Implementing Relevant Market Tests in Antitrust Policy: Application to Computer Servers

Abstract

The paper defines, implements and compares two empirical tests of relevant markets. While the 1997 test of the EU Commission compares an initial industry equilibrium to an out-of-equilibrium situation, the 1984 US Merger Guidelines test compares the same initial equilibrium to a second equilibrium outcome. We define these concepts formally and apply them to the computer server industry by estimating a model on a large dataset. We find several smaller relevant markets in the low-end segment of servers. In addition, we find that the failure of the '97 EU test to correctly take into account the multi-product pricing strategies of the firms might result in quantitatively significant differences between the two approaches.