Making sense of market delineation with the aggregate diversion ratio

Abstract

The US Merger Guidelines leave it an open question if the SSNIP test requires an increase in one, some or all prices in the candidate market. We argue that the characteristics of the candidate market in question should be decisive for how to perform the SSNIP test. If there are asymmetries between products, increasing one price might be a better procedure in order to identify competitive constraints. Katz & Shapiro (2003) derived a one-price criterion in terms of the aggregate diversion ratio which is applicable for asymmetric candidate markets. Unfortunately, the derivation is incorrect. We derive a corrected criterion.