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Why define markets in competition cases?

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  • Willem H. Boshoff

    ()
    (Department of Economics, University of Stellenbosch)

Abstract

Competition policy investigations usually commence with a definition of the relevant product and geographic market. The relevant market provides a first evaluation of competitive conditions and allows for the calculation of market shares, which aids in the assessment of firms’ market power. Given its implications for assessing market power, the market definition in a competition case is frequently contested. Critics argue that market definition is often arbitrary and should be avoided. Instead, IO scholars argue that modern econometric methods are capable of directly estimating market power and competitive effects without the need for defining markets. We argue that market definition not only offers a valuable first screen for market power, but actually involves a substitution analysis that lies at the heart of any competition case. We argue that it is suboptimal to promote a single encompassing econometric model instead of the multi-faceted empirical approach underlying most market definition exercises in practice. In addition, we note that market definition involves much more than merely the estimation of price elasticities, which are in any event difficult to estimate in most competition cases.

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File URL: http://www.ekon.sun.ac.za/wpapers/2013/wp102013/wp-10-2013.pdf
File Function: First version, 2013
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Paper provided by Stellenbosch University, Department of Economics in its series Working Papers with number 10/2013.

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Date of creation: 2013
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Handle: RePEc:sza:wpaper:wpapers186

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Keywords: market; market definition; market share; substitutability; price elasticity; antitrust; competition policy; mergers; monopolization;

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  1. Damien J. Neven, 2006. "Competition economics and antitrust in Europe," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 21(48), pages 741-791, October.
  2. Johannes Fedderke & Dietmar Naumann, 2011. "An analysis of industry concentration in South African manufacturing, 1972-2001," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 43(22), pages 2919-2939.
  3. Oliver Budzinski, 2008. "Monoculture versus diversity in competition economics," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 32(2), pages 295-324, March.
  4. Stan du Plessis, 2007. "Two optimistic traditions in the dismal science: rationalism and the "invisible hand"," Working Papers 07/2007, Stellenbosch University, Department of Economics.
  5. N.m. Theron & W.h. Boshoff, 2006. "Vertical Integration In South African Telecommunications: A Competition Analysis," South African Journal of Economics, Economic Society of South Africa, Economic Society of South Africa, vol. 74(3), pages 575-592, 09.
  6. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198283164, October.
  7. Blair, Roger D. & Kaserman, David L., 2009. "Antitrust Economics," OUP Catalogue, Oxford University Press, Oxford University Press, edition 2, number 9780195135350, October.
  8. Willem h. Boshoff, 2007. "Stationarity Tests In Geographic Markets: An Application To South African Milk Markets," South African Journal of Economics, Economic Society of South Africa, Economic Society of South Africa, vol. 75(1), pages 52-65, 03.
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