markets for over 20 years. However, many of these applications occur within the enforcement agencies and thus the implementation process is not fully transparent to antitrust practitioners. This paper provides a study of 116 market definition decisions from the Federal Trade Commission's archives. We find the agency rarely has trouble defining both product and geographic markets; in fact, the demand-side market definition process is relatively simple in over half the cases reviewed. In many of the remaining matters, critical loss, analysis of natural experiments, and various studies of data patterns are undertaken to identify the relevant market. These studies show a remarkable variety in data requirements, sophistication and analytical technique. Supply side considerations affect a few markets and price discrimination supports more focused analysis in about ten cases.

Keywords: mergers, markets, antitrust, guidelines, Federal Trade Commission

JEL Classification: K21, I40