Reconciling the Opposing Views of Critical Elasticity

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Michael Baumann, Paul Godek, Sep 24, 2009

Market definition is the core of antitrust analysis, and the concepts of “critical elasticity” and “critical loss” have often been applied to the task of defining relevant antitrust markets, in both differentiated-product and homogenous-product scenarios. The critical elasticity is that elasticity of demand that is just high enough to prevent a hypothetical monopolist from profitably increasing price by a threshold “small but significant” amount; critical loss is the fraction of sales …

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