Antitrust Market Research Articles

Implied Market Shares and Antitrust Markets as Fuzzy Sets

Market definition is an important aspect of antitrust analysis, but the exercise requires designating each potentially relevant good as either completely in or out of the market. In a market with differentiated goods, this often necessitates making unsatisfactory designations. This article introduces the concept of the antitrust market as a fuzzy set, where each relevant good can have a degree of membership in the market, rather than only the traditional binary in or out designation. A product’s degree of membership in the market is assigned based on its closeness of substitutability to the focal products. We then show how implied market shares can be calculated from a defined fuzzy antitrust market. We illustrate an implementation of these concepts using data from the grocery retail market and demand estimations from prior literature. We also discuss how this concept serves as a middle way between supporters and detractors of market definition, as implied market shares are objects that not only reflect demand substitutability but also allow for the rhetorical benefits of having delineated a market to focus discussion and analysis of competitive issues.

“Multi-Product Critical Loss: Allowing for Varying Margins, Prices, and Quantities in the Candidate Antitrust Market”

Abstract Critical loss analysis is important in defining antitrust product and geographic markets as it directly implements the hypothetical monopolist test. Traditionally, critical loss analysis assumes all products in the candidate market earn the same margin at current prices. In effect, this approach treats all products as a single, representative product. This is technically incorrect. This paper develops the appropriate measures of critical loss assuming products in the candidate markets have different margins, different current prices, and different initial quantities. We also address issues in the implementation of critical loss analysis. This paper is meant to be accessible to the practitioner.

Antitrust Market Definition: the Hypothetical Monopolist and Brown Shoe

Antitrust Market Definition: the Hypothetical Monopolist and Brown Shoe

The Antitrust Market Does Not Exist: Pursuit of Objectivity in a Purposive Process

ABSTRACT There is no such thing as an ‘antitrust market’. Markets are merely analytical tools, which serve to structure available evidence and enable a comprehensive answer to a particular question. They do not exist as such in the real world but are figments of our intellectual imagination. In that capacity, they can be immensely useful. A pursuit of objectivity in the process of product market definition remains in vain as long as we fail to acknowledge that the utility of antitrust markets lies precisely in their reductive and purposive nature. This article makes two main arguments. The first argument is simple, yet far-reaching: antitrust market definition is useful because it is a method to enable the answer to a question. The implication is that the market is defined by reference to that particular question, rather than as an independent and neutral object. Market definition is ‘purposive’. In the context of competition investigations, this question can concern, but does not have to be limited to, determinations of market power. The second argument is that market definition, even though purposive, does not need to be subjective. Objectivity in market definition can be achieved by aspiring to process objectivity, rather than to objective outcomes. JEL codes: K21; L40; A00

Market Concentration in Europe: Evidence from Antitrust Markets

An increasing body of empirical evidence is documenting trends toward rising concentration, profits, and markups in many industries around the world since the 1980s. Two major criticisms of these studies is that concentration and market shares are poorly measured at the national industry level while firm level revenues are a poor indicator of product sales. We use a novel database that identifies over 20,000 product/geographic antitrust markets affected by over 2,000 mergers scrutinized by the European Commission between 1995 and 2014. We show that concentration, as measured by the market-specific post-merger HHI, is larger than reported in the extant literature (at least) by a factor of ten. We also show that concentration has increased over time on average. Yet, there is a great deal of heterogeneity across geographic markets and within broader industries. In a regression analysis that exploits this within-industry variation, we show that barriers to entry are unambiguously positively related to concentration irrespective of time periods, sectors of activity, and geographical market dimension analyzed. Strict past merger enforcement negatively correlates with concentration. Yet, this effect is stronger in the earlier decade (1995-2004) than subsequently. Intangibility of investments consistently displays positive correlation with concentration only for EU wide and worldwide services markets. In contrast, the correlation is negative in national markets. This underscores the importance of the large heterogeneity present in concentration developments across markets.

Market Concentration in Europe: Evidence from Antitrust Markets

An increasing body of empirical evidence is documenting trends toward rising concentration, profits, and markups in many industries around the world since the 1980s. Two major criticisms of these studies is that concentration and market shares are poorly measured at the national industry level while firm level revenues are a poor indicator of product sales. We use a novel database that identifies over 20,000 product/geographic antitrust markets affected by over 2,000 mergers scrutinized by the European Commission between 1995 and 2014. We show that concentration, as measured by the market-specific post-merger HHI, is larger than reported in the extant literature (at least) by a factor of ten. We also show that concentration has increased over time on average. Yet, there is a great deal of heterogeneity across geographic markets and within broader industries. In a regression analysis that exploits this within-industry variation, we show that barriers to entry are unambiguously positively related to concentration irrespective of time periods, sectors of activity, and geographical market dimension analyzed. Strict past merger enforcement negatively correlates with concentration. Yet, this effect is stronger in the earlier decade (1995-2004) than subsequently. Intangibility of investments consistently displays positive correlation with concentration only for EU wide and worldwide services markets. In contrast, the correlation is negative in national markets. This underscores the importance of the large heterogeneity present in concentration developments across markets.

Antitrust and Labor Markets: A Reply to Richard Epstein

Antitrust and Labor Markets: A Reply to Richard Epstein

Some Issues of the Antitrust Market Definition for App Services

Some Issues of the Antitrust Market Definition for App Services

The Antitrust Market Does Not Exist; Long Live Market Definition

When market definition is criticised, it often reveals an underlying flaw in the reasoning of sceptics: they take market definition too seriously. There is, after all, no such thing as an ‘antitrust market’ (or any other market, for that matter). Markets are merely analytical tools, which serve to structure available evidence and enable a comprehensive answer to a particular question. They do not ‘exist’ as such in the ‘real world’, but are figments of our intellectual imagination. In that capacity, they can be immensely useful. They lend themselves to the nuances and aims of the particular study for which they are constructed. From ‘economic’ markets to ‘antitrust’ markets, the ‘market’ notion enables the study of occurrences which are otherwise too challenging to capture. A pursuit of ‘objectivity’ in the process of product market definition remains in vain as long as we fail to acknowledge that the utility of antitrust markets lies precisely in their reductive and purposive nature. This article intends to make two main arguments. The first argument is simple, yet far-reaching: the antitrust market does not exist, and that is a good thing. The utility of antitrust markets lies exactly in the fact that antitrust markets are not ‘natural’ phenomena, but intellectual fictions. Antitrust market definition is useful because it is a method to enable the answer to a question. The important implication of this argument is that the market is therefore defined by reference to that particular question, rather than as an independent and neutral object. In the context of competition investigations, this question can concern, but does not have to be limited to, determinations of market power. The second argument this article makes is that, even though the market is fictional and purposive, market definition can still be objective. Both enforcers and scholars seem increasingly concerned with coherence and certainty in the process and rationale of market definition. This article therefore explains why calling antitrust markets ‘subjective’, merely because they are purposive, is erroneous. Markets may be defined in order to answer a particular question, which makes them flexible; yet, they should only be condemned as ‘subjective’, where they are defined by reference to the personal views of those engaged in defining them, rendering them, ultimately, arbitrary. Where they are defined by reference to a particular question, even where multiple such questions are possible, markets are not inherently subjective, and objectivity can be attained. The article argues that objectivity in market definition, under a purposive approach, can be achieved by aspiring to process objectivity, rather than to objective outcomes. For the most part discussions about market definition remain too narrow-minded, seeking objectivity by pursuing ‘realistic’ outcomes rather than a coherent process, fuelled by a lack of recognition that market definition’s utility lies in its analytical and imaginary nature. This article, therefore, also seeks to provide a reassurance that a ‘purposive’ antitrust market does not automatically mean a ‘subjective’ antitrust market, and proffers preliminary suggestions on steps to ensure process objectivity in antitrust market definition. This articles marries the poetic with the practical, by describing the rationale behind market definition, the artificiality of any market (and the utility of that artifice), and the purpose for which antitrust product markets can be defined. In doing so, this article hopes to prompt scholars engaged in the improvement, or even replacement, of antitrust market definition to take a step back and see the bigger picture. Objectivity in antitrust market definition will not be achieved by ignoring the functional nature of the concept, but rather by embracing and explicitly acknowledging its nature and scope. This is a much-needed call, currently underemphasised in academic discussion, which can help competition authorities (including, but not limited to, the European Commission) explain the rationale behind maintaining antitrust market definition. It is also quite timely, since the European Commission has recently embarked upon a re-evaluation of its Market Definition Notice, citing efficiency and relevance (including ‘transparency’ and ‘guidance’) as evaluation criteria.

The CMA steps up enforcement of procedural merger control rules: key lessons from recent cases

The powers of the CMA to obtain information about a merger and to prevent (or even unwind) integration of merging businesses pending the conclusion of an investigation into the competitive effects of the merger are an extremely important part of the UK's voluntary merger control regime, which has no mandatory notification or standstill obligations. The CMA has adopted a series of decisions over the last two years which indicate that it is taking an increasingly robust approach to compliance with notices and orders issued in this context. This is line with both the global trend towards tougher enforcement of procedural merger control rules, and the CMA's increasingly strict approach to enforcement of procedural rules in other contexts, such as antitrust investigations and market studies. This article explores this trend and highlights some key lessons from recent cases for merging parties and their advisers, focussing in particular on fines imposed for breach of interim measures and non-compliance with formal information requests. It also identifies some possible reasons for the toughening of the CMA's stance including, in particular, the interplay with the anticipated impact of Brexit.

Exit, Voice & Innovation: How Human Capital Policy Equality (& How Inequality Hurts Growth)

If an employee believes her organization is failing, she can take action using one of two strategies: exit (leaving the company) or voice (advocating change from within). But what happens when both exit and voice are restricted? Change itself–including both innovation and equality–suffers. This article, written for the 24th Annual Frankel Lecture, investigates the connections between fields that are usually kept separate: intellectual property and innovation policy; antitrust law and market competition; employment law and contract norms; and anti-discrimination law and equality policy. In employment, non-disclosure agreements (NDAs), non-compete agreements, innovation assignment clauses, non-disparagement agreements, mandatory arbitration, and secrecy policies all create exit constraints. These restrictive clauses also serve to silence employees, inventors, creators, and entrepreneurs from speaking up and from expressing themselves creatively. These trends impede mobility in the job market while also suppressing voice. The recent steep rise in the use of restrictive clauses has shaped human capital in ways that are harmful to all workers, as well as to industries and innovation at large. Still, the burden of these restrictions is not equally distributed. By integrating economic theory and new empirical research in the field of equality and innovation, this article shows that restricting mobility and voice has negative effects on gender diversity, particularly with respect to women’s opportunities to lead, create, and invent. As a result, industries using these techniques become more concentrated, with less new entry and start-up activity and less gender parity. And because the process operates endogenously, the more an industry is concentrated, the more mobility and equality suffer. The article argues that recent findings on the gender deficit in patenting activity, intellectual property ownership, leadership, and entrepreneurship should be understood in relation to exit and voice policy infrastructure. It concludes with directions for future research and policy recommendations.

Procedural implications of market definition in platform cases

Abstract The central and often neglected problem in the evaluation of competitive effects in platform cases is that the boundaries of the relevant market, usually simply a tool for the analysis of market power, can give raise to substantially different procedural routes depending on whether the antitrust market comprises the platform as a whole or just one side. Based on a comparative assessment across jurisdictions, the article argues that the excessive importance of the relevant market creates a potential mismatch between the economic consequences and doctrinal implications stemming from market definition in multi-sided platform cases. The article concludes that a more desirable framework for evaluating competitive effects should remain independent from the way market definition is carried out.

The role of judicial review in developing evidentiary standards: The example of market analysis in Russian competition law enforcement

Despite the fact that judicial review is an important part of competition law enforcement under the administrative system, in which courts decide on claims to annul infringement decisions made by competition authorities, its role in the development of evidentiary standards of economic analysis is understudied. This paper attempts to fill this gap by analyzing the impact of judicial review on the application of market analysis in competition investigations by the Russian competition authority during 2008–2015. Although the guidelines for the assessment of competition are mandatory for many types of anticompetitive conducts and they require application of the Hypothetical Monopolist Test to delineate antitrust market, competition authority does not always do that. We test hypotheses on the impact of legal requirements, experience of application, and the outcomes of the judicial review on the probability to present either an informal market analysis or market delineation using the Hypothetical Monopolist Test in a particular decision. We find that positive outcomes of the judicial review of infringement decisions significantly increase the probability of undertaking a particular analysis in future investigations. The pressure of judicial review under the presence of mandatory standards of evidence is an important determinant of the development of evidentiary standards in competition law.

The American Express Rule for Antitrust Market Definition and Tech Platforms

The American Express Rule for Antitrust Market Definition and Tech Platforms

The Effects of Piracy on Competition: Evidence from Subscription TV

Competition studies that focus on antitrust issues (e.g. market definition, market power) are typically conducted in markets where all firms are assumed to operate legally (competitors are tax-abiding entities, pay for all inputs used in their production process, have paid the proper government licenses to do so, etc.). We investigate competition issues in a market characterized by widespread piracy: subscription TV in Peru. Estimates suggest that 50% of subscription TV users in Peru (30% in Latin America) use an illegal provider. We make use of a unique dataset in which households provided crucial information regarding the (il)legality of their paid TV supplier. Using quantitative antitrust tools based on demand estimation techniques we study the impact that the presence of the informal sector has on competition. Our estimates suggest that the illegal operators constitute a close substitute for (and henceforth significantly constraint the pricing power of) legal operators. This finding can have important antitrust implications: the failure to account for piracy could lead to erroneous conclusions regarding market power measurement and the delineation of the relevant (antitrust) market. This may be particularly important in several industries (especially in the developing world) where the leading operator may be cataloged as “dominant” only in the absence of illegal providers.

The Proposed Merger of Staples and Office Depot: Lessons from History and New Competitive Concerns

The proposed combination of Staples and Office Depot presents the Federal Trade Commission (FTC) with a host of merger review challenges. The transaction follows closely on the heels of the Office Depot/OfficeMax merger in 2013 and would complete a rapid 3-1 consolidation of the office supply superstore (OSS) market. Both retail and business-to-business customers may be significantly affected by the proposed transaction. The deal puts front and center the question whether evolving alternative business models for the sale of consumable office supplies are a viable substitute for OSSs. It also raises issues that the Commission recently addressed in the successfully enjoined merger of national broadline food service distributors Sysco and U.S. Foods - namely that a merger of the only two rivals in a national market may have adverse unilateral effects in a targeted customer market.The American Antitrust Institute (AAI) is concerned that the proposed transaction may substantially lessen competition in the market for the sale of consumable office supplies to large multi-regional or national customers on a contract basis (hereinafter “enterprise customer market” or “enterprise market”). In particular, we are concerned that the proposed transaction threatens substantial unilateral anticompetitive effects that alternative supply responses could not ameliorate, and that harm to customers in this market will be passed on to consumers. Some of these harms implicate unique dimensions of quality competition involving cyber security and supply chain stability. We also raise questions as to whether rapid 3-1 consolidation threatens to reverse recent positive competitive developments in the retail office supply market, as well as the competitive significance of merging the only “omnichannel” retailers principally devoted to office supplies.The analysis in this white paper is based on our review of publicly available information and conversations with industry experts and analysts. Because we do not have access to confidential or proprietary information that the Commission collects in the course of its investigation, we draw no conclusions as to whether the merger violates Section 7 of the Clayton Act. However, our analysis makes clear that the proposed merger warrants very close scrutiny by the Commission. Major themes that emerge from this analysis include: The Commission should determine whether there is a distinct relevant product market for the sale of consumable office supplies to large “enterprise” office supply customers on a contract basis, and if so, who participates in this market. This is consistent with the Commission’s successful approach to defining targeted customer markets in Sysco v. Fed. Trade Comm’n.The enterprise contract market likely is a relevant antitrust market because enterprise customers have no viable substitutes for the product and service offerings provided by OSSs. The next largest rivals are distant to Staples and Office Depot and are unable to compete on the scale and scope of the merging parties. Moreover, the merging firms may be the only participants in this market, because potential supply-side responses likely would fail to defeat a post-merger price increase in the market.The proposed transaction threatens substantial unilateral anticompetitive effects in the enterprise market, and possibly also in the broader market for all contract customers. Potential anticompetitive harm arises not only from the loss of ordinary head-to-head competition between the merging firms, which is substantial, but also from the loss of competition to provide superior cyber security to contract customers and by increased supply chain fragility resulting from elimination of any redundancy in the OSS channel. Potential anticompetitive effects are unlikely to be mitigated by repositioning or new entry.In its 2013 review of the OfficeDepot/OfficeMax merger, the Commission likely did not go far enough in distinguishing among competitive dynamics within and across the retail distribution channels through which OSSs provide products to end consumers. Although competition in the pure online retail channel is likely disciplined by national competition from Amazon and others, there are competitive concerns in the traditional superstore channel and in the emergence of omnichannel stores that warrant careful attention.

PIH85 - The Efficiency Evaluation of the Rule From Drug Market Regulation Chamber (Cmed) Proposed To Public Medicines Acquisitions in Antitrust Market Conditions

PIH85 - The Efficiency Evaluation of the Rule From Drug Market Regulation Chamber (Cmed) Proposed To Public Medicines Acquisitions in Antitrust Market Conditions

Market definition for broadband internet in Slovakia – Are fixed and mobile technologies in the same market?

This paper uses a rich survey of 6446 households in Slovakia to estimate price elasticities of demand for Internet access, and draw implications for market definition. We estimate a mixed logit model, in which households choose between different broadband technologies: DSL, cable modem, fibre, WiFi and mobile. We find that a number of household characteristics influence the technology choices, and there is also significant unobserved heterogeneity. Demand for Internet access is highly price sensitive. The price elasticity of demand for DSL is −3.02, which falls in the middle of the range of elasticities for the other technologies. Furthermore, the price elasticity of demand at the level of all fixed broadband technologies (DSL+cable modem+fibre+WiFi) is equal to −1.98. For a reasonable range of profit margins, this estimate implies that mobile broadband should be included in the relevant antitrust market of fixed broadband. Our findings have implications for competition policy in Central and Eastern European countries where due to poor copper networks mobile broadband is an important alternative to fixed broadband.

Is market definition still needed after all these years

The 2010 Merger Guidelines appear to elevate game theoretic models of competitive concerns to the primary concern of merger policy, while reducing the importance of market definition. Although situations in which this change makes some sense exist, we observe that, as a practical matter, market definition is still required. Some basic understanding of the market’s contours is necessary to aid the decision maker in the choice among the relevant competitive effects models. Simply assuming that a specific theoretical analysis is correct is not scientific. Proponents of the view that markets are unnecessary rely on game-theoretic models that implicitly presume a particular competitive algorithm to create a viable alternative. Yet to displace the standard model of competitive analysis, a game theoretic model of competition requires both parameterization (estimation of the relevant coefficients) and testing (analysis of the implications of the model). Once a game theoretic model is tested, it becomes just one more Chicago-based analysis of the likely effects of a merger. Thus, theoretical considerations alone cannot eliminate the desirability of defining an antitrust market. Our review of the empirical data from Federal Trade Commission (FTC) merger investigations substantiates the potential for different market modeling structures to be applied to evaluate competition. Support for three different modeling structures (homogeneous product, static differentiation, and dynamic differentiation) is found in both a review of the court records and the FTC case studies. Choice among these modeling structures requires case-by-case analysis.

ASYMMETRIC PRICE INCREASE IN CRITICAL LOSS ANALYSIS: A REPLY TO DALJORD, SORGARD, AND THOMASSEN

When products produced by merging firms or in an antitrust candidate market are differentiated, imposing an asymmetric price increase can be more profitable than raising prices similarly for all products. Critical loss and diversion ratio analyses attempt to model the implications of mergers on competition and antitrust market definition in differentiated markets, and have been a major focus over the last decade by authors such as Michael Katz and Carl Shapiro. James Langenfeld and Wenqing Li, and Oystein Daljord, Lars Sorgard, and Oyvind Thomassen, derive the critical loss formula when the price of only one differentiated product is raised due to a merger. However, they arrive at different results. This article corrects the derivation in Daljord, Sorgard, and Thomassen, and provides the appropriate formula of critical loss with asymmetric price. It then shows how failure to correct Daljord, Sorgard, and Thomassen's formulation of critical loss can lead to incorrect conclusions about market definition and competitive effects in merger analysis, resulting in antitrust markets that tend to be too broad.