Market Definition is Not Alchemy

17 Pages Posted: 30 Sep 2013 Last revised: 29 Jan 2014

Malcolm B. Coate

U.S. Federal Trade Commission (FTC)

Date Written: January 22, 2014

Abstract

Harvard Professor Louis Kaplow, a well-known critic of market definition in antitrust, has recently suggested that market definition is a form of alchemy. As a pure proposition of logic, he claims that anticompetitive effects must be modeled directly. This analytical approach assumes the result by concluding quantitative analysis is always possible and thus dismissing qualitative analyses as unnecessary approximations of reality. However, Lerner analysis, at the core of Kaplow’s approach, is, at its core, a monopoly model and it is far from clear that the model can be broadly applied to competitive situations. Entry may control the competitive process and by construction, entry is excluded from a Lerner-style evaluation. Likewise, Lerner analysis excludes various collusion models. The Merger Guidelines, developed in light of the relevant court precedents, set out a two-stage merger review process, with market definition considered first to define the “playing field” for the analysis and then competitive effects studied through a review of a wide range of relevant facts. Quantitative analysis of competitive effects, while possibly relevant in some special case situations, does not address all the relevant possibilities in a manageable way. Thus, market definition remains an important tool for antitrust policy. It is not alchemy.

Keywords: market definition, Lerner Index, Merger Guidelines

JEL Classification: K21, L40

Suggested Citation

Coate, Malcolm B., Market Definition is Not Alchemy (January 22, 2014). Available at SSRN: https://ssrn.com/abstract=2333819 or http://dx.doi.org/10.2139/ssrn.2333819

Malcolm B. Coate (Contact Author)

U.S. Federal Trade Commission (FTC) ( email )

601 Pennsylvania Avenue, NW
Washington, DC 20580
United States

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