Market Definition Under Price Discrimination

20 Pages Posted: 7 Mar 2010

See all articles by Jerry A. Hausman

Jerry A. Hausman

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Gregory K. Leonard

Charles River Associates

Christopher A. Vellturo

Analysis Group, Inc.; National Bureau of Economic Research (NBER)

Date Written: 1996

Abstract

The 1992 Horizontal Merger Guidelines, issued by the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC), suggest that relevant markets for merger analysis may be defined for classes of customers on whom a hypothetical monopolist of the merging firms’ products would likely impose a discriminatory price increase. Although the DOJ and FTC had attempted to define markets based on the feasibility of price discrimination prior to 1992, the explicit endorsement by the 1992 Guidelines has led to an increased use of this practice by these agencies. We question whether market definition based on the feasibility of price discrimination is appropriate for many of the merger situations where its use has been proposed. Since application of price discrimination typically leads to narrower market definitions, inappropriate application may result in the DOJ and FTC allocating resources to challenge precompetitive or competition-neutral mergers.

In this article we enumerate the difficulties associated with defining markets through price discrimination and describe the conditions under which it may be appropriate. To illustrate the principles involved we present two case studies and conclude with a discussion of the formidable supply-side obstacles to coordinated price discrimination.

Keywords: Market Definition, Price Discrimination

JEL Classification: L1

Suggested Citation

Hausman, Jerry A. and Leonard, Gregory K. and Vellturo, Christopher A., Market Definition Under Price Discrimination (1996). Antitrust Law Journal , Vol. 64, 1996, Available at SSRN: https://ssrn.com/abstract=1565843

Jerry A. Hausman

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
Room E52-271a
Cambridge, MA 02142
United States
617-253-3644 (Phone)
617-253-1330 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Gregory K. Leonard (Contact Author)

Charles River Associates ( email )

601 12th Street
Ste. 1500
Oakland, CA 94607
United States
510-595-2706 (Phone)

Christopher A. Vellturo

Analysis Group, Inc.

111 Huntington Avenue
Tenth Floor
Boston, MA 02199
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
612
Abstract Views
3,381
Rank
80,777
PlumX Metrics