Working Paper: CEPR ID: DP3236
Authors: Mario Forni
Abstract: In this Paper it is argued that, if two products or geographic areas belong in the same market, their relative price must be stationary. Hence stationarity tests like the ADF and the KPSS can be helpful in delineating the relevant market for Antitrust purposes, particularly for abuses of dominant positions and agreements between competitors. The proposed procedure is closely related with cointegration analysis but has more general validity. An application to the Italian milk market illustrates the technique.
Keywords: antitrust market definition; Dickey-Fuller test; KPSS test; merger guidelines; stationarity
JEL Codes: L41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| stationarity of prices (E30) | definition of antitrust markets (K21) |
| price ratio must be stationary (C22) | same market (L17) |
| failure to reject stationarity (C22) | same market (L17) |
| rejection of stationarity (C22) | distinct markets (D49) |
| traditional methods difficult to implement (C90) | need for proposed method (C69) |
| empirical application to Italian milk market (C59) | distinct regional markets (R20) |