Supply and Demand and Market Definition

MARKET DEFINITION AND MARKET POWER IN COMPETITION ANALYSIS The Economic and Social Review, Vol. 31, No. 4, October, 2000, pp. 309-328

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Market Definition and Market Power in Competition Analysis: Some Practical Issues

PATRICK MASSEY* Competition Authority

Abstract: Market definition plays a key role in competition analysis and has often proved controversial. However, it is merely a means to an end, the real issue being to establish whether or not firms have significant market power, i.e. the power to increase prices. This objective is rather different to the traditional neo-classical economic view of a market. The introduction of the SSNIP test in the US Department of Justice 1982 Merger Guidelines resulted in the development of new methods for defining markets and for measuring market power directly, thus eliminating the need to define the market at all.

I INTRODUCTION

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arket definition has long been a controversial issue in competition and merger cases. The past twenty years has seen the development of new methods of defining markets more suited to the particular demands of competition analysis than those traditionally used by economists. Attention has also focused on methods of measuring market power directly thereby obviating the need to define markets in some instances. The current paper reviews developments in the methodologies of market definition and measuring market power. The paper is structured as follows. The case law on market definition in the
Paper presented at the Fourteenth Annual Conference of the Irish Economic Association. *The author is a Member of the Competition Authority. I would like to thank Pat Kenny and two anonymous referees for their helpful comments on earlier drafts of this paper. Any views expressed are those of the author and do not purport to represent those of the Authority.

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United States, the European Union and Ireland is briefly outlined. The paper

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