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Journal of Competition Law and Economics Advance Access originally published online on November 30, 2007
Journal of Competition Law and Economics 2008 4(2):263-270; doi:10.1093/joclec/nhm032
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© The Author (2007). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

THE SSNIP TEST AND MARKET DEFINITION WITH THE AGGREGATE DIVERSION RATIO: A REPLY TO KATZ AND SHAPIRO

Øystein Daljord *, Lars Sørgard ** and Øyvind Thomassen {dagger}

JEL: K21, L1, L11, L12

The Hypothetical Monopolist or Small but Significant Non-transitory Increase in Prices (SSNIP) test defines the relevant market by determining whether a given increase in product prices would be profitable for a monopolist in the candidate market. The U.S. Merger Guidelines do not specify whether the SSNIP test should be performed with an increase in one price, some prices, or all prices in the candidate market. We argue that this should depend on characteristics of the market: if there are asymmetries between products, increasing only one price might be the best way to identify competitive constraints. Katz and Shapiro derive a one-price test criterion of critical loss in terms of the aggregate diversion ratio. Unfortunately, the derivation is incorrect. We show what the correct criterion should be.

* Economist, Norwegian Competition Authority. E-mail: oeda{at}kt.no.

** Professor of Economics, Norwegian School of Economics and Business Administration, and Economist, Norwegian Competition Authority. E-mail: lars.sorgard{at}nhh.no.

{dagger} PhD student in Economics, University of Oxford. E-mail: oyvind.thomassen{at}economics.ox.ac.uk. This paper presents our personal views, which are not necessarily shared by the Norwegian Competition Authority. We are indebted to Adriaan ten Kate for making us aware of an incorrect claim in an earlier version of the article concerning the comparison with the Katz and Shapiro criterion.


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