Understanding the Hypothetical Monopolist Test in Antitrust Law
Definition & Meaning
The hypothetical monopolist test is a method used in antitrust law to help define a relevant product market. This test assesses whether a hypothetical monopolist could profitably raise prices by a small but significant amount without losing too many customers. If the monopolist can do so, the market is considered correctly defined. If not, the market definition may be too narrow and needs to be broadened. This test is a crucial first step in determining if a company holds monopoly power that violates antitrust laws.
Legal Use & context
This term is primarily used in the context of antitrust law, particularly when evaluating mergers and acquisitions. It helps legal professionals determine whether a proposed merger would substantially lessen competition in a defined market. Users can manage some aspects of this analysis through legal templates available on platforms like US Legal Forms, which provide guidance on antitrust issues.
Real-world examples
Here are a couple of examples of abatement:
For instance, if a company sells a specific type of software, the hypothetical monopolist test would examine if that company could increase the price of the software without losing too many customers to competitors. If it could, the market is likely defined correctly. (Hypothetical example.)