The hypothetical monopolist in a world of multi-product firms: Should outside companies be included in his basket?

Posted by D. Daniel Sokol

Adriaan ten Kate, Sr. and Gunnar Niels (Oxera) ask THE HYPOTHETICAL MONOPOLIST IN A WORLD OF MULTI-PRODUCT FIRMS: SHOULD OUTSIDE COMPANIONS BE INCLUDED IN HIS BASKET?

ABSTRACT: The hypothetical monopolist of the U.S. Horizontal Merger Guidelines not only is supposed to be the sole producer of the products inside the candidate market, but also is not supposed to produce any products outside that market. As most real-world firms produce multiple products, the transition from the prevailing situation to hypothetical monopoly implies both a hypothetical merger of all firms that produce inside products and a hypothetical spin-off of all outside products produced by those firms. Such a spin-off has a number of effects, which we discuss in detail for both substitute and complementary outside companions. We argue that these effects do not bring market definition any closer to its ultimate goal—that is, the assessment of market power. In our view, it is preferable to consider the hypothetical monopolist as an inclusive monopolist, resulting from the merger of all firms producing inside products but without any spin-off of companions. Such a monopolist captures the idea of the hypothetical cartel referred to in the 2010 version of the Guidelines, but is better suited to describe the issues at stake.