hypothetical monopolist test

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The hypothetical monopolist test is the test under the Horizontal Merger Guidelines to determine if a relevant product market is properly defined before it can be determined whether a company has monopoly power in that market, or has violated antitrust law.

In applying the test, the question posed is whether a hypothetical monopolist can profitably impose a small but significant and non-transitory increase in price in the product market as defined.

If the answer to the question posed is yes, and the price increase would be profitable for the hypothetical monopolist, then the market is correctly defined. Once the relevant market is defined, the antitrust analysis may go forward to determine whether antitrust laws are being violated if the company at issue has too much market power. If a hypothetical monopolist could not profitably impose a small but significant and non-transitory price increase, then the relevant product market is defined too narrowly and must be expanded to include other goods and services.

[Last updated in January of 2023 by the Wex Definitions Team]