Determining the Relevant Market

1
Determining the Relevant Market

• Measuring the denominator
• Economic cost includes a reasonable profit
• The leverage of large shares
• To reduce total output 10 a 80 seller must only
  cut back 1/8 whereas a 20 seller must cut back
  1/2!
• Elasticity of demand and supply steep slope
  inelastic

2
Cross-Elasticities

• Substitutes and near substitutes
• Supplier conversions constestable mkts
• Tooling up unused capacity
• Geographic boundaries on markets
• Transportation costs
• Duties and tariffs
• Product differentiation mkt stratification
• Supranormal profits are above the sellers
  marginal cost

3
Data Gathering Problems

• Marginal cost cant be measured
• Elasticities are difficult to precisely learn
• Capacity? Shipments? Net Sales? Leases?

4
The DuPont Case

• How characterize the denominator?
• Why sudden demand for moisture-proof cellophane?
  Draw new demand curve
• Cellophane v. glassine historic price comparisons
• DuPont bought mkt share by dropping price
• Dissent thinks other materials were price
  insensitive to cellophane
• Cellophane fallacyhigh elasticity monop.

5
Telex demonstrates cross-elasticity of supply to
increase the denominator and avoid monopoly
market share
6
Marshfield Clinic

• Cross elasticity of demand in medical services
• Low barriers to entry mean what?
• How did hospitals figure in?
• What calculation did the conspiracy allegation
  affect?
• Economic implications of most favored nation
  clause?
• The Sherman sec. 1 issue

7
Defining the Geographic Market

• Grinnells product market definition
• Compliments are not substitutes
• Functionality and efficiency
• Dissents view of cross-elastic demand
• Grinnells geographic market definition
• Why ADT divestiture wouldnt be solution
• The concept of local sub-markets
• Best of both worlds for Plaintiffs
• Durable contracts equipment ownership

8
Geographic Market Boundaries

• How far away will customers go to find
  better-priced goods (or close substitutes)?
• Consider defining submarkets first, then looking
  for national dominance on an aggregate level
  (e.g. dollar stores or farm stores)
• Consider geographic cross-subsidation
• Non-tying leveraging allocatively inefficent?
• Tie-inssame product in different geo. mkts.