“Multi-Product Critical Loss: Allowing for Varying Margins, Prices, and Quantities in the Candidate Antitrust Market”

Abstract

Critical loss analysis is important in defining antitrust product and geographic markets as it directly implements the hypothetical monopolist test. Traditionally, critical loss analysis assumes all products in the candidate market earn the same margin at current prices. In effect, this approach treats all products as a single, representative product. This is technically incorrect. This paper develops the appropriate measures of critical loss assuming products in the candidate markets have different margins, different current prices, and different initial quantities. We also address issues in the implementation of critical loss analysis. This paper is meant to be accessible to the practitioner.