EU ANTITRUST: HOT TOPICS & NEXT STEPS

EU ANTITRUST: HOT TOPICS & NEXT STEPS 2022

Prague, Czechia

Fortunately, a product specific price elasticity of demand has its own definition. It explains how a demand for a specific product varies when its price changes. Mathematically, it is a relative change in quantity divided by a relative change in price, i.e.:

(where Q represents quantity of a product, P its price and Δ (capital delta) represents a change in a given factor). The elasticity is usually noted as an absolute value, i.e., always as a positive number. The same approach is adopted below. It can be applied to any level of specificity of a product. It can be measured for mobile phones, for Apple phones, iPhone 12, iPhone 12 Black, iPhone 12 Black sold in Prague etc. As a product specific price elasticity of demand is the inverse value of the Lerner index, it therefore expresses correctly, like the Lerner index, market power. The advantage of both the Lerner index and a product specific price elasticity of demand lies in the fact that it allows market power to be determined directly. This eliminates the need to define the relevant market, quantify market shares in such a market and, in theory, eliminates the need to examine other factors which, according to decision-making practice, may be relevant for the assessment of a dominant position (barriers to entry), market structure, purchasing power, etc.). A product specific price elasticity of demand always only applies to a specific product. If the conduct under assessment relates clearly to a given product (there is no dispute as to which product the company applies the investigated conduct), it does not pose a problem to determine what data a product specific price elasticity of demand be used to calculate it. Unlike the Lerner index, it does not require marginal costs to be measured or estimated. It works with data on prices and quantities only and requires, in its most simplistic form, only one change in price in time. 4. Digitalisation and product specific price elasticity of demand For about 40 years, in which the possibility of using a product specific price elasticity of demand for market power analysis has been known, it has been used in practice rather sporadically and only in the American environment. There are several reasons why it was not applied in the European environment. As a product specific price elasticity of demand allows to work without a market definition, it has been claimed that it cannot be used in EU competition law, which arguably requires that a relevant market is defined (Werden, 1998, p. 729; Sousa Ferro, 2019, p. 332; Glasner and Sullivan, 2020; Coate and Simons, 2012, p. 682).

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