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Correlation, causality, and all that jazz: The inherent shortcomings of price tests for antitrust market delineation

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Abstract

A substantial economics literature has developed in which price data have been relied upon to delineate antitrust markets by empirically implementing definitions offered by classical economists. The forces driving these price tests are not the same as those that give rise to market power, and therefore these price tests are likely to reach erroneous conclusions if used to delineate antitrust relevant markets. The price tests should be used with great caution, if at all.

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Authors and Affiliations

  1. Antitrust Division, U.S. Department of Justice, 555 Fourth Street, N.W., 20530, Washington, D.C., USA

    Gregory J. Werden & Luke M. Froeb

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  1. Gregory J. Werden
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  2. Luke M. Froeb
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Additional information

The views expressed herein are not purported to reflect those of the U.S. Department of Justice. We thank Jonathan Baker, Jerry Hausman, David Malueg, Bobby Willig, and two referees for helpful comments; and we thank Jonathan Jones for clarifying an econometric point.

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Werden, G.J., Froeb, L.M. Correlation, causality, and all that jazz: The inherent shortcomings of price tests for antitrust market delineation. Rev Ind Organ 8, 329–353 (1993). https://doi.org/10.1007/BF01024238

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