Modular Market Definition
51 Pages Posted: 12 Jan 2021 Last revised: 3 Apr 2021
Date Written: February 15, 2021
Surging interest in antitrust enforcement is exposing politicians and the public to a frustration long known only to the antitrust bar: the difficulty of defining markets. Take the claim that Facebook dominates the market for personal social networking services. Is this true? That depends on how one defines personal social networking services. Or consider a bill, now before the U.S. Senate, that would make certain acts presumptively illegal if undertaken by firms with large market shares. Will this bill strengthen antitrust enforcement? That depends as much on how broadly markets are defined as it does on how the bill sets market share thresholds.
Surprisingly, given its importance, the methodology of market definition is badly underdeveloped. Many tests have been invented for defining markets. But, without any basis for reconciling or balancing these different tests, modern market definition has become an unprincipled hodge-podge of conflicting ideas about what markets are and how they should be defined. The result is unpredictable and unreliable market boundaries—an unsure footing for the complex cases and policy reforms now at issue.
This Article offers a better approach. Modular market definition untangles the current jumble of conflicting tests and reorganizes them as separate market definition modules. It then presents a two-step solution for defining markets in antitrust cases. First, identify the substantive purposes for which markets are being defined in a given case. Second, select the module (that is, test) that defines markets most suited to serving those specific purposes. This modular approach opens a path to predictable and reliable market definition. It also contributes to ongoing policy discussions, clarifying how markets work in antitrust law and how they might be leveraged in antitrust reform.
Keywords: market definition; relevant market
JEL Classification: K21, L40
Suggested Citation: Suggested Citation