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Market definition with differentiated products: a spatial competition application


  • Javier Elizalde



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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    References listed on IDEAS

    1. Peter Davis, 2006. "Spatial competition in retail markets: movie theaters," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 964-982, December.
    2. Robert C. Feenstra & James A. Levinsohn, 1995. "Estimating Markups and Market Conduct with Multidimensional Product Attributes," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 19-52.
    3. Scheffman, David T & Spiller, Pablo T, 1987. "Geographic Market Definition under the U.S. Department of Justice Merger Guidelines," Journal of Law and Economics, University of Chicago Press, vol. 30(1), pages 123-147, April.
    4. Robert Ekelund & George Ford & John Jackson, 1999. "Is Radio Advertising a Distinct Local Market? An Empirical Analysis," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 14(3), pages 239-256, May.
    5. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, January.
    6. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    7. repec:rje:randje:v:37:y:2006:i:4:p:964-982 is not listed on IDEAS
    8. repec:adr:anecst:y:2005:i:77:p:01 is not listed on IDEAS
    9. Javier Elizalde, 2012. "A theoretical approach to market definition analysis," European Journal of Law and Economics, Springer, vol. 34(3), pages 449-475, December.
    10. Argentesi, Elena & Ivaldi, Marc, 2005. "Market Definition in Printed Media Industry: Theory and Practice," IDEI Working Papers 376, Institut d'Économie Industrielle (IDEI), Toulouse.
    11. Economides, Nicholas, 1989. "Symmetric equilibrium existence and optimality in differentiated product markets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 178-194, February.
    12. Baker, Jonathan B. & Bresnahan, Timothy F., 1988. "Estimating the residual demand curve facing a single firm," International Journal of Industrial Organization, Elsevier, vol. 6(3), pages 283-300.
    13. Slade, Margaret E, 1986. "Exogeneity Tests of Market Boundaries Applied to Petroleum Products," Journal of Industrial Economics, Wiley Blackwell, vol. 34(3), pages 291-303, March.
    14. Javier Elizalde, 2010. "Framework for Valid Market Definition Tests in Merger Control," Faculty Working Papers 01/10, School of Economics and Business Administration, University of Navarra.
    15. Steffen Brenner, 2005. "Hotelling Games with Three, Four, and More Players," Journal of Regional Science, Wiley Blackwell, vol. 45(4), pages 851-864.
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    Cited by:

    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.

    More about this item


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

    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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