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MONOPOLY POWER, MARKET DEFINITION,
AND THE CELLOPHANE FALLACY
San Francisco, CA
Suite 250
5980 Horton Street
EmeryStation North
Emeryville, CA 94608
Tel (510) 547-6910
Fax (510) 547-5162
info@ei.com
Washington DC
Suite 400
1200 New Hampshire Avenue, NW
Washington DC 20036-6802
Tel (202) 223-4700
Fax (202) 296-7138
info@ei.com
Philip Nelson
Economists Incorporated
1
Antitrust Market Power: Definition
• “Market Power” is the ability of a firm or group
of firms within a market to profitably charge
prices above the competitive level for a sustained
period of time.
• Economists and courts often use “market power”
and “monopoly power” interchangeably.
• However, not all firms with market power have
sufficient market power to have “market power”
in an antitrust sense.
2
Analysis of Market Power To Evaluate Market Conduct:
The Monopolization Case Market Power Paradigm
• Product Market Definition
• Geographic Market Definition
• Market Concentration
• Entry Conditions
• Other Structural Characteristics of Market
• Analysis of Market Performance
3
Product Market Definition Under Merger Guidelines
• Demand-side Substitution--As the DOJ and FTC Merger
Guidelines indicate, economists attempt to identify those
products that consumers will substitute for a given product
in response to a “small but significant and nontransitory”
price increase when identifying the products that compete
in an antitrust market. (§1.11)
• Supply-side (Production) Substitution--As the DOJ and
FTC Merger Guidelines indicate, economists will include
in an antitrust market all producers that currently produce a
relevant product and all producers that could easily and
economically produce and sell the relevant product in a
short period of time (e.g., one year) in response to a “small
but significant and nontransitory” price increase. (§1.32)
4
Geographic Market Definition Under Merger Guidelines
• Antitrust economists will start with a fairly narrow
area and then determine if firms located in that
area are insulated from comp