Hypothetical monopolist test

In antitrust law, under the Horizontal Merger Guidelines, the hypothetical monopolist test is used as a framework to determine if a relevant product market is properly defined as a first step before it is determined whether a company has monopoly power in that market violating 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, and from here the analysis could go forward to determining 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.

 

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