Lightening Up Market Definition

Abstract

This article proposes a resolution to the longstanding controversy between courts, economists, and antitrust authorities over the appropriate role of market delineation. Market definition should remain the first step in antitrust and merger analysis. It provides information on competitive constraints and other aspects of the economic landscape that are essential for understanding whether the practice at issue could harm consumers. However, there is no basis in economics for, as a general matter, drawing hard market boundaries and making strong inferences about market power from shares calculated based on those boundaries. The courts should abandon these practices, which are not required by the antitrust statutes, as they have done with other antitrust jurisprudence, such as maximum price fixing, that has been shown to be inconsistent with economics. They can write coherent analyses of antitrust issues without relying on hard market boundaries. The antitrust authorities should examine the competitive effects of business practices such as mergers only after a market inquiry that focuses on understanding the competitive landscape and the potential competitive constraints on business practices; but that inquiry does not need to settle on a hard boundary.

Keywords: market definition, narrow markets, SSNIP test, antitrust reform, market definition and differentiated products, survey market definition, economics of market definition