Company if a and b merge they could increase the

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Unformatted text preview: D could easily serve this route if However, prices are increased: A+B has no market power prices Market is not the route but bus services in the Market city city 34 34 Problem of SSNIP test: „Cellophane Fallacy“ Problem „Cellophane In In non-merger cases SSNIP test is problematic, e.g. investigating investigating position position whether a firm was abusing a dominant One One should NOT ask whether a HM can increase prices relative to current level current but rather relative to competitive prices! but competitive Using current level will lead to too wide market Using because firm has dominant position already!!! because If you are monopolist already, you would find it If not profitable to raise price above monopoly price. price. 35 35 Problem of SSNIP test: „Cellophane Fallacy“ Problem „Cellophane du Pont case US Supreme Court: high cross elasticity of US demand between cellophane (sold by du Pont) and other wrapping material and this calls for wider definition of market BUT high elasticity of substitution was itself an BUT indication of the high market power of du Pont indication As they were monopolist, they already charged As high prices high 36 36 Implementing SSNIP test Look at data: Own price elasticity %-change in quantity demanded if price changed by 1% Typically estimated with econometric model including control Typically variables variables Cross-price Also Price elasticities econometric model correlation tests look look at prices of different goods over time: do they move in same way? same market (also for geographic areas) Price Price differences not very useful (due to possible quality difference) quality 37 37 Implementing SSNIP test Goods‘ Goods‘ characteristics and Usage and preferences preferences Are Are train and bus the same product? Maybe as they may offer the same service. Consumer surveys could be useful to know this Temporal, seasonal, and multiple markets restaurant restaurant vs. bar same market for lunch time, but different in the evening. Bananas same market as oranges in winter time, Bananas but other market in summer but 38 38...
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This note was uploaded on 01/22/2014 for the course ECON D0T32A taught by Professor Czarnitzkidirk during the Spring '13 term at Katholieke Universiteit Leuven.

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