Research Handbooks in Law and Economics series
Edited by Einer R. Elhauge
Chapter 3: Lightening Up on Market Definition
David S. Evans* I INTRODUCTION ‘Market definition’ refers to the process of determining the set of products, and locations from which those products are sold, that are relevant for analysing the antitrust issue at hand. That set of products and locations defines ‘the market’. Courts have long treated market definition as the first step in analysing an antitrust matter.1 Among other things they rely on the relevant antitrust market to calculate market shares from which they infer the existence of market power. At least since Alcoa,2 the courts have drawn hard market boundaries. A product is either in or out of the market. The placement of this fence often determines the final outcome of the matter.3 As a result, market definition sets up a battle between the ‘we-win because it is a narrow market’ plaintiffs and the ‘you-lose because it is a broad market’ defendants.4 Both sides naturally invest significant resources in trying to persuade the courts where to build the fence. Many economists have argued that there is seldom a solid market boundary in practice.5 Products from different vendors are often heterogeneous and compete along a continuum. Economists have also observed that there is no particular need to define a rigid boundary. Ultimately antitrust is about ascertaining effects on prices, output, and other factors that influence consumer welfare. It is possible to address those effects directly without taking a firm position on a market boundary. In recent years, the US Department of Justice (DOJ) and the Federal Trade...
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