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“Multi-Product Critical Loss: Allowing for Varying Margins, Prices, and Quantities in the Candidate Antitrust Market”

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  • Shawn W Ulrick
  • Mark D Williams

Abstract

Critical loss analysis is important in defining antitrust product and geographic markets as it directly implements the hypothetical monopolist test. Traditionally, critical loss analysis assumes all products in the candidate market earn the same margin at current prices. In effect, this approach treats all products as a single, representative product. This is technically incorrect. This paper develops the appropriate measures of critical loss assuming products in the candidate markets have different margins, different current prices, and different initial quantities. We also address issues in the implementation of critical loss analysis. This paper is meant to be accessible to the practitioner.

Suggested Citation

  • Shawn W Ulrick & Mark D Williams, 2024. "“Multi-Product Critical Loss: Allowing for Varying Margins, Prices, and Quantities in the Candidate Antitrust Market”," Journal of Competition Law and Economics, Oxford University Press, vol. 20(1-2), pages 60-84.
    • Handle: RePEc:oup:jcomle:v:20:y:2024:i:1-2:p:60-84.
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    File URL: http://hdl.handle.net/10.1093/joclec/nhae002
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    References listed on IDEAS

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    1. Capps, Oral Jr. & Dharmasena, Senarath, 2019. "Enhancing the Teaching of Product Substitutes/Complements: A Pedagogical Note on Diversion Ratios," Applied Economics Teaching Resources (AETR), Agricultural and Applied Economics Association, vol. 1(01), June.
    2. Farrell, Joseph & Shapiro, Carl, 2008. "Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition," Competition Policy Center, Working Paper Series qt8z51b1q8, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
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    5. Farrell Joseph & Shapiro Carl, 2010. "Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-41, March.
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