David Evans, Jun 01, 2011
Now if antitrust were a movie, then market definition, which Professor Schmalensee has talked about earlier, is surely the star. Perhaps even a superhero. Market definition can guarantee a victory for a competition authority against the corporate villain. Or it can sweep in and save an innocent business wrongly charged. Or course, it can also help a misguided competition authority against an innocent company, or help a corporate villain with clever lawyers against an authority that actually has it right. So it can be the Joker, too.
Market definition gets top billing in antitrust matters, and a lot of the attention. How many trees have sacrificed their lives for papers on the SSNIP test and other ways of building market definition up into an even bigger star?
Now, market power is often just the sidekick. Whatever market definition says, market power just smiles and nods its head in agreement. If market definition says “broad,” market power leaps to attention and says there’s no problem. And if market definition says “narrow,” market power just as surely shouts monopoly and dominance. We will see why market power can be a mere parrot for market definition in a few minutes.
Today I’d like to explain why market power should really be the leading man of the antitrust show, and market definition should be the sidekick. And if I can’t get that acceptance, then definition and power should be co-stars and get equal billing.