Study On SSNIP Method In Relevant Market Definition

The definition of relevant market is so crucial that it becomes the bone of contention between anti-monopoly authorities and annex enterprises in mergers' examination and prosecution. SSNIP test are widely used in all countries that it provides a powerful analysis framework to define the relevant market in anti-monopoly. This test can generally be realized by the critical losses analysis. As opinions vary, the role of SSNIP test that is playing in anti-trusted area is still uncertain for most economists. Simons'and Williams'(1993) opinion is that the reference of SSNIP test in the guidelines, especially the reference of the constraint concepts of market demand elasticity greatly improved the analysis of the major problems. But there are many shortcomings in this method. Although SSNIP test is the important step for DOJ to make the standard of the guidelines, it cannot test all cases. The definition of Market is less important than before in the latest American guidelines. This definition plays two roles in the new guidelines. Firstly, the definition of relevant market can differentiate industrial standard and geographical scope in the case that the concentration of market is raising. Secondly, the definition of relevant market can help organizations to affirm the market participants, market share and market concentration. It is not necessary for agencies to define the market on antitrust analysis in the first. Although we have to evaluate the consumer substitutes during the analysis procedure, antitrust authority can use some other analysis tool to determine the competition effect but not dependent on market definition. When the antitrust authorities analyze the substitutes and plausible potential market, the different market shares that they obtained result significant different analysis results, at this time it is especially valuable to examine the more direct evidence which these effect related. Demand alternative factors are significant in market definition, because consumers who have certain consumption ability and willingness to buy a product will tend to spend another substitute product when the former price unchanged but quality or service drops. The analysis of customer behaviors is very important in anti-monopoly. This thesis summarizes the theoretical basis of SSNIP and its operational method-critical loss analysis which is the popular method of SSNIP test. After the rise of price in small amplitude, this enterprise compared the sales loss which due to the rising prices and brings profit rose caused by unit price, which is the bigger one. If this price rise is profitable, the merger is unreasonable and should be stopped. On the contrary, it does not have the adverse effects on the competition. Although traditional critical losses analysis has been widely accepted, there are important defects when it estimates the actual loss in price:(1) there is no unified standard and each country's standard is different; (2) there is no certain result when the product differentiation exists. Farrell and Shapiro's UPP method proposed an alternative method according to the analysis of these two critical loss shortcomings. UPP (the price rise pressure test method) avoids the loss of critical analysis of these two defects. It need not to integrate prices boundaries and can make more rigorous market definitions through the diversion. After the two enterprises are merged, the total earnings situation is the evidence to judge a mark-up behavior whether can lead to corporate earnings and adverse impact. There are also some problems in UPP, i.e. if two kinds of goods are not the same as the conversion, the result is different. Richard Schmalensee's PCAL is derivate by UPP method. PCAL method uses demand curve between the two products to analyze product conversion rates. Generally, it is not easy to get demand curve, we do not know that all products of the demand curve is linear.The paper also analyzes some questions which happen in the static market; although there is no real enterprises operate in static market. We analyze the static market as an assumption in order to make possible analysis and there must be differences in the results of the analysis. Under this hypothesis of analysis, the reactions of some other enterprises are not taken into consideration. We should consider the problem of dynamic market in order to ensure the accuracy of the results.