Unformatted text preview: substitutes
Norwegian When they merged they had to grant a license to
distribute one of the drugs for at least 10 years
to an independent company.
to Problem: these remedies have to monitored by
the authorities carefully. May not be effective.
29 Identifying the relevant market
Motta Book, Chapter 3 30
30 How to define a market? Suppose two banana sellers intend to merge Is market power enhanced by the merger? Depends on demand: Are bananas a separate
market or are they part of the market for „exotic“
fruit? To what extend would consumers just substitute
a good for another if prices increase?
good Also geographic dimension has to be
considered: “Oude Markt“ vs. „Center of Leuven“
31 SSNIP Test „Small but significant non-transitory increase in prices“
(also called „hypothetical monopolist test)
Suppose there is a hypothetical monopolist (HM) that is
the only seller of bananas.
Would HM find it profitable to increase the price of
bananas above the current level, by 5%-10%?
Imagine bananas do not face significant competitive
constraints from other products no other product is
substitute enough for bananas so that HM would lose
much demand when price is raised Bananas are separate market.
32 SSNIP Test Now
Now suppose answer is „NO“ price increase not profitable Consumers will buy Kiwi, Pineapples etc. instead bananas not separate market test continues: widen market, e.g. bananas and
other „exotic“ fruit.
other Would an HM find it profitable to raise prices for
exotic fruit by 5% to 10% above current level?
current Continue until „YES“, and you found the relevant
33 Supply substitutability We
We should not only look at consumers behavior,
but also other suppliers
but Consider a bus route in town is only served by
company A and B, but there are also C and D.
company If A and B merge, they could increase the price
for the one bus route that only they serve.
for However, C and...
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- Spring '13
- Economics, HHI