Critical Loss in Market Definition: Methods and Court Decisions

Abstract

Critical loss analysis is an empirical tool used to define relevant markets in antitrust law. The existence of two different critical loss methodologies, however, complicates its application. Harris and Simons introduced the first approach, which focused on evaluating the market-level effect of a small, but significant and non-transitory increase in price (‘SSNIP’). Later, O’Brien and Wickelgren, along with Katz and Shapiro, introduced a firm-level approach to critical loss to derive a test that applies mathematical models of demand systems, foundationally based on a single-firm SSNIP, to proxy for a market-level price increase. A critical loss controversy evolved as the two tests can, but do not necessarily, generate different relevant markets. This article examines the choice between the two methods, reviews recent court decisions, and guides practitioners and courts as to when each approach makes the most sense.