The test starts with a narrow candidate market and asks whether a hypothetical monopolist could impose a small but significant non-transitory price increase, typically five percent. If substitution would defeat the increase, the market expands.
It originated in the merger guidelines.
Alternative Names:
Hypothetical Monopolist Test|Small but Significant Price Increase Test
Why it Matters?
The cellophane fallacy limits the test in monopolization cases, since applying it at current prices where a monopolist already raised them produces an artificially broad market, and analysis should use competitive rather than prevailing prices. That correction is frequently omitted by plaintiff experts and is a productive Daubert target. Critical loss analysis operationalizes the test quantitatively.
Frequently Confused with
Related terms
Frequently asked questions
What is the cellophane fallacy?
What is the correction?
