A Comprehensive Look at the Critical Loss Analysis in a Differentiated Products Market

Sat Dec 01 15:24:38 EST 2012
By Dr. Christine Meyer and Dr. Yijia (Isabelle) Wang

In this article from the Journal of Competition Law and Economics, NERA Senior Vice President Dr. Christine Meyer and Senior Consultant Dr. Yijia (Isabelle) Wang examine methods for conducting the critical loss analysis in a differentiated products setting. Four different ways have been proposed or implemented in antitrust practice: the average-price-increase test; the joint-price-increase test; the single-price-increase test; and the respective-price-increase test. Dr. Meyer and Dr. Wang summarize how to implement each test and, for each test, provide the criterion that is required for a candidate market to pass the test (and thus to constitute a relevant market). The authors note that the four tests are not equivalent in a differentiated products setting, and may lead to different results with respect to market definition. This article explores the relationships between the various tests and the limitations of some tests. It serves as a practitioner's guide to implementing the critical loss analysis in a differentiated products setting.