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Economics and the Interpretation and Application of U.S. and E.U. Antitrust Law pp 183–247Cite as

Chapter 7 Economic (Classical) and Antitrust Markets: Official and Scholarly Proposals

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Abstract

In 1950, the United States Congress passed the Celler-Kefauver Act to amend the “merger and acquisition” section of the Clayton Act (Section 7) by adding the language “in any line of commerce in any section of the country” to its prohibition of acquisitions of stock or assets whose effect “may be substantially to lessen competition.” The addition of this language to the Clayton Act in 1950 by the Celler-Kefauver Act led U.S. antitrust courts and antitrust-enforcement agencies to analyze the legality of all business conduct covered by the Clayton Act by defining relevant product and geographic markets (“lines of commerce” and “sections of the country”) and deriving competitive-impact predictions from relevant-market-aggregated data—inter alia, data on firm market shares, traditional seller-side concentration ratios, and (more recently) HHI figures. Indeed, since that time, U.S. courts have virtually always insisted that a relevant market or set of relevant markets be defined not only in Clayton Act cases but also in Sherman Act Section 2 (monopolization and attempt-to-monopolize) cases. European antitrust institutions—the European Court of Justice (ECJ), the Court of First Instance of the European Communities (CFI), the European Commission (E.C.), and the courts and antitrust-enforcement agencies of most, if not all, of the member states of the E.C. have also all adopted market-oriented approaches to antitrust-law analysis.

In writing this chapter, I have borrowed substantially from the publications of Dr. Gregory J. Werden, a leading economist at the Antitrust Division of the United States Department of Justice. See, e.g., Gregory J. Werden, Merger Policy for the 21st Century: Charles D. Weller’s Guidelines Are Not Up to the Task (hereinafter Werden Policy), 33 u. west. l. a. l. rev. 57 (2001); Gregory J. Werden, Market Delineation Under the Merger Guidelines: Monopoly Cases and Alternative Approaches (hereinafter Werden Delineation), 16 rev. of ind. org. 211 (2000); Gregory J. Werden and Luke M. Froeb, Correlation, Causation, and All That Jazz: The Inherent Shortcomings of Price Tests for Antitrust Market Delineation (hereinafter Werden and Froeb Jazz), 8 rev. of ind. org. 329 (1993); Gregory J. Werden, Market Delineation Under the Merger Guidelines: A Tenth Anniversary Retrospective (hereinafter Werden Retrospective), 1993 antitrust bull. 517 (1983); and Gregory J. Werden, The History of Antitrust Market Delineation (hereinafter Werden History), 76 marquette l. rev. 123 (1992). I hasten to add, however, that the chapter does not merely replicate Werden’s excellent work: it covers some subjects and issues Werden does not address, organizes some of the material both it and Werden’s scholarship discuss differently from the way in which Werden does, and makes a significant number of criticisms of and other types of points about some of the positions that economists, legal scholars, and judges have taken on economic-market-definition and antitrust-market-definition issues that Werden did not make and with some of which (I have reason to believe) he would not agree.

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Notes

  1. 1.

    64 Stat. 1125, 1126 (1950).

  2. 2.

    Admittedly, the first reference to the term “relevant market” in a U.S. federal antitrust case pre-dated the passage of the Celler-Kefauver Act—in particular, was in the Supreme Court’s 1948 opinion in United States v. Columbia Steel, 334 U.S. 495, 508 (1948). In fact, the Congress’ dissatisfaction with the Court’s decision that the acquisition challenged in that case did not violate the Sherman Act led to its passage of the Celler-Kefauver Act.

  3. 3.

    See, e.g., ECJ, Europemballage Corporation and Continental Can Company, Inc. v. Commission, 6/27 ECR 19973 215, p. 32, (21 February 1973) and ECJ, United Brands Company and United Brands Continental BV v. Commission, 27/76 ECR 1978, 207, p. 10 (14 February 1978).

  4. 4.

    See, e.g., CFI, France Télécom v. Commission, T-340/03-WuW/E Eur 1224, 1225 (30 January 2007).

  5. 5.

    EC Form Relating to the Notification of a Concentration [Merger] Pursuant to Regulation (EC) No. 139/2004, OJ L 133 (30 April 2004).

  6. 6.

    See, e.g., National Geographic II, BGH (The German Federal Court of Justice), WuW DE-R 1925, p. 19.

  7. 7.

    See george j. stigler, the theory of competitive price 92 (Macmillan, 1942). See also alfred marshall, principles of economics 325 (Macmillan, 8th ed., 1920) and augustin cournot, researches into the mathematical principles of the theory of wealth 51–52 (Nathaniel T. Bacon trans., Augustus H. Kelley reprint, 1971) (1838). These citations (and many that follow) are taken from Werden History at 125–26.

  8. 8.

    See edward h. chamberlin, the theory of monopolistic competition (Harvard Univ. Press, 1933).

  9. 9.

    See joan robinson, the theory of imperfect competition (hereinafter robinson imperfect competition) (Macmillan & Co., 1933).

  10. 10.

    For a thorough discussion, see Werden History at 126–31.

  11. 11.

    joe s. bain, price theory 24–25 (H. Holt, 1952). Note the conflation of substitutability and competitiveness.

  12. 12.

    fritz machlup, the economics of seller competition 213–14 (Johns Hopkins Univ. Press, 1952).

  13. 13.

    att’y gen’s nat’l comm. to study the antitrust laws 322 (1955). Note again the conflation of substitutability with competitiveness.

  14. 14.

    See, e.g., joe s. bain, barriers to new competition 182–204 (hereinafter bain barriers) (Harvard Univ. Press, 1956).

  15. 15.

    For two useful compilations and analyses of the scholarship that addressed this issue, see Richard Schmalensee, Inter-Industry Studies of Structure and Performance in handbook of industrial organization, vol. 2, 952 (Richard Schmalensee and Robert Willig, eds.) (North-Holland, 1989) and leonard weiss, concentration and price (MIT Press, 1989).

  16. 16.

    Edward H. Chamberlin, Product Heterogeneity and Public Policy, 40 am. econ. rev. (papers & proc.) 85, 86–87 (1950).

  17. 17.

    Franklin M. Fisher, Horizontal Mergers: Triage and Treatment, 1 j. econ. perspectives 23, 27 (1987). See also robert triffin, monopolistic competition and general equilibrium theory 78–89 (Harvard Univ. Press, 1940).

  18. 18.

    robinson imperfect competition at 17. For a more recent claim that, in a significant number of instances, it will be possible to delineate markets non-arbitrarily to contain sets of products that are bounded by such “marked gaps between themselves and their closest substitutes,” see Richard Schmalensee, Another Look at Market Power, 95 harv. l. rev. 1789, 1799–1800 (1982). Note that Robinson’s reference to “closest substitutes” ignores the distinction between how substitutable two products are for each other and how competitive they are with each other—a distinction made salient by the fact that the firms that are well-placed to supply a particular buyer may have to incur significantly-different marginal costs to do so.

  19. 19.

    Edward S. Mason, Price and Production Policies of Large-Scale Enterprises, 29 am. econ. rev. (papers & proc.) 61, 69 (1939).

  20. 20.

    George A. Hay and Gregory J. Werden, Horizontal Mergers: Law, Policy and Economics, 83 am. econ. rev. (papers & proc.) 173, 176 (1993).

  21. 21.

    Clair Wilcox, Discussion, 40 am. econ. rev. (papers & proc.) 85, 86–87 (1950).

  22. 22.

    To my knowledge, no judge or practicing lawyer has ever stated that the current Clayton Act does not compel the courts to adopt market-oriented approaches to Clayton Act cases. Indeed, so far as I am aware, only one academic lawyer has taken this position. In the first edition of his highly-respected treatise, Lawrence Sullivan prefaced his discussion of the market-definition cases with the comment: “Market definition is not a jurisdictional prerequisite, or an issue having its own significance under the statute….” (footnote omitted) lawrence a. sullivan, handbook of the law of antitrust 41 (West Pub. Co., 1977).

  23. 23.

    See Werden Retrospective at 521–22:

    The [1992 Horizontal Merger] Guidelines’ use of market delineation as the first step of a largely-structural analysis was compelled by case law precedent. Failing to delineate a market would have most likely resulted in the dismissal of any cases filed in court, so the Department of Justice may have had little choice but to delineate markets and assign market shares. Given a choice, many economists would have no doubt preferred to abandon the market delineation-market share approach (footnote omitted).

    I question the accuracy of the last sentence in this quotation. Although Werden does recognize that “dispensing with market delineation may be the best course” both in “many” monopolization cases and in “some” horizontal-merger cases (see Werden Delineation at 216 and 217 respectively), I doubt his claim that many economists agree with this position, and even Werden thinks that, in relation to the horizontal-merger cases for which a non-market-oriented approach may be best, “the Guidelines’ approach is conceptually sound” (id. at 217), whatever that might mean.

  24. 24.

    See, e.g., Chap. 12’s discussions of the non-market-definition-focused sections of the 1992 Horizontal Merger Guidelines, the non-market-oriented competitive-impact-assessment protocols that the DOJ and FTC have actually been using since the mid-1990’s, and the various features of the DOJ/FTC 2010 Horizontal Merger Guidelines that imply that these antitrust-enforcement authorities have actually abandoned market-oriented approaches to competitive-impact prediction. I want to acknowledge that this section draws heavily on Werden History.

  25. 25.

    Although, both in conversations with me and in writing, economists at the DOJ have told me that the U.S. antitrust-enforcement agencies and other Executive Branch officials and institutions are not legally obligated to follow the Guidelines, I doubt that this is the case. The United States Supreme Court has held that, although U.S. administrative agencies and other Executive-Branch officials and institutions are not Constitutionally required to publish the decision-protocol they will use to make particular types of decisions, once they have done so, they are Constitutionally bound to follow that protocol. See Accardi v. Shaughnessy, 347 U.S. 260 (1954). For a more recent case that, if anything, expands the reach of this doctrine, see Morton v. Ruiz, 415 U.S. 199 (1974). See also INS v. Yang, 519 U.S. 26 (1996), and, for two dramatic (Watergage-related) cases in which the doctrine played a critical role, see United States v. Nixon, 418 U.S. 683 (1974) (in which the claim at issue was the President’s invocation of executive privilege in relation to various tape recordings) and Nader v. Bork, 366F. Supp. 104 (D.D.C. 1973) (in which the firing of the Special Prosecutor Archibald Cox was at issue). I do not think that the DOJ and FTC can avoid this requirement by stating in their Guidelines that they do not consider themselves to be bound by them. The opposite conclusion would defeat the purpose of the prohibition—viz., to give the law’s addressees fair notice.

  26. 26.

    When the 1992 Guidelines speak in general terms, they refer to a “small but significant and non-transitory increase in price.” However, they also indicate that the Federal Trade Commission and Justice Department will normally operationalize this language by using “a price increase of five percent lasting for the foreseeable future.” See 1992 Guidelines, Section 1.11. The 1992 Guidelines indicate as well that the normal determinants of the relevant price-increases will be predicted post-hypothetical-combination prices and the actual pre-hypothetical-combination prevailing prices. However, if “circumstances are strongly suggestive of coordinated interaction” (by which I assume they mean contrived oligopolistic pricing), the Federal Trade Commission “will use [as its baseline] a price more reflective of the competitive price.” Id. I assume that this qualification means that under the protocol the DOJ and FTC will analyze the likely impact of various hypothetical combinations on prices on the sometimes-counterfactual assumption that the merger partners and presumably the other possible combinants did not engage in contrived oligopolistic pricing pre-merger. However, I am not sure what the protocol implies the DOJ and FTC will assume about post-hypothetical-combination prices in the relevant cases—in particular, about the COMs that would prevail after any hypothetical combination was effectuated. Since it would be inaccurate to attribute to the hypothetical combination all the COMs that the combinants would secure post-combination if they would have obtained some COMs pre-combination, I assume that the protocol would count only that amount of the COMs that the combinants would secure post-combination if, counterfactually, they would have obtained no COMs pre-combination. However, since the effect of a given merger on its participants’ COMs will depend inter alia on how unprofitable contrived oligopolistic pricing was for them pre-merger, I can see no way in which the amount just indicated could be ascertained.

  27. 27.

    See the 1992 Guidelines, Section 1.32, which discusses “uncommitted” firms that would participate in the relevant market through a “supply response” to the hypothetical price-increase.

  28. 28.

    See the 1992 Guidelines, Section 1.12. Although this protocol does define markets in a way that clearly is “buyer-oriented” in one sense, it does not indicate that the DOJ and FTC have shifted to “buyer-oriented” market definitions in the sense in which I define that expression. In Chap. 6, I defined a conception of a market to be “buyer-oriented” if, under it, markets are defined so that each includes only buyers that place similar dollar values on the particular product variant they prefer (and only sellers that are well-placed to supply the buyers in question). Section 1.12 obviously involves a partial shift to a buyer-oriented conception of a market. However, the 1992 Guidelines are not fully committed to a buyer-oriented conception of antitrust markets. To see why, note that the 1992 Guidelines will not define separate markets despite the fact that different subsets of relevant buyers place different dollar values on the relevant products if all buyers are charged the same price for any product.

  29. 29.

    Although note 9 of Section 1.11 of the 1992 Guidelines clarifies the meaning of “next-best substitute” (the quote in the text comes from this note), the terminology is unfortunate. Economists usually use the word “substitute” to refer to a product that a specific buyer or many buyers find as desirable or almost as desirable as the alternative good in question, ignoring the extent to which the evaluations in question depend on the relative quantities of the two goods owned by the buyer(s) in question. This definition renders irrelevant the prices of the two goods or any related difference in their marginal costs of production (a cost-difference that is relevant to a product’s being [in my terminology] “the closest competitor of another good for a particular buyer’s patronage”). Since, in the 1992 Guidelines’ terminology, how close a “substitute” one good is for another depends to a great extent on the prevailing prices of the goods, the Guidelines’ terminology is inconsistent with the standard economics usage just delineated. As my discussion of Joan Robinson’s conclusions about the conditions under which it will be possible to define a market non-arbitrarily reveals, this conflation of the “substitutability” of two products with their “competitiveness” also has a long history in economics. I should admit that economists do use an expression that contains the word “substitution”—viz., “the marginal rate of substitution”—to refer to “substitutability” at something like prevailing price levels: in particular, the expression “the marginal rate of substitution between product X and product Y” indicates the rate at which a particular buyer can substitute one good for another at the margin (i.e., given its original purchases of X and Y) and remain equally well-off (remain on the same indifference or revealed-preference curve). Since the original quantities of X and Y owned by the buyer will be determined inter alia by the prices of X and Y (the quantities in question will also be determined by the wealth and income of the buyer and by its preferences), this usage of the word “substitution” is more compatible with the 1992 Guidelines’ usage than is the standard usage of the word “substitute.” Still, I think that the 1992 Guidelines would have better achieved their goal of clarity had they avoided the “next-best substitute” terminology.

  30. 30.

    Private note to the author from Gregory J. Werden (April 1, 1997) accompanying a memo entitled Comments of Gregory J. Werden on—Richard S. Markovits, Two Antitrust Myths: Why It Is Worse-Than-Pointless to Define Markets (a paper I wrote and presented to the economists at the Antitrust Division in 1997).

  31. 31.

    Werden Retrospective at 530.

  32. 32.

    Id. at 531.

  33. 33.

    Id. at 530.

  34. 34.

    See the 1992 Guidelines, Section 1.11 at its last paragraph.

  35. 35.

    See id., Section 1.11 at the paragraph preceding the paragraph in which the textual footnote-number 10 appears.

  36. 36.

    Thus, the first sentence of paragraph two of Section 0.1 of the Guidelines states: “Throughout the Guidelines, the analysis is focused on whether consumers or producers ‘likely would’ take certain actions, that is, whether the action is in the actor’s economic interest.”

  37. 37.

    See the 1992 Guidelines, Section 1.11 at the paragraph preceding the paragraph in which the textual footnote-number 10 appears.

  38. 38.

    Id.

  39. 39.

    See the 1992 Guidelines, Section 1.11 at paragraph 2, which explicitly states that the profits that would be yielded by any price-increase the hypothetical combinants execute will be calculated on the assumption that “the terms of sale of all other products are held constant.”

  40. 40.

    See the 1992 Guidelines in the sentence in which textual footnote-number 10 appears.

  41. 41.

    See id., Section 1.11, last sentence. See also the 1992 Guidelines, Section 1.11 in the last sentence of the paragraph preceding the paragraph in which note 10 appears, indicating that the relevant market will “generally” be defined in terms of the 5 %-price-increase criterion and indicating that “in most contexts” this criterion will be used.

  42. 42.

    The quotation comes from Werden’s summary of Rill’s position in James F. Rill, Merger Enforcement at the Department of Justice, 59 antitrust l. j. 45, 49–50 (1990). It is taken from Werden Retrospective at 529 n. 31.

  43. 43.

    Id. at 531–32 n. 36.

  44. 44.

    Id. at 534–35.

  45. 45.

    See the 1992 Guidelines at paragraph 2.

  46. 46.

    See Werden Retrospective at 535.

  47. 47.

    See the 1992 Guidelines, Section 1.11 paragraph 2.

  48. 48.

    See the 1992 Guidelines at the first sentence of paragraph 2 of Section 0.1.

  49. 49.

    Admittedly, not all individuals in this category seem disturbed by this fact. Thus, Werden is not disturbed by the related but somewhat-less-challenging fact that the Guidelines’ protocol may define MP1’s and MP2’s markets very differently though each is in the other’s market despite the fact that the two firms produce similar products. See Werden Retrospective at 532.

  50. 50.

    See the 1992 Guidelines, Section 1.11 in the paragraph in which textual footnote-number 9 appears. Some economists at the Antitrust Division apparently assume that Section 1.11 indicates that the market for merger-partner-product A will be defined by adding to A successively (1) A’s next-best substitute (say, B), (2) the product X that is the best-remaining substitute of A and B combined, (3) the product Y that is the best-remaining substitute of products A, B, and X combined, etc. Although, properly operationalized, this protocol would be more likely to identify the relevant smallest set of hypothetical combinants than adding to A its successive, next-best substitutes (see the text immediately following), the Guidelines adopt the inferior protocol—indicate that to create the market “the Agency will add to the product group the product that is the next-best substitute for the merging firm’s product.” See the last sentence of paragraph two of Section 1.1 of the 1992 Guidelines.

  51. 51.

    The enquoted expression is the heading of Section 2.2 of the 1992 Guidelines.

  52. 52.

    Although the 1992 Guidelines do not explicitly define the expression “coordinated interaction,” I do think that its authors intend the expression to refer to what I call contrived oligopolistic pricing (or at least the variant of such conduct that involves the making and enforcement of anticompetitive agreements). Thus, the Guidelines indicate that the behavior in question “includes tacit and express collusion” (id. at Section 2.1), and their discussion of the conditions that are conducive to “coordinated interaction” focuses on factors that determine the profitability of contrived oligopolistic pricing in my terminology—viz., factors that influence the ability of firms to make anticompetitive agreements (Section 2.11) and to detect and punish violations of such agreements (Section 2.12). Although the relevant sections of the 1992 Guidelines also use such ambiguous language as “accommodating reactions,” which can be part of natural oligopolistic or non-oligopolistic behavior-sequences in my terminology, I attribute the 1992 Guidelines’ use of this expression to sloppiness.

  53. 53.

    I might add that, although MP2’s not being a close competitor of MPl’s close competitors makes it less likely that the MP1-MP2 merger will induce the MP1 division of the merged company to increase its COMs (since it makes it less likely that the merged company can use MP2’s product to reciprocate to rivals that have cooperated with MP1 and/or to retaliate against rivals that have undercut MP1’s contrived oligopolistic prices), MP2’s not being a close competitor of MPl’s closest competitor may increase the impact of the merger on the COMs that the MP2’s division of the merged company obtains if MP1 is often second-placed to obtain the patronage of the buyers that its closest rivals are best-placed to supply and those rivals are often second-placed to obtain MP2s customers even though MP2 is rarely second-placed to supply their customers since in that asymmetric situation MP2 will need to prevent MP1’s close competitors from undercutting MP2’s contrived oligopolistic offers and will be able to take advantage of (1) any excess reciprocatory power that MP1 enjoys in relation to its close rivals and/or (2) any positive difference between the harm-inflicted to loss-incurred ratio for the last act of retaliation that an independent MP1 would find necessary to commit against the rivals in question and the counterpart ratio for an independent MP2.

  54. 54.

    According to Ian Ayres, “there is a solid [positive] consensus about the [1984] Guidelines’ approach to market definition” (which is identical to the 1992 Guidelines’ approach in all respects that are relevant in this context). See Ian Ayres, A Private Revolution: Markovits and Markets (hereinafter Ayres), 64 chi.-kent l. rev. 861, 865 (1988), citing Lawrence J. White, Antitrust and Merger Policy: A Review and Critique, 1 j. econ. persp. 13, 14 (1987), which claims that the 1984 Guidelines’ market-definition protocol is its “most important conceptual contribution…,” and Franklin Fisher, Horizontal Mergers: Triage and Treatment, 1 j. econ. persp. 23, 28 (1987), that describes the 1984 Guidelines’ market-definition protocol as “a major step in the direction of sanity.” I should add that Ayres clearly shares these views.

  55. 55.

    See Ayres at 865.

  56. 56.

    I assume this for a combination of two reasons. First, the authors of not just the 1992 Guidelines but also of their predecessors were clearly influenced by such economists as Edward Mason, Morris Adelman, and Kenneth Boyer. See Edward S. Mason, Price and Production Policies of Large-Scale Enterprises, 29 am. econ. rev. (papers & proc.) 61 (1939); Morris A. Adelman, The Antimerger Act, 1950–1960, 51 am. econ. rev. (papers & proc.) 236 (1961) and Comment: Economic Aspects of the Bethlehem Opinion, 45 va. l. rev. 681 (1959); and Kenneth D. Boyer, Industry Boundaries, in economic analysis and antitrust law 70, 73–74 (Terry Calvani and John Siegfried, eds., 2d ed.) (Little Brown and Co., 1988) (arguing that the best market to define for any firm would include exclusively the “ideal collusive group” to which that firm would belong). Second, from conversations with professionals at the Antitrust Division, I know that the economists on its staff played a leading role in drafting the 1992 Guidelines (though they attribute most of its deficiencies to the late intervention of the Division’s lawyers).

  57. 57.

    See Richard Schmalensee, Another Look at Market Power, 95 harv. l. rev. 1789, 1799–1800 (1980).

  58. 58.

    joe s. bain, price theory 50–53 (H. Holt, 1952).

  59. 59.

    fritz machlup, the economics of seller competition 213–14 (Johns Hopkins Univ. Press, 1952).

  60. 60.

    The concept (or at least the term) cross-elasticities of demand was first used by a U.S. court in a dictum in Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 612 n. 31 (1953). The first opinion in which a U.S. court actually used the concept to delimit a concrete market was United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 380–81 (1956). This approach to market definition continues to be cited approvingly by U.S. courts today.

  61. 61.

    See George W. Stocking and Willard Mueller, The Cellophane Case and the New Competition, 45 am. econ. rev. (1955) and Kenneth D. Boyer, Industry Boundaries in economic analysis and antitrust law 70, 74–76 (Terry Calvani and John Siegfried, eds, 2d ed.) (Little Brown and Co., 1988).

  62. 62.

    See, e.g., richard posner, antitrust law: an economic perspective 128 (Univ. of Chicago Press, 1976) and Gene C. Schaerr, Note, The Cellophane Fallacy and the Justice Department’s Guidelines for Horizontal Mergers, 94 yale l. j. 670 (1985).

  63. 63.

    The first publication to make this point was Klaus Stegemann, Cross Elasticity and the Relevant Markets, 94 zeitschrift für wirtschafts & sozialwissenschaften 151 (1974).

  64. 64.

    See, e.g., United Brands v. Commission, Case 27/76, E.U.R. 207, 215 (ECJ) (1978).

  65. 65.

    Both these positions are established in Chap. 8.

  66. 66.

    For this purpose, I will use materials that I have been handing out to students since 1970.

  67. 67.

    richard posner, antitrust law: an economic perspective 125 (Univ. of Chicago Press, 1976).

  68. 68.

    Kenneth E. Elzinga and Thomas F. Hogarty, The Problem of Geographic Market Delineation in Antimerger Suits, 18 antitrust bull. 45 (1973).

  69. 69.

    Id. at 73–75.

  70. 70.

    Kenneth G. Elzinga and Thomas F. Hogarty, The Problem of Geographic Market Delineation Revisited, 23 antitrust bull. 1, 2–3 (1978).

  71. 71.

    Although Werden has made the second objection to the Elzinga-Hogarty approach, he did not make the first or third. See Werden History at 211. Perhaps that is why his overall assessment of the usefulness of shipments data (“as a first cut”) is more positive than mine. Id. I should note that, except in the context of hospital mergers, the type of shipments data on which the Elzinga-Hogarty test focuses has largely been ignored by U.S. courts, the FTC, and the DOJ.

  72. 72.

    Technically, correlations between the prices themselves, their first differences, their logarithms, and the first differences of their logarithms.

  73. 73.

    George J. Stigler and Robert A. Sherwin, The Extent of the Market, 28 j. l. & econ. 555, 556 (1985)

  74. 74.

    Id. at 562.

  75. 75.

    Even if the associated costs do not render this approach less cost-effective than some other approach to defining markets for use in monopolization (“abuse of a dominant position”) cases and horizontal-merger competitive-impact cases, they would reduce the probability that a market-oriented approach to such cases that used this technique to define the antitrust markets on whose structure it focused would be more desirable than a non-market-oriented approach.

  76. 76.

    Werden and Froeb Jazz at 332–38

  77. 77.

    See, e.g., Ira Horowitz, Market Definition in Antitrust Analysis, 48 so. econ. j. 1 (1981); Stephen A. Mathis, Duane G. Harris, and Michael J. Boehlje, An Approach to the Delineation of Rural Banking Markets, 60 am. j. of ag. econ. 601 (1978); and Ronald E. Shrives, Geographic Market Area and Market Structure in the Bituminous Coal Industry, 23 antitrust bull. 589 (1978).

  78. 78.

    Werden and Froeb Jazz at 340. Werden and Froeb have an additional, even more decisive objection to the “relative speed of adjustment” test proposed by Mathis, Harris, and Boehlje, which focuses on the relative speeds with which various products’ prices adjust to changes in the prices of the product whose antitrust market they are trying to define: even if speed of adjustment were relevant, the absolute speed with which one product’s price adjusted to a change in the price of another would be relevant, not that absolute speed relative to the speed with which other products’ prices adjusted to changes in the price of the other product in question. See Werden and Froeb Jazz at 340.

  79. 79.

    See, e.g., C.W.J Granger, Investigating Causal Relations by Econometric Models and Cross-Spectral Methods, 37 Econometrica 424 (1969); John F. Gewecke, Measurement of Linear Dependence and Feedback Between Multiple Time Series, 77 j. of am. stat. ass. 304 (1982); Chris Klein, Edward J. Rifkin, and Noel D. Uri, A Note on Defining Geographic Markets, 15 regional sci. and urban econ. 109 (1985); and Phillip A. Cartwright, David A. Kamerschen, and Mei-Ying Huang, Price Correlation and Granger Causality Tests for Market Definition, 4 rev. of ind. org. 79 (1989).

  80. 80.

    See Robert F. Engle and C.W.F. Granger, Co-Integration and Error Correction: Representation, Estimation and Testing, 55 econometrica 251 (1987); Gary Whalen, Time Series Methods in Geographic Market Definition in Banking (unpublished conference paper, Atlantic Economic Association Meeting) (1990); and Juan J. Dolado, Co-Integration and Unit Roots, 4 j. of econ. surveys 249 (1990).

  81. 81.

    Werden and Froeb Jazz at 343.

  82. 82.

    Id. at 344–45.

  83. 83.

    Calnetics Corp. v. Volkswagen of Am., Inc., 348 F. Supp 606, 617 (C.D. Cal. 1972), remanded 532 F.2d 674, 691 (9th Cir), cert. denied, 429 U.S. 940 (1976).

  84. 84.

    United States v. Von’s Grocery Co., 384 U.S. 270, 301 (1966) (Stewart, J., dissenting). In a previous case, the second Justice Harlan also expressed concern that markets were being defined to produce desired (anti-defendant) outcomes. See Brown Shoe Co. v. United States, 370 U.S. 294, 367–68 & n. 3 (1962) (Harlan, J., dissenting in part and concurring in part).

  85. 85.

    Werden History at 169.

  86. 86.

    The Supreme Court, 1963 Term, 78 harv. l. rev. 143, 274–75 (1964).

  87. 87.

    G.E. Hale and Rosemary D. Hale, A Line of Commerce: Market Definition in Anti-Merger Case, 52 iowa l. rev. 406, 426 (1966).

  88. 88.

    g.e. hale and rosemary d. hale, market power: size and shape under the sherman act 111 (Little Brown and Co., 1958).

  89. 89.

    See Werden History at 174, citing numerous cases to support the former of these points (at n. 358) and Reynolds Metals v. FTC, 309 F.2d 223, 229 (D.C. Cir. 1962) (at n. 359) to support the latter.

  90. 90.

    Id. at 535.

  91. 91.

    Id. Werden’s position resembles the position taken in 1963 by another economist (Irston R. Barnes) who worked for a U.S. antitrust-enforcement agency. In particular, Barnes also argued that (1) market delineation is not the first independent step in a competitive-impact-analysis protocol and (2) to define markets sensibly, one must first consider the type of competitive effects the merger might have. See Irston R. Barnes, The Primacy of Competition and the Brown Shoe Decision, 51 geo. l. j. 706, 726–27, 729–30 (1963).

  92. 92.

    370 U.S. 294, 336–37 (1962).

  93. 93.

    George R. Hall and Charles F. Phillips, Antimerger Criteria: Power, Concentration, Foreclosure and Size, 9 vill. l. rev. 211, 219–20 (1964).

  94. 94.

    G.E. Hale and Rosemary D. Hale, A Line of Commerce: Market Definition in Anti-Merger Cases, 52 iowa l. rev. 406, 426 (1966). The Hales also linked the concept of a submarket to the practice of improperly-resulted-oriented market definition. See also Morris A. Adelman, The Antimerger Act, 1950–1960, am. econ. rev. (papers & proc.) 236, 237 (1961) where Adelman refers to the idea of markets within markets as “a pathetic illusion.”

  95. 95.

    This point also seems to have eluded Richard Posner, at the time (he is now a judge) a legal academic with substantial conversance with economics. See richard posner, antitrust law: an economic perspective 129 (Univ. of Chicago Press, 1976):

    The “submarket” approach is unsound. If the “outer boundaries” of the market include only the product’s good substitutes in both consumption and production…, then a submarket would be a group of sellers from which sellers of good substitutes in consumption or production had been excluded, and these exclusions would deprive any market-share statistics of their economic significance.

    I hasten to admit that another leading legal antitrust scholar with substantial knowledge of economics thought the submarket concept (the use of “concentric markets”) perfectly appropriate in some cases. See lawrence a. sullivan, handbook of the law of antitrust 42–43 (West Pub. Co., 1977).

  96. 96.

    United States v. Philadelphia National Bank, 201F. Supp. 148, 363 (E.D. Pa. 1962).

  97. 97.

    United States v. Philadelphia National Bank, 374 U.S. 321 (1963).

  98. 98.

    Id. at 356.

  99. 99.

    Werden’s reaction to the claim that commercial banking constitutes a cluster market is typical: “If, contrary to apparent fact, bank customers insisted on buying all services from a single institution, then the only competitors in the relevant market for each banking service would be full-service banks.” Werden History at 196. Note the implicit reference to all bank customers and the unnecessarily-restrictive assumption that the buyers in question should “insist on” buying all services from a single institution. In fact, for a cluster market to exist, all that is required is that some bank customers place some positive value on buying two or more services from a single institution.

  100. 100.

    Id.

  101. 101.

    I derived my list of indicators or tests primarily from betty bock, mergers and markets: an economic analysis of the case law 42–67 (Nat’l Ind. Conf. Bd., 1960), mark s. massel, competition and monopoly: legal and economic issues, Chap. 9 (The Brookings Institution, 1962), and the opinion of the Court in Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962). The lists in all of these sources are summarized and perspicuously discussed by Werden in Werden History 154–57. See also id. at 168 and 175–76 for additional tests and critiques of particular tests.

  102. 102.

    See, e.g., United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586, 593 (1957) (du Pont-General Motors) and United States v. Brown Shoe Co., 179 F. Supp. 721, 729 (E.D. Mo. 1959), aff’d, 370 U.S. 294 (1962).

  103. 103.

    See, e.g., Crown Zellerbach Corp. v. FTC, 296 F.2d 800 (9th Cir. 1961), cert. denied 370 U.S. 937 (1962).

  104. 104.

    See, e.g., id. and United States v. Bethlehem Steel Corp., 168 F. Supp. 576, 584 and 611 (S.D.N.Y. 1958).

  105. 105.

    US courts have sometimes failed to focus on the fact that different sellers are well-placed to secure the patronage of different sets of buyers (even though their acceptance of the concept of a submarket should have made it easy for them to perceive this reality). See, e.g., United States v. Continental Can Co., 217 F. Supp. 761 (S.D.N.Y. 1963), rev’d, 378 U.S. 441 (1964).

  106. 106.

    Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962).

  107. 107.

    See, e.g., In re Reynolds Metals Co., 56 F.T.C. 743 (1960), aff’d, 309 F.2d 223 (D.C. Cir. 1962); In re A.G. Spalding & Bros. Inc, 56 F.T.C. 1125 (1960), aff’d, 301 F.2d 585 (3d Cir. 1962); Photon Vest Corp. v. Fotomat Corp., 606 F.2d 704 (7th Cir. 1977), cert. denied 445 U.S. 917 (1980); and RSR Corp. v. FTC, 602 F.2d 1317 (9th Cir. 1979).

  108. 108.

    United States v. Corn Products Refining Co., 234 F. 964, 975–76 (S.D. N.Y. 1916).

  109. 109.

    See United States v. Bethlehem Steel Corp., 168 F. Supp. 576 (S.D.N.Y. 1958).

  110. 110.

    See, e.g., FTC v. Proctor & Gamble Co. (Clorox), 386 U.S. 558 (1967).

  111. 111.

    See, e.g., United States v. E.I. du Pont de Nemours & Co., 118F. Supp. 41 (D. Del. 1953), aff’d, 351 U.S. 377 (1956) and American Crystal Sugar Co. v. Cuban-American Sugar Co., 152F. Supp. 387 (S.D.N.Y. 1957), aff’d, 259 F.2d 524 (2d Cir. 1958).

  112. 112.

    See, e.g., United States v. E.I. du Pont de Nemours & Co. (du Pont-Cellophane), 118 F. Supp. 41 (D. Del. 1973), add’d, 351 U.S. 377 (1956); United States v. E.I. du Pont de Nemours & Co. (du Pont-General Motors) 353 U.S. 586 (1957); United States v. Columbia Pictures Corp., 189 F. Supp. 153 (S.D.N.Y. 1960); RSE Corp. v. FTC, 511 F.2d 70 (1970), cert. denied, 445 U.S. 927 (1980). I should acknowledge that some courts have focused on “sensitivity to price change” in another sense—viz., in the sense of “the extent to which a buyer would stop purchasing a relevant seller’s product if it raised its price by varying amounts.” Such information is clearly relevant to the relevant producer’s monopoly control over price, and the impact of a horizontal merger on this type of sensitivity to price would clearly be relevant to the relevant merger’s impact on price competition. However, once more, this information should be considered directly, not used circuitously to define a market whose definition is then used to generate market-share or market-share and market-concentration figures from which the sought-after assessment or prediction is derived.

  113. 113.

    See United States v. Bethlehem Steel Corp., 168 F. Supp. 576, 594 (S.D.N.Y. 1958).

  114. 114.

    See In re A.G. Spalding & Bros., Inc., 56 F.T.C. 1125 (1960).

  115. 115.

    See United States v. Bethlehem Steel Corp. 168 F. Supp. 576, 594 (S.D.N.Y. 1958).

  116. 116.

    See United States v. Grinnell Corp., 384 U.S. 563 (1966).

  117. 117.

    See, e.g., United States v. Bethlehem Steel, 168 F. Supp. 576 (S.D.N.Y. 1958); In re A.G. Spalding & Bros., Inc, 56 F.T.C. 1125 (1960), aff’d, 301 F.2d 585 (3d Cir. 1962); and Bowl Am. Inc. v. Fair Lanes, Inc., 299 F. Supp. 244 (D. R.I. 1964), aff’d in part and rev’d in part, 384 U.S. 563 (1966).

  118. 118.

    See Werden History at 191.

  119. 119.

    Commission Notice on the Definition of the Relevant Market for the Purposes of Community Competition Law (hereinafter EC 1997 Relevant-Market Notice), OJ C 372 Section 2 (1997).

  120. 120.

    Id. at Section 7 (1997), quoting Section 6 of Form CO With Respect to Regulation (EEC) No. 4064/89. For a U.S. case that states a similar position, see United States v. E.I. du Pont de Nemours Co. (du Pont-Cellophane), 351 U.S. 377, 395 (1956).

  121. 121.

    EC 1997 Relevant-Market Notice at Sections 15 and 17.

  122. 122.

    Id. at Section 17.

  123. 123.

    Id. at passim.

  124. 124.

    Id. at Section 39. See also Form CO Relating to the Notification of a Concentration Pursuant to Regulation (EC) No. 139/2004, OJ L 133 at Section 6II (4/30/04). See also United Brands v. Commission, 1978 E.U.R. 207 (ECJ) (1978).

  125. 125.

    EC Relevant-Market Notice at Section 39.

  126. 126.

    See, e.g., id. at Section 48.

  127. 127.

    Id.

  128. 128.

    Id. at Sections 20–23.

  129. 129.

    Id. at Section 24.

  130. 130.

    Id. at Section 20 and n. 4.

  131. 131.

    Id. at Section 23.

  132. 132.

    Id. at Section 24.

  133. 133.

    Id. at Section 22. For a case in which the Commission did not use this protocol because not all of the relevant producers produced all of the relevant products, see Agfa/Gevaert/du Pont, European Commission Case No. IV/M. 986 p. 26 (2/11/1998).

  134. 134.

    franz jürgen säcker, the concept of the relevant product market (hereinafter säcker) (Peter Lang, 2008). See also simon bishop and mike walker, the economics of ec competition law: concepts, application and measurement 458 (Sweet & Maxwell, 2000) and massimo motta, competition policy: theory and practice 104 (Cambridge Univ. Press, 2004).

  135. 135.

    See säcker at 43–44. Säcker also disagrees with the Commission’s refusal to expand the defined market to include all members of a technologically-related set of products when only some of their producers produce all of the products in question.

  136. 136.

    Id. at 25.

  137. 137.

    Id. at 39 and 52.

  138. 138.

    Id. at passim.

  139. 139.

    EC 1997 Relevant-Market Notice at Section 17.

  140. 140.

    Id. at Section 33.

  141. 141.

    Id. at Section 34.

  142. 142.

    Id. at Section 41.

  143. 143.

    Id. at Section 29.

  144. 144.

    Id. at Section 38.

  145. 145.

    Id. at Section 29.

  146. 146.

    Id. at Section 30.

  147. 147.

    Id. at Section 31.

  148. 148.

    Id. at Section 42.

  149. 149.

    korah at 111.

  150. 150.

    See, e.g., European Night Service v. Commission, T-374/94, ECR II-3141 (1998).

  151. 151.

    See Coca-Cola Company and Coca-Cola Enterprises, Inc. v. Commission, T-125 and 127/97, ECR II-1733, p. 82 (2000).

  152. 152.

    See, e.g., Nederlandsche Banden-Industrie Michelin NV v. Commission, 322/81, [1983] ECR 3461, p. 41 (1985), in which the ECJ asserted that, if Goodyear could have built a factory in the Netherlands, its ability to do so would constrain Michelin’s pricing and Europeanballage Corporation and Continental Can Co., Inc. v. Commission, 56/72, [1973] ECR 215, pp. 32 and 37 (1973), in which the ECJ argued that, if makers of cylindrical cans could make the differently-shaped cans traditionally used for meats and fish, their ability to do so would deter Continental Can from raising its prices.

  153. 153.

    T-504/93, ECR II-923 (1997).

  154. 154.

    Thus, the DOJ/FTC Commentary on the Horizontal Merger Guidelines (2006) state at 10 that “[t]he Agencies take into account that all customers in a relevant market are not necessarily situated similarly in terms of their incentives,” reiterate at 7 the 1992 Guidelines position that “[i]n cases in which a hypothetical monopolist is likely to target only a subset of customers for anticompetitive price increases, the Agencies are likely to identify relevant markets based on the ability of sellers to price discriminate” (a statement that is admittedly only partially in the right direction in that it implies that the Agencies will not separate out groups of buyers when the relevant companies would not discriminate among or between them), and at 8 describes cases in which “staff…define[d] markets based on consumer categories”—inter alia, Quest-Unilab (FTC 2003) and Ingersoll-Dresser-Flowserve (DOJ 2000). I should note that this trend is in line with the courts’ use of submarkets and cluster markets.

  155. 155.

    Werden Delineation at 216.

  156. 156.

    Id. at 217.

  157. 157.

    United States v. Philadelphia National Bank, 374 U.S. 321, 362–67 (1963).

  158. 158.

    United States v. Baker Hughes, Inc., 908 F.2d 981, 984 (D.C. Cir. 1990) (Thomas J., joined by R. Ginsburg, J. and Sentelel, J.). This comparison is taken from Jonathan B. Baker and Daniel L. Rubinfeld, Empirical Methods in Antitrust Litigation: Review and Critique, 6 am. law and econ. rev. 386, 388 n. 4 (1999).

  159. 159.

    See Werden Policy at 58.

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Markovits, R.S. (2014). Chapter 7 Economic (Classical) and Antitrust Markets: Official and Scholarly Proposals. In: Economics and the Interpretation and Application of U.S. and E.U. Antitrust Law. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-24307-3_7

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