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Antitrust market definition using statistical learning techniques and consumer characteristics

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  • Willem H. Boshoff

Abstract

Market definition is the first step in an antitrust case and relies on empirical evidence of substitution patterns. Cross-price elasticity estimates are preferred evidence for studying substitution patterns, due to advances in IO econometric modelling. However, the data and time requirements of these models weigh against their universal adoption for market definition purposes. These practical constraints — and the need for a greater variety of evidence — lead practitioners to rely on a larger set of less sophisticated tools for market definition. The paper proposes an addition to the existing toolkit, namely an analysis of consumer characteristics for market definition purposes. The paper shows how cluster analysis can be used to identify meaningful groups of substitutes on the basis of homogeneity of their consumer profiles. Cluster analysis enforces consistency, while recent bootstrap techniques ensure robust conclusions. To illustrate the tool, the paper relies on data from a recently concluded radio merger in South Africa.

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Bibliographic Info

Paper provided by Economic Research Southern Africa in its series Working Papers with number 224.

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Length: 38 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:rza:wpaper:224

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Keywords: market definition substitutes media demography clusters bootstrap;

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References

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  1. Nadine Lindstädt, 2009. "Multisided Media Markets: Applying the Theory of Multisided Markets to Media Markets," Working Papers 96/09, University of Southern Denmark, Department of Environmental and Business Economics.
  2. Dewenter, Ralf, 2003. "The Economics of Media Markets," Working Paper 10/2003, Helmut Schmidt University, Hamburg.
  3. Robert Ekelund & George Ford & John Jackson, 1999. "Is Radio Advertising a Distinct Local Market? An Empirical Analysis," Review of Industrial Organization, Springer, vol. 14(3), pages 239-256, May.
  4. Robert Tibshirani & Guenther Walther & Trevor Hastie, 2001. "Estimating the number of clusters in a data set via the gap statistic," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 63(2), pages 411-423.
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  8. Lapo Filistrucchi, 2008. "A SSNIP test for two-sided markets: the case of media," Working Papers 08-34, NET Institute, revised Oct 2008.
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  13. Baker, Jonathan B & Rubinfeld, Daniel L, 1999. "Empirical Methods in Antitrust Litigation: Review and Critique," American Law and Economics Review, Oxford University Press, vol. 1(1-2), pages 386-435, Fall.
  14. Stephen Johnson, 1967. "Hierarchical clustering schemes," Psychometrika, Springer, vol. 32(3), pages 241-254, September.
  15. Gorman, W M, 1980. "A Possible Procedure for Analysing Quality Differentials in the Egg Market," Review of Economic Studies, Wiley Blackwell, vol. 47(5), pages 843-56, October.
  16. Patrick Massey, 2000. "Market Definition and Market Power in Competition Analysis - Some Practical Issues," The Economic and Social Review, Economic and Social Studies, vol. 31(4), pages 309-328.
  17. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
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  19. Paul J. McNulty, 1967. "A Note on the History of Perfect Competition," Journal of Political Economy, University of Chicago Press, vol. 75, pages 395.
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