The question is about Competition Law and Policy economic major What is the objective of the...

The question is about Competition Law and Policy economic major

What is the objective of the SSNIP or Hypothetical Monopolist Test? Describe the SSNIP Test. You may use examples if you think that will better help you to describe the SSNIP Test.
In non-merger cases such as when investigating the abuse of dominant position of a firm, should the competition authority conduct the SSNIP test by estimating whether the firm in question can raise the price of its product in a small but significant way relative to current prices like it would do for a merger case? Explain your answer.

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Expert Solution

The objective of SSNIP test or Hypothetical Monopolist Test is to determine and define the existing boundaries of competition between the firms in the relevant product market.
SSNIP test or Hypothetical Monopolist Test is a methodology which is used to properly define the product market in the most systematic manner. This methodlogy is used in the Antitrust Laws under the guidelines of horizontal merger, to determine whether a particular company is violating the antitrust laws by abusing monopoly power.
In this test, the products in the form of small sub-sets are analysed. Then it is determined that if the Hypothetical Monopolist increase the prices of products by a small amount, but for a long period of time, if he has an option in the relevant product market.
If it comes out that the price increase by Hypothetical Monopolist would be profitable for him in the long run, then it is assumed that the market is correctly defined. And if it comes out that the Hypothetical Monopolist cannot profitably increase the price of products, then it is assumed that the market is not correctly defined.
If as per this test the market is correctly defined, it could be analysed further whether the antitrust laws are being violated by the company.
But, SSNIP test or Hypothetical Monopolist test is just a tool for assessment of competition law and it should not be treated as the only way of assessment and relied upon blindly.
As this test is used to define the market and determine whether the antitrust laws are being violated while assessing the mergers, it is clear that this method can be used in assessment of non-merger cases such as investigating the abuse of dominant position as well.
SSNIP or Hypothetical Monopolist test is a tool which is used to determine market definition which is used for making assessment of mergers. It is an inidvidual test which is not useful for mergers only.
Thus, it can be said that in non-merger cases such as when investigating the abuse of dominant position of a firm, the competition authority can conduct the SSNIP test by estimating whether the firm in question can raise the price of its product in a small but significant way relative to current prices like it would do for a merger case.

Rahul Sunny answered 2 years ago

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