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Using Stationarity Tests in Antitrust Market Definition

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  • Mario Forni

Abstract

In this article it is argued that, if two products or geographic areas belong in the same market, their relative price must be stationary. Hence stationarity tests like the Augmented Dickey-Fuller and the KPSS can be helpful in delineating the relevant market for antitrust purposes, particularly for abuses of dominant positions and agreements between competitors. The proposed procedure is strictly related to cointegration analysis but is simpler and has more general validity. An application to the Italian milk market illustrates the technique. Copyright 2004, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal American Law and Economics Review.

Volume (Year): 6 (2004)
Issue (Month): 2 ()
Pages: 441-464

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Handle: RePEc:oup:amlawe:v:6:y:2004:i:2:p:441-464

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  1. Uri, Noel D & Rifkin, Edward J, 1985. "Geographic Markets, Causality and Railroad Deregulation," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 422-28, August.
  2. Croux, Christophe & Forni, Mario & Reichlin, Lucrezia, 1999. "A Measure of Comovement for Economic Variables: Theory and Empirics," CEPR Discussion Papers 2339, C.E.P.R. Discussion Papers.
  3. Baker, Jonathan B. & Bresnahan, Timothy F., 1988. "Estimating the residual demand curve facing a single firm," International Journal of Industrial Organization, Elsevier, vol. 6(3), pages 283-300.
  4. Froeb, L.M. & Werden, G.J., 1991. "Correlation, Causality, and all that Jazz: The Inherent Shortcomings of Price Tests for Antitrust Market Delineation," Papers 91-6, U.S. Department of Justice - Antitrust Division.
  5. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
  6. Slade, Margaret E, 1986. "Exogeneity Tests of Market Boundaries Applied to Petroleum Products," Journal of Industrial Economics, Wiley Blackwell, vol. 34(3), pages 291-303, March.
  7. Stigler, George J & Sherwin, Robert A, 1985. "The Extent of the Market," Journal of Law and Economics, University of Chicago Press, vol. 28(3), pages 555-85, October.
  8. Gregory Werden, 2000. "Market Delineation under the Merger Guidelines: Monopoly Cases and Alternative Approaches," Review of Industrial Organization, Springer, vol. 16(2), pages 211-218, March.
  9. Scheffman, David T & Spiller, Pablo T, 1987. "Geographic Market Definition under the U.S. Department of Justice Merger Guidelines," Journal of Law and Economics, University of Chicago Press, vol. 30(1), pages 123-47, April.
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Citations

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Cited by:
  1. Sonali DAS , Rangan GUPTA & Patrick A. KAYA, 2010. "Convergence Of Metropolitan House Prices In South Africa: A Re-Examination Using Efficient Unit Root Tests," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(1).
  2. Hans L. van Kranenburg, 2005. "Relevant Market and Pricing Behavior of Regional Newspapers in the Netherlands," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 74(3), pages 73-84.
  3. Paul Geroski & Rachel Griffith, 2003. "Identifying anti-trust markets," IFS Working Papers W03/01, Institute for Fiscal Studies.
  4. Willem Boshoff, 2006. "Quantitative competition analysis: Stationarity tests in geographic market definition," Working Papers 17/2006, Stellenbosch University, Department of Economics.
  5. Sánchez Navarro, Dennis, 2012. "Una propuesta metodológica para la definición de mercados geográficos relevantes
    [A proposed methodology for defining relevant geographic markets]
    ," MPRA Paper 44498, University Library of Munich, Germany.
  6. Haldrup, Niels, . "Empirical analysis of price data in the delineation of the relevant geographical market in competition analysis," Economics Working Papers 2003-9, School of Economics and Management, University of Aarhus.
  7. Juselius , Mikael & Kim, Moshe & Ringbom, Staffan, 2009. "Do markup dynamics reflect fundamentals or changes in conduct?," Research Discussion Papers 12/2009, Bank of Finland.
  8. Scalco, Paulo Roberto & Braga, Marcelo Jose, 2014. "Measuring the Degree of Oligoposony Power in the Brazilian Raw Milk Market," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association (IAMA), vol. 17(2).
  9. James F. Nieberding, 2006. "Estimating overcharges in antitrust cases using a reduced-form approach: Methods and issues," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 361-380, November.
  10. Fiuza, Eduardo P.S. & Tito, Fabiana F.M., 2010. "Post-merger time series analysis: Iron ore mining," Resources Policy, Elsevier, vol. 35(3), pages 141-155, September.
  11. Javier Elizalde, 2012. "A theoretical approach to market definition analysis," European Journal of Law and Economics, Springer, vol. 34(3), pages 449-475, December.

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