Should Market Definition Be Abandoned in Estimating Market Power? An Affirmative Answer from Qihoo v. Tencent

Posted by Social Science Research Network

Should Market Definition Be Abandoned in Estimating Market Power? An Affirmative Answer from Qihoo v. Tencent–  Qiang Yu (Leiden Law School)

Abstract: The defects in referring market power via market share/market definition paradigm has been critiqued for decades. Professor Louis Kaplow advanced a rigorous and comprehensive examination of this issue and suggests that market definition should be abandoned entirely, because “(1) as a matter of economic logic, there exists no valid way to infer market power from the market shares in redefined (non-homogeneous goods) markets-short of entirely reversing the market redefinition; and (2) choosing a best market requires already having in hand one’s best estimate of market power, rendering the exercise pointless-actually worse, since the market power inference from the chosen market is inferior to the estimate with which one began”. His proposal was criticized by a number of scholars, they believe that: (1). The conclusion is based on mis-perception of market definition. (2). Relevant technical methodology such as Lerner index is misused. (3). There is practical necessity of adopting market share/market definition paradigm. Both the proposal and its criticism were analyzed comprehensively and intensively in theory. As a result, this article is not intend to extend this theoretical analysis, instead, this article examines the proposal and criticisms with a recent land mark Chinese antitrust case: Qihoo v. Tencent. In the case, market definition was applied to identify market dominance and therefore became the most controversial part. However, the facts and analysis in the decision support Kaplow’s proposal because despite identified facts proving the direct relationship between competitive harm and unilateral conduct, neither the so-called relevant product market nor the dominant firm was successfully identified. In examining the facts and analysis that Qihoo’s product 360Koukouguard was excluded from competing with Tencent’s QQdoctor software, where only two firms competing for the group of security software users that protecting their QQ privacy security, this article concludes that the market definition approach to identifying dominance is misguiding and counterproductive and that Kaplow’s assertion is valid in practice. This conclusion further indicates that the market definition methodology provision in Article 19 of China’s Anti-Monopoly Law and the Anti-Monopoly Committee of the State Council Guidelines on the Definition of the Relevant Market(Guidelines) should be repealed or modified.