Defining the relevant market is a necessary predicate task in most antitrust cases. Challenged conduct cannot be said to restrain trade within a market, or to monopolize a market, until the market is defined. Arguably, the most important work of an antitrust practitioner is to identify and defend proper market definitions at the outset of a case.
What Is the Relevant Market? A relevant market is said to consist of a “relevant product market” and a “relevant geographic market.” See Tanaka v. University of Southern California, 252 F. 3rd 1059, 1063 (9th Cir., 2001). It is a concept used in antitrust law in order to consider the antitrust implications of challenged commercial practices. The concept is often considered in order to determine whether a defendant or defendants have committed violations of antitrust law or in order to assess the antitrust ramifications of a proposed merger.
One way to view a relevant product market is to grapple with the following lines of inquiry: What product or service is immediately placed in issue in this case? Why do purchasers buy this product or service? What other products or services, if any, serve as interchangeable substitutes for this product or service?
One way to view the relevant geographic market is to ask: What is the region or area where there is or could be meaningful competition among sellers to provide any of these products or services to paying customers who turn to them to make purchases?
Once the above queries have been resolved, it is possible to define the relevant market for antitrust purposes. In the end, the best market definition is the one that best describes the universe of products and/or services that buyers purchase for a particular purpose from sellers who can furnish them at competitive prices, taking into account (1) potential sellers, (2) barriers to entry, and (2) the effect of anti-competitive conduct or lawful monopoly power. The products and/or services that belong in this universe are those that can answer the buyers’ purpose at a reasonable cost. The universe must be limited to the region in which actual and potential sellers can or could compete to sell these products and/or services to willing buyers who turn to them for purchases. Sometimes there is only one seller or a mere handful of them. Sometimes there is only one product or service that can answer the purpose, or sometimes even only one brand of product that can do so. Often there are many alternatives.
Here are some further comments on defining the relevant product market and the relevant geographic market.
The Relevant Product Market. To define a relevant product market, the paramount inquiry is to determine the actual and potential options available to the consumers at issue. The relevant product market must include the different products that these consumers can readily purchase to accomplish the purpose for which they buy the products. Such products compete against one another for their favor and are said to be “reasonably interchangeable substitutes”. As such, they are deemed to belong to same “relevant product market”. See U.S. v. E. I. du Pont de Nemours & Co., 351 U.S. 377, 395, 76 S.Ct. 994, 1007 (1956). See also Queen City Pizza, Inc. v. Domino’s Pizza, Inc, 124 F.3d 430, 436 (3 Cir., rd 1997) (“The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it.”)
To determine which products are reasonably interchangeable substitutes, the courts typically consider “cross-elasticity of demand” for different candidate products. This test demonstrates whether a candidate product serves as a reasonably interchangeable substitute for other products within the relevant product market. “Cross-elasticity of demand” exists if (1) the increase in the price of one product causes (2) a corresponding increase in demand for a substitute product. It demonstrates that consumers view both products as interchangeable substitutes, and that they will respond to a price increase for one of them by purchasing more of the other. Cross-elasticity of demand can be used to test any two products, but often it will show that several products belong in the same product market (e.g., celophane wrapper, paper wrapper, aluminum foil, papers bags, plastic cooking containers, etc.)
Sometimes the courts also consider “cross-elasticity of supply,” doing so to take into account the potential supply of all reasonably interchangeable substitutes. This concept, which seems to have caused some confusion in antitrust cases, refers to the following concept. The sellers in a relevant market include all actual and potential suppliers of any relevant product in this market; and a potential supplier is one that can readily adapt its operations in order to supply a relevant product (e.g., within one year and without any need to incur substantial “sunk costs”). The relevant market can thus be said to include actual and potential suppliers of any relevant product in the market, so that the available sellers are those who can readily compete against one another for sales. See Twin City Sportservice, Inc. v. Charles O. Finley & Co., 512 F.2d 1264, 1271-72 (9th Cir. 1975).
The courts consider these matters in furtherance of the same essential inquiry: What products can or do compete against one another in order to answer the consumers’ purpose? These products, but no other, belong within the relevant product market. See du Pont,supra, 351 U.S. at 395 (1956).
Single-Brand Markets. A proposed relevant product market might sometimes seem “narrow” – limited perhaps to a single specific product or even a single specific brand. This circumstance by itself is not a sufficient objection. Rather, the issue must always turn on the practical choices actually available to the consumers at issue. Thus certain “relevant product markets” can be properly limited to a single kind of product or even to a single brand. See Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451, 481-82 (1992) (“[I]n some instances one brand of a product can constitute a separate market. The proper market definition in this case can be determined only after a factual inquiry into the ‘commercial realities’ faced by consumers.”). Accord Dimidowich v. Bell & Howell, 803 F.2d 1473, 1480 at n.3 (9th Cir., 1986).
The Relevant Geographic Market. The relevant geographic market is the area in which sellers compete with one another for sales of the relevant products to willing buyers who turn to them for purchases. See Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327 (U.S. 1961) (“the area of effective competition in the known line of commerce must be charted by careful selection of the market area in which the seller operates, and to which the purchaser can practicably turn for supplies.”) For this inquiry, it is usually necessary to consider potential sellers of any of the relevant products, asking which sellers could readily begin to sell these products if they had sufficient incentive to do so. As explained above, this latter inquiry examines “cross-elasticity of supply.”
Question of Fact for the Jury. Defining the relevant market is a question of fact for the jury, unless a party’s proposed markets are so unsupported by the evidence or proper antitrust economics that no reasonable jury could properly find in favor of the party on the issue. See Sportservice, Inc. v. Charles O. Finley, 676 F.2d 1291, 1299 (9th Cir., 1982).
By William Markham (© 2010)