Applying Critical Loss for Market Definition in Merger Analysis: Do Court Decisions Offer Insight?

By Malcolm B. Coate & Shawn W. Ulrick (U.S. Federal Trade Commission), John M. Yun (George Mason University)

Critical loss analysis is an empirical tool used to define relevant markets in antitrust law. The existence of two different critical loss methodologies, however, complicates its application. Harris and Simons introduced the first approach, which focused on evaluating the market-level effect of a small, but significant and non-transitory increase in price (“SSNIP”). Later, O’Brien and Wickelgren, along with Katz and Shapiro, introduced a firm-level approach to critical loss to derive a test that applies mathematical models of demand systems, foundationally based on a single-firm SSNIP, to proxy for a market-level price increase.

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