Market Definition in Principle and Practice

Abstract

Competition authorities and scholars have developed and refined an approach to market definition based on the extent to which a hypothetical monopolist in a candidate market could profitably increase its prices. However, this approach is rarely applied in practice. Of the more than 3,000 merger cases published on the European Commission website between 1990 and 2019, less than 3 per cent mentioned a hypothetical monopolist test or related approaches at all. This gap between theory and practice raises the risk of inconsistent and opaque decision-making. There are important open questions about how market definition can best reflect, for instance, the dynamics of zero-price digital markets. But this should not be at the expense of abandoning the basic logic of market definition entirely. A mature approach to market definition would better align principle and practice, while recognising that the process of market definition will always provide a rule of thumb rather than a definitive answer.

Keywords: market definition, competition policy, hypothetical monopolist test, mergers, merger guidelines