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

In: Essays In Technology Management And Policy Selected Papers of David J Teece

Author

Listed:
  • Christopher Pleatsikas

    (LECG Inc., 2000 Powell St. No. 600, Emeryville, CA 94608, USA)

  • David Teece

    (University of California, Institute of Management, Innovation and Orginization (IMIO), F402 Hass School of Business 930, Berkeley, CA 94720-1930, USA)

Abstract

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.

Suggested Citation

  • Christopher Pleatsikas & David Teece, 2003. "The Analysis of Market Definition and Market Power in the Context of Rapid Innovation," World Scientific Book Chapters, in: Essays In Technology Management And Policy Selected Papers of David J Teece, chapter 14, pages 385-416, World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789812796929_0014
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    References listed on IDEAS

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    1. 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.
    2. 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.
    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. Rodolphe Durand & Robert M. Grant & Tammy L. Madsen & Gino Cattani & Joseph F. Porac & Howard Thomas, 2017. "Categories and competition," Strategic Management Journal, Wiley Blackwell, vol. 38(1), pages 64-92, January.
    2. Aurelien Portuese, 2020. "Beyond antitrust populism: Towards robust antitrust," Economic Affairs, Wiley Blackwell, vol. 40(2), pages 237-258, June.
    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. Sumit K. Majumdar & Rabih Moussawi & Ulku Yaylacicegi, 2018. "Capital Structure and Mergers: Retrospective Evidence from a Natural Experiment," Journal of Industry, Competition and Trade, Springer, vol. 18(4), pages 449-472, December.
    7. Jochen Lorentzen & Peter Møllgaard, 2006. "Competition Policy and Innovation," Chapters, in: Patrizio Bianchi & Sandrine Labory (ed.), International Handbook on Industrial Policy, chapter 6, Edward Elgar Publishing.
    8. Yi-Chun Ou & Peter C. Verhoef & Thorsten Wiesel, 2017. "The effects of customer equity drivers on loyalty across services industries and firms," Journal of the Academy of Marketing Science, Springer, vol. 45(3), pages 336-356, May.
    9. Christian Genthon, 2007. "Can we measure Microsoft's market power ?," Post-Print halshs-00153837, HAL.
    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.
    11. Gual, Jordi, 2003. "Market definition in the telecoms industry," IESE Research Papers D/517, IESE Business School.
    12. John Ashton, 2001. "Market Definition of the UK Deposit Savings Account Market," Regional Studies, Taylor & Francis Journals, vol. 35(6), pages 577-584.
    13. 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.

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    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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