Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Monday, November 22, 2010

Antitrust Market Definition and Taxes

Posted by D. Daniel Sokol

We can be sure about two things - death and taxes.  It turns out that taxes come up, even in the antitrust context.  Fernando H. Navajas, Fundacion de Investigaciones Economicas Latinoamericanas (FIEL), Universidad Nacional de La Plata and Santiago Urbiztondo, National University of La Plata and FIEL, Argentina has a new paper on Antitrust Market Definition and Taxes.

ABSTRACT: This paper considers the effect of taxes on the definition of relevant markets in antitrust analysis by examining various measures used within the hypothetical monopoly test. We show that the use of net margins (between producer prices and marginal cost) is a proper correction, but that it is only sufficient in the absence of specific unit taxes. When the latter exist, the price-elasticity of net demand is lower than the estimated price-elasticity based on market prices, and the use of net margins is insufficient to avoid biased conclusions.

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