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Market definition with differentiated products: a spatial competition application

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  • Javier Elizalde

Abstract

This paper applies the ‘hypothetical monopolist’ test of market definition to a retail market with products differentiated by means of location and other dimensions. The test for defining the relevant product and geographic market follows the conditions required by the European Union Competition Law and so it takes into account both demand- and supply-side substitution. The empirical model using sales data from a set of movie theatres in the North of Spain, incorporating the observed locations of consumers vis-à-vis the stores, shows that empirical tests of market definition may lead to an implausible (too restrictive) definition of the relevant market if supply-side substitution is not accounted for. It also shows that the main driver of competition in retail markets with differentiated products is not price but product characteristics. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Javier Elizalde, 2013. "Market definition with differentiated products: a spatial competition application," European Journal of Law and Economics, Springer, vol. 36(3), pages 471-521, December.
    • Handle: RePEc:kap:ejlwec:v:36:y:2013:i:3:p:471-521
    DOI: 10.1007/s10657-011-9260-9
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    1. Javier Elizalde, 2012. "A theoretical approach to market definition analysis," European Journal of Law and Economics, Springer, vol. 34(3), pages 449-475, December.
    2. Georges Siotis & Carmine Ornaghi & Micael Castanheira, 2023. "Evolving market boundaries and competition policy enforcement in the pharmaceutical industry," European Journal of Law and Economics, Springer, vol. 55(2), pages 313-348, April.

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    More about this item

    Keywords

    Market definition; Spatial competition; Horizontal product differentiation; Supply-side substitution; Demand estimation; L11; D43; K21;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

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