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Market Definition: Use and Abuse

Author

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  • Dennis W. Carlton

    (Economic Analysis Group, Antitrust Division, Department of Justice)

Abstract

A “market” can be rigorously and precisely defined quantitatively, but the information to do so is typically not available. Instead, markets are often defined based on qualitative information, leading to the possibility of errors. I make some practical suggestions to mitigate such errors. When markets are correctly defined, it is the change in market shares that is central to the antitrust analysis, though this is not how courts typically use market definition and shares to analyze Section 2 cases. Unfortunately, there is only a weak link between change in market share and change in competitive performance, and that is why market definition and the use of market shares are very crude tools of analysis. That is why their best use is as safe harbors to quickly screen out frivolous cases from those where the economic forces governing industry behavior need to be carefully studied. But, I explain why even this use of market definition and market shares can be problematic in Section 2 cases.

Suggested Citation

  • Dennis W. Carlton, 2007. "Market Definition: Use and Abuse," EAG Discussions Papers 200706, Department of Justice, Antitrust Division.
    • Handle: RePEc:doj:eagpap:200706
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    File URL: https://www.justice.gov/atr/public/eag/225693.pdf
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    References listed on IDEAS

    as
    1. Ken Heyer, 2006. "Welfare Standards and Merger Analysis: Why Not the Best?," CPI Journal, Competition Policy International, vol. 2.
    2. Jean‐Charles Rochet & Jean Tirole, 2006. "Two‐sided markets: a progress report," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 645-667, September.
    3. David Evans & Richard Schmalensee, 2007. "The Industrial Organization of Markets with Two-Sided Platforms," CPI Journal, Competition Policy International, vol. 3.
    4. Ken Heyer, 2006. "Predicting the Competitive Effects of Mergers by Listening to Customers," EAG Discussions Papers 200611, Department of Justice, Antitrust Division.
    5. Kenneth Heyer, 2006. "Welfare Standards and Merger Analysis: Why not the Best?," EAG Discussions Papers 200608, Department of Justice, Antitrust Division.
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    Citations

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    Cited by:

    1. Dennis Carlton & Ken Heyer, 2007. "The Year in Review: Economics at the Antitrust Division, 2006–2007," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 31(2), pages 121-137, September.
    2. Stöhr, Annika, 2021. "Price effects of horizontal mergers: A retrospective on retrospectives," Ilmenau Economics Discussion Papers 151, Ilmenau University of Technology, Institute of Economics.
    3. Hongjai Rhee & Minsoo Park, 2011. "Fixed-to-mobile call substitution and telephony market definition in Korea," Journal of Regulatory Economics, Springer, vol. 40(2), pages 198-218, October.
    4. Dennis W. Carlton, 2007. "Does Antitrust Need to be Modernized?," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 155-176, Summer.
    5. Dennis W. Carlton & Mark A. Israel, 2021. "Effects of the 2010 Horizontal Merger Guidelines on Merger Review: Based on Ten Years of Practical Experience," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(1), pages 213-234, February.
    6. Lapo Filistrucchi, 2008. "A SSNIP test for two-sided markets: the case of media," Working Papers 08-34, NET Institute, revised Oct 2008.
    7. John Lopatka, 2011. "Market Definition?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 39(1), pages 69-93, August.
    8. Aashna Mehta & Habib Hasan Farooqui & Sakthivel Selvaraj, 2016. "A Critical Analysis of Concentration and Competition in the Indian Pharmaceutical Market," PLOS ONE, Public Library of Science, vol. 11(2), pages 1-11, February.
    9. Oğuz, Fuat & Akkemik, K. Ali & Göksal, Koray, 2015. "Toward a wider market definition in broadband: The case of Turkey," Utilities Policy, Elsevier, vol. 37(C), pages 111-119.
    10. Willem H. Boshoff, 2013. "Why define markets in competition cases?," Working Papers 10/2013, Stellenbosch University, Department of Economics.
    11. Coate, Malcolm B. & Ulrick, Shawn W. & Yun, John M., 2021. "Tailoring critical loss to the competitive process," International Review of Law and Economics, Elsevier, vol. 65(C).
    12. Dennis W. Carlton, 2024. "The 2023 Merger Guidelines: A Critical Assessment," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 65(1), pages 129-145, August.

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