DP3236 Using Stationarity Tests in Antitrust Market Definition

Author(s): Mario Forni
Publication Date: February 2002
Keyword(s): anti-trust market definition, dickey-Fuller test, kpss test, merger guidelines, stationarity
JEL(s): L41
Programme Areas: International Macroeconomics, Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3236

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.