The Logic of Market Definition

Abstract

Despite all the commentary that the topic has attracted in recent years, confusion still surrounds the proper definition of relevant markets in antitrust law. This article addresses that confusion and attempts to explain the underlying logic of market definition. It does so by way of exclusion: identifying and explaining three common errors in the way that courts and advocates approach the exercise. The first error is what we call the natural market fallacy. This is the mistake of assuming that relevant markets are identifiable constructs and features of competition, rather than the purely conceptual analytic devices that they actually are. The second error is what we call the independent market fallacy. This is the failure to appreciate that relevant markets do not exist independent of any theory of harm but must always be customized to reflect the details of a specific theory of harm. The third error is what we call the single market fallacy. This is the tendency to seek some single, best relevant market, when in reality there will typically be many relevant markets that could be helpfully and appropriately drawn to aid in the analysis of a given case or investigation. In the course of identifying and debunking these fallacies, the article clarifies the appropriate framework for understanding and conducting market definition.

Keywords: antitrust, market definition, economics

JEL Classification: L4, L1, N1