Critical Loss Analysis in Market Definition and Merger Control

"The most common applications of critical loss analysis are the definition of the relevant market and the assessment of unilateral effects in horizontal merger investigations. With respect to market definition, critical loss analysis helps to answer the question raised by the “small but significant non-transitory increase in price” (SSNIP) test. With respect to horizontal mergers, critical loss analysis can help to assess the question whether and to what extent the merged entity can use its increased market power to increase prices post-merger.

Against this background, it is the aim of this article to describe the general method of critical loss analysis (section B), to assess important properties of the concept (section C), to show how critical loss analysis has to differ between market definition exercises and the evaluation of the competitive effects of horizontal mergers (section D), to discuss applications of critical loss analysis in recent cases (section E) and, finally, to come to some general conclusions for its meaningful application in antitrust analysis (section F)."