Market Definition with Shock Analysis

Posted by D. Daniel Sokol

Øystein Daljord, Norwegian School of Economics and Business Administration, Lars Sorgard, Norwegian School of Economics and Business Administration, and Øyvind Thomassen, explain  Market Definition with Shock Analysis.

ABSTRACT: The SSNIP test for market definition requires information about demand substitution and profitability. If detailed information about demand is not available, observed effects of a shock in the industry may be an alternative source of evidence. In the existing literature, shock analysis has unfortunately not been clearly linked to the SSNIP test. The lack of a rigorous framework may confuse the interpretation of the effects of shocks. We illustrate how a shock can be evaluated within the SSNIP framework with a minimum of data. We apply our criterion to a capacity expansion in the ferry market in the North Sea.