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Journal of Competition Law and Economics Advance Access originally published online on April 2, 2008
Journal of Competition Law and Economics 2008 4(4):983-1007; doi:10.1093/joclec/nhn008
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© The Authors (2008). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

AN ANALYSIS OF PRICE-BASED TESTS OF ANTITRUST MARKET DELINEATION

Patrick J. Coe * and David Krause **

Correspondence: E-mail: patrick_coe{at}carleton.ca.

There are well-known theoretical concerns regarding the use of price correlations to determine antitrust markets. However, this has not deterred their use or the application of Granger causality, stationarity, and cointegration tests in the determination of antitrust markets. In this paper, we explore the empirical performance of these various tests. In particular, we want to know whether these tests are capable of generating the correct inference both when two products are in the same relevant market and when they are not. Our results imply that, in the absence of common shocks, simple price correlations may be capable of providing reliable evidence on market delineation. However, in samples sizes similar to those currently available, the performance of other commonly employed price-based tests suggests that they provide little economically meaningful information to antitrust practitioners.

* Department of Economics, Carleton University.

** Economic Analysis, Bell Canada. E-mail: d.krause{at}bell.ca. We would like to thank Jeffrey Church for providing us with data, and Zhiqi Chen, Jeffrey Church, and other participants at the Alberta Conference on Industrial Organization for helpful comments. The views and opinions expressed in this article are solely those of the authors and should not be interpreted as reflecting the views of Bell Canada.


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