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The analysis of market definition and market power in the context of rapid innovation

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  • Pleatsikas, Christopher
  • Teece, David

Abstract

AbstractThe basis for competition in many high technology industries is fundamentally different from that in more mature and stable industries. Most obviously, there is a much greater emphasis on performance-based, rather than price-based, competition. In addition, the competitive dynamic is different as well, with product often highly differentiated and periodic discontinuous paradigm shifts that can completely overwhelm per-existing market positions. The objective of this paper is to review and evaluate some of the traditional techniques used to define markets and measure market power in antitrust analysis. Most significantly, the limitations of these techniques when applied in high technology contexts are revealed, particular when inherently static analytical frameworks are employed. Often their use results in markets that are defined too narrowly, with the consequence that market power is overestimated. To rectify these problems, several alternative methods are suggested. Any method applied in a high technology context must have due regard for the dynamic nature of competition in such industries and must utilize an appropriate time horizon for analysis.
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Suggested Citation

  • Pleatsikas, Christopher & Teece, David, 2001. "The analysis of market definition and market power in the context of rapid innovation," International Journal of Industrial Organization, Elsevier, vol. 19(5), pages 665-693, April.
  • Handle: RePEc:eee:indorg:v:19:y:2001:i:5:p:665-693
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    References listed on IDEAS

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    1. Ordover, Janusz A & Baumol, William J, 1988. "Antitrust Policy and High-Technology Industries," Oxford Review of Economic Policy, Oxford University Press, vol. 4(4), pages 13-34, Winter.
    2. Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 1-9, April.
    3. Severin Borenstein, 1985. "Price Discrimination in Free-Entry Markets," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 380-397, Autumn.
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    Cited by:

    1. repec:bla:stratm:v:38:y:2017:i:1:p:64-92 is not listed on IDEAS
    2. Jochen Lorentzen & Peter Møllgaard, 2006. "Competition Policy and Innovation," Chapters,in: International Handbook on Industrial Policy, chapter 6 Edward Elgar Publishing.
    3. Michelle Connolly & James Prieger, 2009. "Economics at the FCC, 2008–2009: Broadband and Merger Review," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 35(4), pages 387-417, December.
    4. Adner, Ron & Zemsky, Peter, 2003. "Disruptive Technologies and the Emergence of Competition," CEPR Discussion Papers 3994, C.E.P.R. Discussion Papers.
    5. Gual, Jordi, 2003. "Market Definition in the Telecoms Industry," CEPR Discussion Papers 3988, C.E.P.R. Discussion Papers.
    6. Gual, Jordi, 2003. "Market definition in the telecoms industry," IESE Research Papers D/517, IESE Business School.
    7. Christian Genthon, 2007. "Can we measure Microsoft's market power ?," Post-Print halshs-00153837, HAL.
    8. John Ashton, 2001. "Market Definition of the UK Deposit Savings Account Market," Regional Studies, Taylor & Francis Journals, vol. 35(6), pages 577-584.
    9. Connolly Michelle & Prieger James E., 2013. "A Basic Analysis of Entry and Exit in the US Broadband Market, 2005–2008," Review of Network Economics, De Gruyter, vol. 12(3), pages 229-270, September.
    10. Magdalena Sliwinska, 2015. "The Structural Power of Enterprises: Beyond the Notion of Market Power," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 13(2 (Summer), pages 189-206.

    More about this item

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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