The Hypothetical Monopolist Test is being applied as a means of establishing Relevant Economic Markets for the purposes of ex ante regulation in the EU. This paper points out some common types of bias and error in the application of the test. The likely consequence is that regulatory authorities will tend to find overly narrow economic markets (and this increases the subsequent chance of incorrectly finding market power at the level of the individual firm). Recent practice concerning broadband and narrowband internet market boundary assessments in the U.K. is used to illustrate the general arguments.
Get full access to this article
View all access options for this article.
References
1.
Analysys, 2003, Broadband market comparisons, Report to the Department of Trade and Industry, October 2003.
DobbsI.M., 2002, Defining markets for ex ante regulation, University of Newcastle upon Tyne Business School working paper (available at web address http://www.staff.ncl.ac.uk/i.m.dobbs/).
5.
DobbsI.M., 2003, “Demand, cost elasticities and pricing benchmarks in the hypothetical monopoly test: The consequences of a simple SSNIP”, Applied Economics Letters, 10, 545–548 (also available at http://www.staff.ncl.ac.uk/i.m.dobbs/)
DobbsI.M.RichardsP., 2004, “Innovation and the New Regulatory Framework for Electronic Communications in the EU”, European Competition Law Review, Volume 25: Issue 11, November 2004.
8.
EC, 2002a, Directive of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services, [2002] OJ L 108/33.
9.
EC, 2002b, European Union – Commission guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications networks and services, [2002] OJ C 165/6.
FisherF.M., 1979, “Diagnosing Monopoly”, Quarterly Review of Economics and Business, 19, 7–33.
12.
HausmanJ.A.SidakJ.G.SingerH.J., 2001, “Residential demand for broadband telecommunications and consumer access to unaffiliated internet content providers”, Yale Journal on Regulation, 18, 129–173.
13.
LangenfeldJ.LiW., 2001, “The use and misuse of critical loss analysis”, LECG perspectives, 2, 1–4 (available at Web-address: http://www.lecg.com).
14.
LindR.C.MuysertP.WalkerM., 2002, “Innovation and competition policy”, Economic Discussion Paper 3, London, Office of Fair Trading (available at Web-address: http://www.oft.gov.uk)
15.
MasseyP., 2000, “Market definition and market power in competition analysis: Some practical Issues”, The Economic and Social Review, 4, 309–328.
MontiM., 2001, “Market definition as a cornerstone of EU Competition Policy”, Speech given at a workshop on Market Definition, Helsinki, October 5 (available at Web address: http://europa.eu.int/comm./comptititon/speeches/)
Oftel, 2002, Direction to resolve a dispute between BT, Energis and Thus concerning xDSL interconnection at the ATM switch, 21 June (available at Web-address: http://www.ofcom.org.uk)
21.
Oftel, 2003a, Review of Fixed Narrowband Retail Markets, Consultation document, 17/3/2003, (available at Web-address: http://www.ofcom.org.uk)
22.
Oftel, 2003b, Review of wholesale unmetered narrowband internet termination market, Consultation document, 17/3//2003, (available at Web-address: http://www.ofcom.org.uk)
23.
Oftel, 2003c, Review of broadband wholesale access market, Consultation document, 28/4/2003, (available at Web-address: http://www.ofcom.org.uk)
24.
Oftel, 2003d, Review of wholesale unmetered narrowband internet termination market, Explanatory Statement and Notification, 26/8/2003, (available at Web-address: http://www.ofcom.org.uk).
Ofcom, 2004, Review of the wholesale broadband access market: Identification and analysis of markets, Determination of market power and setting of SMP conditions: Final Explanatory Statement and Notification (available at http://www.ofcom.org.uk)
27.
OFT, 1992, Market definition in UK competition policy, Report by NERA for the Office of Fair Trading, OFTRP1, London (available at Web-address: http://www.oft.gov.uk)
28.
OFT, 1998, A guide to the provisions of the Competition Act 1998: Market Definition, Office of Fair Trading, London, (available at Web-address: http://www.oft.gov.uk)
29.
OFT, 1999, Market Definition, OFT403, Office of Fair Trading, London, (available at Web-address: http://www.oft.gov.uk)
30.
OFT, 2001, The role of market definition in monopoly and dominance enquiries, Economic Discussion paper 2, OFT342. A report by NERA for the Office of Fair Trading, London, (available at Web-address: http://www.oft.gov.uk)
31.
SidakJ.G.SingerH.J.TeeceD.J., 1999, “A general framework for competitive analysis in Wireless Telecommunications”, Hastings Law Journal, 50, 1639–1672.
32.
US Department of Justice and the Federal Trade Commission, 1984, Horizontal Merger Guidelines, Washington DC. Revised: 1994, 1997. (available at website: http://www.usdoj.gov)
