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Unformatted text preview: substitutes Norwegian When they merged they had to grant a license to When distribute one of the drugs for at least 10 years to an independent company. to Problem: these remedies have to monitored by Problem: the authorities carefully. May not be effective. the 29 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 Depends market or are they part of the market for „exotic“ fruit? fruit? To what extend would consumers just substitute To a good for another if prices increase? good Also geographic dimension has to be Also considered: “Oude Markt“ vs. „Center of Leuven“ considered: 31 31 SSNIP Test „Small but significant non-transitory increase in prices“ Small (also called „hypothetical monopolist test) (also Suppose there is a hypothetical monopolist (HM) that is Suppose hypothetical the only seller of bananas. the Would HM find it profitable to increase the price of Would bananas above the current level, by 5%-10%? current Imagine „YES“ 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 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 test other „exotic“ fruit. other Would an HM find it profitable to raise prices for Would exotic fruit by 5% to 10% above current level? current Continue until „YES“, and you found the relevant Continue market. market. 33 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 Consider company A and B, but there are also C and D. company If A and B merge, they could increase the price If for the one bus route that only they serve. for However, C and...
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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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