Defining Markets for Merger Analysis

The 1982 and 1984 Department of Justice Merger Guidelines attempted to eliminate arbitrary market definitions in favor of a principled method that could be applied uniformly across industries. Despite the assistance provided by the guidelines, market definition remains a difficult part of antitrust analysis, and investigators sometimes neglect the interaction of demand and supply factors. The guidelines' method for identifying the narrowest antitrust market where one or more firms could successfully exercise market power has come under attack from several sides. Given varying demand and supply conditions across industries, the size of an antitrust market should adjust to hold the incentive for anticompetitive behavior relatively constant across industries. The guidelines automatically make such an adjustment by balancing demand and supply factors in the determination of market size. Some other proposed methods do not properly make this adjustment.