The Analysis of Market Definition and Market Power in the Context of Rapid Innovation

The 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.