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Demand, cost elasticities and pricing benchmarks in the hypothetical monopoly test: the consequences of a simple SSNIP

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  • I. M. Dobbs

Abstract

The hypothetical monopoly test for market power is translated into an operational 'formula' involving cost and demand elasticities. The importance of the choice of the pricing benchmark is emphasized - and of why it is important to incorporate an assessment of cost structure when conducting such tests. Recent work in the EU and the UK (notably in Telecoms) has ignored cost structures when making assessments of market power. It is shown in this article that ignoring cost structure leads to bias in that market power will often be found when in fact none is present.

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  • I. M. Dobbs, 2003. "Demand, cost elasticities and pricing benchmarks in the hypothetical monopoly test: the consequences of a simple SSNIP," Applied Economics Letters, Taylor & Francis Journals, vol. 10(9), pages 545-548.
    • Handle: RePEc:taf:apeclt:v:10:y:2003:i:9:p:545-548
    DOI: 10.1080/1350485032000100242
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    1. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    2. Chambers,Robert G., 1988. "Applied Production Analysis," Cambridge Books, Cambridge University Press, number 9780521314275.
    3. Patrick Massey, 2000. "Market Definition and Market Power in Competition Analysis - Some Practical Issues," The Economic and Social Review, Economic and Social Studies, vol. 31(4), pages 309-328.
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    Cited by:

    1. Searing Elizabeth A. M., 2014. "Charitable (Anti)Trust: The Role of Antitrust Regulation in the Nonprofit Sector," Nonprofit Policy Forum, De Gruyter, vol. 5(2), pages 1-28, October.

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