Monday, June 21, 2010
Posted by D. Daniel Sokol
Joseph Farrell, University of California, Berkeley - Department of Economics and Carl Shapiro, University of California, Berkeley - Economic Analysis & Policy Group have an important new paper on Recapture, Pass-Through, and Market Definition.
ABSTRACT: We describe how the hypothetical monopolist test used to define relevant markets in horizontal merger cases can be implemented using the fundamental economic concepts of opportunity cost and pass-through. Unlike critical loss analysis, our approach analyzes the behavior of a profit-maximizing hypothetical monopolist, as called for in the 1992 Horizontal Merger Guidelines. This approach also can provide a consistency check between relevant markets defined using the hypothetical monopolist test and claims regarding the pass-through of merger-specific efficiencies.