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Using Stationarity Tests in Antitrust Market Definition

  • Mario Forni

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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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. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
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