Geographic Market Definition Research Articles

The role of geographic market definition in analysis of grocery retailing

AbstractWe examine how estimates of household food demand elasticities and store profit margins vary with alternative geographic market extents using structural models of household store choice and retailer competition. Our consumer store choice model is novel, simultaneously accounting for the heterogeneity of store choice sets, households' travel distance to stores, and their store‐specific shopping basket prices. We estimate the models using a unique combination of datasets on grocery purchases. We find that the geographic market extent is positively associated with household demand elasticity and negatively associated with store profit margins. The maximum market extent at which changes in demand elasticities become statistically insignificant varies by retailers, ranging between 10 and 16 km. These findings are robust to alternative assumptions of store competition. Our results imply that overlooking the locality of retail competition can result in overestimating the magnitudes of household demand elasticities while underestimating store profit margins, characterizing a relatively more competitive market.

Geographic Market Definition in Commercial Health Insurer Matters: A Unified Approach for Merger Review, Monopolization Claims, and Monopsonization Claims

We provide a methodology for geographic market definition when the product(s) being purchased or sold has an intrinsic geographic component, such as (1) the sale of commercial health plans and (2) the purchase of health care providers’ services by commercial health plans. In these situations, we show that a straightforward application of the Horizontal Merger Guidelines issued by the U.S. Department of Justice and the Federal Trade Commission (hereafter, Guidelines) that uses the customer or supplier location to define the geographic market is not sufficient and can result in markets that are unintuitively small. This is often addressed by applying an assumption about aggregating based on similar competitive conditions. The practice of relying on the assumption of similar competitive conditions across counties, metropolitan statistical areas, or other geographic areas, without a methodology to support this assumption, could lead to market definitions that are too narrow or too broad and could influence the assessments of the extent of market concentration and the presence or absence of market power. We outline a framework that is consistent with the Guidelines and does not require a reliance on the assumption of aggregation based on similar competitive conditions. JEL Classification L12, L40, K21, D42, I11

Empirical geographic market definition for antitrust: The case of the Russian cement market

Empirical geographic market definition for antitrust: The case of the Russian cement market

25 years of European merger control

We study the determinants of common European merger policy over its first 25 years, from 1990 to 2014. Using a novel dataset at the level of the relevant antitrust markets and containing all relevant merger cases notified to the European Commission, we evaluate how consistently arguments related to structural market parameters – dominance, rising concentration, barriers to entry, and foreclosure – were applied over time and across different geographic market definitions. On average, linear probability models overestimate the effects of structural indicators. Using non-parametric machine learning techniques, we find that dominance is positively correlated with competitive concerns, especially in markets with a substantial increase in post-merger concentration and in complex mergers. Yet, its importance decreased following the 2004 merger policy reform. Competitive concerns are also correlated with rising concentration, especially if entry barriers and foreclosure are of concern. The impact of these structural indicators in explaining competitive concerns is independent of the geographic market definition and does not change over time.

Digital Mergers: A Primer

From Facebook acquiring WhatsAPP and Instagram to Microsoft buying out Linkedin, Skype and Github or Google swallowing Motorola Mobility, DoubleClick or Nest Labs, mergers and acquisitions in the digital economy have been controversial. Some of the concerns have been fairly traditional. While the development of the digital economy does not either call for a revolution in how we conduct merger control, it is likely to require some significant changes in competition guidelines and will require close coordination between competition authorities and other regulatory agencies. The main characteristics of digital technologies are algorithms, data, bridging of distance and speed. These characteristics have a number of important consequences, which are explored in this study. This underlines the need for forward looking merger review and the possibility of using access/interoperability remedies. The combination of algorithms and data has allowed unprecedented targeting of advertising to online consumers as well as a tailoring of the offers (including prices) received by each individual. These mergers pose a serious challenge to our usual economic analysis of horizontal effects as well as to our traditional approach to market definition. However, while the role of data in digital competition is undeniable, we currently lack the information required to derive broad principles as to how data should be considered in merger review. The study examines these issues, drawing on economic theory and existing caselaw in the EU, US and BRICS. It concludes with several recommendations for competition authorities, touching upon an array of issues, such as product and geographic market definition, theories of harm, efficiencies, potential competition, counterfactuals and standard of proof.

25 Years of European Merger Control

We study the evolution of EC merger decisions over the first 25 years of common European merger policy. Using a novel dataset at the level of the relevant antitrust markets and containing all merger cases scrutinized by the Commission over the 1990-2014 period, we evaluate how consistently arguments related to structural market parameters – dominance, concentration, barriers to entry, and foreclosure – were applied over time and across different dimensions such as the geographic market definition and the complexity of the merger. Simple, linear probability models as usually applied in the literature overestimate on average the effects of the structural indicators. Using non-parametric machine learning techniques, we find that dominance is positively correlated with competitive concerns, especially in concentrated markets and in complex mergers. Yet, its importance has decreased over time and significantly following the 2004 merger policy reform. The Commission's competitive concerns are also correlated with concentration and the more so, the higher the entry barriers and the risks of foreclosure. These patterns are not changing over time. The role of the structural indicators in explaining competitive concerns does not change depending on the geographic market definition.

Necessity of a Broader Market Definition in the Analysis of Syndicated Loans

Market definition is the indispensable part of a competition analysis since it draws the boundaries of the market on two axes; product and geography. As it is accepted in the antitrust economics literature, from a methodological perspective the market definition is an instrument to properly reduce the complexity of market interaction. While a narrow market definition may ignore the products and the geographic areas that may exercise competitive constraints; a broad market definition may fail to discover anticompetitive behaviors properly. The main purpose of this study is to emphasize a proper market definition to assess the multilateral loans, including syndicated and club loans. In the study, to assess the relevant market definition for the multilateral loans, demand-side and supply-side substitutability are used as the main tools which are also mentioned in the guidelines of competition authorities. Based on the relevant economics and finance literature, we put the following findings: • Both on the demand-side and on the supply-side there are financial products that may exercise competitive constraints on corporate multilateral loans. For the borrowers, which might be financial institutions as well as large companies, syndicated loans and corporate bonds are two direct substitutes. Especially, for large companies, availability of substitutes increases through sophisticated debt instruments, such as medium term notes. On the supply-side, bilateral lending seems to be the closest substitute of multilateral lending. • Corporate multilateral loans have significant international characteristics and they cannot be isolated in any national border. While the companies and the financial institutions may borrow from domestic and foreign banks, banks may syndicate a loan to borrowers in any country. As the financial markets, have become more integrated geographically, the share of foreign banks in multilateral deals has increased gradually. Especially for emerging countries, like Turkey, the international multilateral loans have gained a critical importance to finance the domestic investments. Based on the above findings, to assess the investigated case, two main remarks appear that emphasize the necessity of a broader market definition for corporate multilateral loans: • Multilateral loans that includes the syndicated and club loans cannot be defined as a separate market independent from other substitute debt instruments, such as corporate bonds and medium term notes. • Such loans cannot be isolated from foreign markets and foreign lenders. The effective geographic market definition should be at the international level.

Geographic Market Definition in the Merger Guidelines: A Retrospective Analysis

Since the initial Merger Guidelines in 1968, the Department of Justice and Federal Trade Commission have revised their merger enforcement screen over the course of six versions. This article examines the evolution of the geographic market component of the Guidelines and the economic implications of changing standards of market delineation on merger enforcement. Using an illustration from the beer industry, we chronicle the development of geographic market definition and its varying effects on merger enforcement over the past 50 years.

Competition, Law, and the Power of (Imagined) Geography: Market Definition and the Emergence of Too-Big-to-Fail Banking in the United States

abstract This article explores the role of antitrust (or competition) law in the recent historical evolution of the U.S. commercial banking sector. A core component of antitrust law is the calculative practice of market definition, which involves identifying not only the product or service attributes of a market but also, pointedly, its geographic extent. Geographic market definition—and the geographic knowledges it furnishes—is the focus of the article. It argues that these legal market maps (“the law’s markets,” that is to say) materially shape on-the-ground market and competitive realities. The article develops this argument through a study of the recent history of U.S. antitrust theory and practice in regard to commercial banking. It claims that the particular nature of the geographic models created through this practice is pivotal to explaining the history of evolution of that sector in the final decades of the twentieth century—and most especially, large-scale industry consolidation at the national scale. In the process, the article aims to contribute not only to financial geography but also to three relatively-underdeveloped economic-geographic literatures: on the implication of geographic knowledges in political-economic change; on the geographies of markets; and on the role of the law in economic-geographic transformation.

A Structural Approach to Market Definition With an Application to the Hospital Industry

Market definition is common in merger analysis, and often the decisive factor in antitrust cases. This has been particularly relevant in the hospital industry, where many merger challenges have been denied due to disagreements over geographic market definition. We compare geographic markets produced using frequently employed ad hoc methodologies to structural methods that directly apply the ‘SSNIP test’ to California hospitals. Our results suggest that markets produced using previous methods overstate hospital demand elasticities by a factor of 2.4 to 3.4 and were likely a contributing factor to the permissive legal environment for hospital mergers.

Skating Toward Deregulation: Canadian Developments

I. INTRODUCTION II. THE CRTC FORBEARANCE PROCEEDINGS A. Local Telephone Service B. VoIP Forbearance III. THE PARTIES A. Industry Participants B. Telecommunications Policy Review Panel C. Competition Bureau IV. THE GOVERNOR IN COUNCIL CUTS TO THE CHASE V. ECONOMIC COMMENTS AND CRITIQUES A. Regulation Within Markets B. Measuring Potential Share C. Service Market Definition D. Geographic Market Definition E. Share Tests and Strategic Responses F. Targeted Low Prices G. Defining Dominance H. Building Access I. Timing of Intervention J. Regulated Conduct VI. CONCLUSION I. INTRODUCTION Despite extensive deregulation in the telecommunications sector, local voice service has proven to be the last and most difficult market to deregulate. Perhaps the most extensive steps toward deregulation of this last stage are being taken in Canada. In April 2006, the Canada Radio-Television and Telecommunications Commission (CRTC) decided it was prepared to forbear from regulating the local voice service provided by the incumbent local exchange carder (ILEC), if the ILEC could show it had lost twenty-five percent of its share in a relevant market defined by both product (including voice-over Internet protocol or VoIP, excluding wireless) and geography (primarily the census metropolitan area or CMA). (1) ILECs were also prohibited from efforts to winback customers who had switched to competitors in the prior three months, unless the ILEC had lost twenty percent of its market. (2) This decision followed a 2005 CRTC decision not to deregulate ILEC VoIP service. (3) The CRTC did not have the last word. Shortly after its local forbearance decision, the Cabinet Ministers, referred to in Canada as the Governor in (4) of the recently established conservative government, issued an Order in Council requesting that the CRTC reconsider its VoIP decision. (5) The CRTC declined to forbear, claiming that VoIP was in the same market as regular voice service, which it was also refusing to forbear, although it did propose adopting smaller market share loss tests for forbearance and winback. (6) The Cabinet was apparently not satisfied, leading in September of 2006 to an order reversing the CRTC's VolP decision. (7) Going further, in December 2006 the Minister of Industry recommended to the Cabinet that it overrule the CRTC and order forbearance for residential service where there were three nonaffiliated facilities-based providers, two of which (including the ILEC) relied on fixed wires. (8) Business service would be forborne with only the two fixed-line providers. (9) This proposal was adopted by the Governor in in April 2007. (10) These developments raise a number of economic questions to explore, including the following issues: Regulation within markets: Should an incumbent's substitute service for its regulated service necessarily also be regulated when there may be multiple and more prominent providers of the substitute? Measuring potential share: An issue with share tests is determining the size of the likely market open to digital voice entrants. Should it be high volume customers who would get service at lower prices by switching to a VolP provider? Service market definition: To what extent is wireless in the market for wireline service? Would a weighting scheme be appropriate? Geographic market definition: The CRTC and Competition Bureau (Bureau) accepted that because consumers would not regard a telephone at some other location as a substitute for a telephone at their location, the relevant geographic market is the location. Other geographic market definitions were defended as mere aggregations of convenience. Is this sensible? Share tests and strategic responses: Might basing forbearance on market share introduce perverse effects on both incumbents and entrants? …

State Aid and Supply-Side Geographic Market Definition

State Aid and Supply-Side Geographic Market Definition

The impact of geographic market definition on the stringency of hospital merger control in Germany and the Netherlands

In markets where hospitals are expected to compete, preventive merger control aims to prohibit anticompetitive mergers. In the hospital industry, however, the standard method for defining the relevant market (SSNIP) is difficult to apply and alternative approaches have proven inaccurate. Experiences from the United States show that courts, by identifying overly broad geographic markets, have underestimated the anticompetitive effects of hospital mergers. We examine how geographic hospital markets are defined in Germany and the Netherlands where market-oriented reforms have created room for hospital competition. For each country, we discuss a landmark case where definition of the geographic market played a decisive role. Our findings indicate that defining geographic hospital markets in both countries is less complicated than in the United States, where antitrust analysis must take managed care organisations into account. We also find that different methods result in much more stringent hospital merger control in Germany than in the Netherlands. Given the uncertainties in defining hospital markets, the German competition authority seems to be inclined to avoid the risk of being too permissive; the opposite holds for the Dutch competition authority. We argue that for society the costs of being too permissive with regard to hospital mergers may be larger than the costs of being too stringent.

Geographic Market Definition: The Case of Medicare-Reimbursed Skilled Nursing Facility Care

Correct geographic market definition is important to study the impact of competition. In the nursing home industry, most studies use geopolitical boundaries to define markets. This paper uses the Minimum Data Set to generate an alternative market definition based on patient flows for Medicare skilled nursing facilities. These distances are regressed against a range of nursing home and area characteristics to determine what influences market size. We compared Herfindahl-Hirschman Indices based on county and resident-flow measures of geographic market definition. Evidence from this comparison suggests that using the county for the market definition is not appropriate across all states.

Limits of the Elzinga–Hogarty Test in Hospital Mergers: The Evanston Case

The Elzinga–Hogarty (E–H) test for geographic market definition has been widely used by both government enforcement agencies and merging parties in hospital merger cases. However, two characteristics of hospital services markets – the Silent Majority Fallacy and the Payer Problem – may tend to undermine the utility of the E–H test in hospital merger cases. Where direct evidence of anticompetitive effects attributable to a merger is available, its use may diminish the need to rely on geographic market definition tools such as the E–H test. Such direct evidence is most readily available in post‐closing merger challenges such as the FTC’s Evanston case. It remains to be seen, however, whether the E–H test will continue to be relied on in more traditional, pre‐closing merger challenges.

A Micro-Economic Approach to Geographic Market Definition on Local Retail Markets: Demand Side Considerations

Abstract This paper formalizes an empirically implementable framework for the definition of local antitrust markets in retail markets. This framework rests on a demand model that captures the trade-off between distance and pecuniary cost across alternative shopping destinations within local markets. The paper develops, and presents estimation results for, an empirical demand model at the store level for groceries in the UK.

Sub-national Geographic Markets within the Electronic Communications Sector

Traditionally the geographic market definition in the electronic communications sector in the field of EU competition law was significantly relied on two factors: network reach and regulatory conditions. This method, after introduced into the electronic communications regulation, usually led to the definition of national markets. Nevertheless, the recent uneven investments in electronic communications infrastructures have results into regional variance in competitive conditions within some Member States. This fact makes the definition of national markets no longer appropriate. In order to demonstrate this trend in market definition, the national regulatory authorities, with the assistance of the European Commission, established a new approach to define geographic markets, in particular sub-national geographic markets. Nevertheless, this approach has not yet attracted much academic attention. The objective of this article is thus to provide a detailed description of this new approach. Based on a number of recent Commission decisions, it identifies two-step analysis: (1) to define geographic units and (2) to group geographic units with homogeneous conditions of competition. Subsequently, a discussion of the criteria used for each of the two steps and an evaluation of this approach are provided as well.

The Role of Competition Rules in the Context of Healthcare Reform in the Netherlands

The Netherlands is an early mover in healthcare liberalisation. It has a dual policy towards competition enforcement in the sector: not only the general competition rules (the prohibitions on cartels and the abuse of dominance, and merger control) but also rules of sector specific competition policy apply. Consequently the general Competition Authority and the Healthcare Authority have concurrent powers in this field. This paper examines both the basis for intervention (generally related to market failure and market power), the balance between general rules and specific cases, some of the technical problems involved (such as geographic market definition), and the institutional setting. In this context the new competition powers of the Healthcare Authority based on findings of significant market power by individual undertakings, respectively of structural problems involving entire categories of providers, are also reviewed. A number of case summaries are presented by way of example.

A Micro-Econometric Approach to Geographic Market Definition in Local Retail Markets: Demand Side Considerations

This paper formalizes an empirically implementable framework for the definition of local antitrust markets in retail markets. This framework rests on a demand model that captures the trade-off between distance and pecuniary cost across alternative shopping destinations within local markets. The paper develops, and presents estimation results for, an empirical demand model at the store level for groceries in the UK.

Geographic Dimension of Electronic Communications Markets

This working paper describes the way of geographic market definition in the area of EC competition law and electronic communications regulation with regard to the electronic communications sector. Most importantly, it looks at the recent development in particular in the sector specific regulation, i.e. sub-national geographic market definition. In addition, it offers a unique perspective to examine the difference between the two sectors of laws within defining geographic markets.