In Defense of Market Definition

Abstract

Market definition, a concept that has long served to structure competitive analysis, is under assault from theoreticians who object to the inability of the standard analysis to define a market compatible with their models of unilateral effects. Although these unilateral models have not been shown to reliably predict competitive behavior in the real world, our article raises other concerns associated with substituting a unilateral effects models for market definition. We suggest that the criticisms of market definition are misplaced, because the theoretical analyses lack the benchmarks necessary to establish findings of monopoly power. Moreover, market analysis serves to build the foundation for a case-specific competitive analysis that reaches well beyond the confines of any one particular economic model. Market definition, structured by the hypothetical monopolist test and implemented with critical loss analysis, remains a valuable tool for antitrust analysis. Examples are provided for market definitions in homogeneous goods, static differentiated goods, and dynamic differentiated goods structures.