Abstract
Abstract Critical loss analysis is used to define product markets for merger analysis and determine if market forces are sufficient to discipline prices in transitionally competitive regulated markets. Unlike the approval of a merger, however, regulatory forbearance is a reversible act. The threat of future (re)-regulation, or regulatory contestability, in combination with high price-cost margins and complementary demands can lower the critical loss (elasticity) necessary to justify the competitive classification of regulated services. This suggests that the intensity of competition sufficient to forbear from regulation can be considerably less than what regulators may believe is required a priori.
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