Lecture 4.

Market Definition Part II

The SSNIP Test

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The SSNIP Test

SSNIP Test Now Widely Accepted

But see EU Commission in Virgin/British Airways

SSNIP test only one of possible tests of market definition - somewhat troubling.

"Any statement to the effect that SSNIP is just one example of how to define a relevant market without clearly specifying what the alternative to SSNIP might be, clearly runs the risk of a return to a process of market definition by ad hoc reference to product characteristics."

NERA, (2001): The Role of Market Definition in Monopoly and Dominance Inquiries, Office of Fair Trading, Economic Discussion Paper 2.

Applying SSNIP Test

Critical Elasticity of Demand

Calculating Critical Elasticity of Demand - Example

Critical Loss

Calculating Critical Loss

Values of Critical Elasticity of Demand (e) and Critical Loss (y)

% Margin e y
50 1.82 9.1
45 2.00 10.0
40 2.22 11.1
35 2.50 12.5
30 2.86 14.3
25 3.33 16.7
20 4.00 20.0
15 5.00 25.0
10 6.67 33.3

Critical Loss Figures Must be Interpreted Carefully

Beware cellophane trap


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