 THE 2010 MERGER GUIDELINES, CRITICAL LOSS, AND LINEAR DEMANDJay Ezrielev and Joseph J. Simons Journal of Competition Law and Economics, 2011, vol. 7, issue 3, 497-522 Abstract: Critical Loss Analysis (CLA) is a widely used tool for market definition under the hypothetical monopolist test. The 2010 Horizontal Merger Guidelines appear to refer to a specific version of CLA that assumes that (1) pre-merger pricing satisfies the Lerner Condition; and (2) products' demand functions are linear in price in the vicinity of the pre-merger equilibrium point. We show that under general conditions, the linear demand assumption is not satisfied and can lead to significant errors in the application of the hypothetical monopolist test. We develop a model of differentiated products competition that shows that under reasonable assumptions, products' demand functions are concave around the pre-merger equilibrium point. The concavity of the demand curve appears to be related to clustering of consumers around products in the differentiated product space. When such clustering occurs, the model suggests that demand will tend to have a concave shape around the pre-merger equilibrium point. JEL-codes: K21 L40 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:oup:jcomle:v:7:y:2011:i:3:p:497-522. Access Statistics for this article Journal of Competition Law and Economics is currently edited by Nicholas Economides, Amelia Fletcher, Michal Gal, Damien Geradin, Ioannis Lianos and Tommaso Valletti More articles in Journal of Competition Law and Economics from Oxford University Press |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.