Critical Loss: Not Implementing the Hypothetical Monopolist Test!

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Gregory Werden, Apr 10, 2008

I recently argued in this magazine that a style of critical loss calculation I termed “CLAD” (Critical Loss Analysis by Defendants) does not properly implement the hypothetical monopolist test (HMT) for market delineation and is often highly misleading. I argued that CLAD should be excluded under Rule 702 of the Federal Rules of Evidence on the grounds that it ignores essential demand, cost, and other features of an industry. Instead, I argued that economists on both sides of a case should properly implement the HMT with simple models reflecting essential industry features. Malcolm B. Coate and Jeffrey H. Fischer take issue with my arguments. I address their issues in this reply. Download the entire article available in the column on the left.

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