The hypothetical monopolist test (“HMT”) is the test under the Horizontal Merger Guidelines to determine if a relevant product market is properly defined before it can be determined whether a company has monopoly power in that market, or has violated antitrust law.
To do so, the HMT asks whether eliminating the competition among the group of products by combining them under the control of a hypothetical monopolist likely would lead to a worsening of terms for customers. The Agencies generally focus their assessment on the constraints from competition, rather than on constraints from regulation, entry, or other market changes. The Agencies are concerned with the impact on economic incentives and assume the hypothetical monopolist would seek to maximize profits.
When evaluating a merger of sellers, the HMT asks whether a hypothetical profit-maximizing firm, not prevented by regulation from worsening terms, that was the only present and future seller of a group of products (“hypothetical monopolist”) likely would undertake at least a small but significant and non-transitory increase in price (“SSNIP”) or other worsening of terms (“SSNIPT”) for at least one product in the group. For the purpose of analyzing this issue, the terms of sale of products outside the candidate market are held constant. Analogously, when considering a merger of buyers, the Agencies ask the equivalent question for a hypothetical monopolist.