Empirical Analyses of Market Definition
Evaluation of the relevant product and geographic market, a standard first step in Antitrust and Merger matters, can be a contentious element in a case. The HMT/SSNIP test outlined in the DOJ/FTC merger guidelines provide guidance on how the agencies evaluate market definition, and considers the actions of a hypothetical monopoly of a potentially very large number of products and locations. Complete price and quantity data for all those products and locations are rarely available, and in practice arguments over market definition are often qualitative instead of quantitative in nature.
Econometric analysis can nonetheless inform market definition exercises, however, when combined with the right data. In a merger case in the retail gasoline industry in Canada, and in another merger case in the banking industry in the U.S., Dr. Noel examined commuting patterns and a large matrix of census data that recorded where a given individual lived and where that same individual worked. Dr. Noel used the data to develop a model of travel patterns and determine how "connected" a city was to its outer suburbs, or a city to other outlying cities and towns that are usually presumed to be "out of market". Dr. Noel's empirical analysis showed that there were strong linkages between some cities and outlying areas that are not always recognized as being connected. Dr. Noel concluded that the relevant geographic markets in these areas were larger than one might at first presume, and larger than they likely were historically when travel distances were shorter.