Market Definition and Market Power

Market Definition and Market Power -

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Market Definition and Market Power Overview The “market definition” and “market power” inquiry may relate to both §2 cases and some §1 cases o It will relate to §2 “monopolization” cases which requires a showing of ‘monopoly power’ (which is a high degree of market power) o In §2 “attempt to monopolize” cases, market power is somewhat ambiguous (see ‘attempt to monopolize’ sheet) s In these “attempt” cases, P must, at the very least, show that D has a “ dangerous probability of acquiring market power in a properly defined relevant market” See Spectrum Sports v. McQuillan (1993) o Tying arrangements under §1 (and §3 of the Clayton Act) require that D have a certain amount of market power (somewhat ambiguous) in the market for the “tying” product s See Times Picayune (1953)(requiring ‘monopoly power’ in the tying market); Northern Pacific RR (1958)( not requiring ‘monopoly power’ but rather a ‘sufficient economic power to appreciably restrain trade’); Eastman Kodak (1992)(requiring ‘something less than monopoly power’, but defining the power necessary as “power to raise prices and restrict output” = monopoly power!); Breaux Bros. (looking to market share in the tying market…17.5% is insufficient) o Vertical restraints and dealer terminations will generally require a showing of mkt. power o In §1 cases evaluated under the ROR, mkt share of the cartel will often be a key inquiry Mergers (under §7 of the Clayton Act) generally do not require a showing that either firm currently possesses market power, but a merger might be condemned if the combination would create too much market power…therefore, “market power” issues are central to merger analysis Market definition issues arise in both case law and under the Merger Guidelines Definitions of Market Power Formal Economic Definitions o Market power b “the ability of a firm to increase its profits by reducing output and raising its price to supracompetitive levels” (Hovenkamp) s This is the ability to deviate profitably from marginal cost pricing (Hovenkamp) Other definitions of “market power” o Cellophane b “the power to control prices or exclude competition” s This is not very descriptive and partially misleading s Market power itself is not “exclusionary” Although exclusion of competitors is a way to maintain market power… Courts will typically use “market share” as a surrogate for market power o Reason b “marginal cost” and “elasticity of demand” are difficult to determine Defining the Relevant Market If a court determines that “market power” (market share) is relevant, the first step is to define the relevant market o This may often be the key issue in an antitrust case Overall steps (Hovenkamp) o (1) Determine the relevant product market o (2) Determine the relevant geographic market o
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Market Definition and Market Power -

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