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Market Definition

Market Definition. CUTS Training Workshop on Competition Policy and Law Implementqation for Lao PDR Vientiane 7 March 2006 Deunden Nikomborirak Thailand Development Research Institute. Outline of Presentation. 1. Why do we need to define markets? 2. Definition of the “relevant market”

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Market Definition

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  1. Market Definition CUTS Training Workshop on Competition Policy and Law Implementqation for Lao PDR Vientiane 7 March 2006 Deunden Nikomborirak Thailand Development Research Institute

  2. Outline of Presentation 1. Why do we need to define markets? 2. Definition of the “relevant market” 3. Market dimensions 4. Supply and Demand considerations

  3. 1. Why do we need to identify the relevant market? • to determine market dominance • to screen mergers • To assess impact of trade practices on the competitive process in the market

  4. 2. Definition “Products that can be substituted for one another are considered to be in the same relevant market”

  5. How are markets identified? • The US- Small but sustainable non-transitory increase in price (SSNIP) Test • EC– qualitative analysis

  6. SSNIP Test(US Mergers Guideline) “Market power refers to the ability to increase price marginally (5%) for an extended period of time without a decline in profit”

  7. Problem with SSNIP Test • Benchmark price must be “competitive price” rather than “prevailing Price” - Cellophane Fallacy. • Need to find “competitive price” from markets where effective competition exists – i.e., markets from other geographical locations

  8. EC Definition of the Market in the “United Brand” case • Market power refers to the ability to (1) restrict competition in the market (2) make business decisions regardless of competitors or consumers • If there is a substitute for the product in the relevant market, a supplier will not have market power

  9. 3. Market Dimensions product market Geographic market Market structure Time Dimension

  10. Examples • Does the relevant market for banana include oranges, peaches, watermelon, etc.? • Do imported bananas included in the relevant market ? • Is there vertical integration between the producer and wholesaler of bananas? • How long does it take for imported banana to become available in supermarkets?

  11. 4. Supply and Demand consideration Demand Supply product product geography geography domestic imported

  12. demand Price difference Utilization Convenience/accessibility Switching cost Past consumer behaviour Supply Perishability State rules and regulation (license, quota, etc) Cost of producing substitute products (switching) Past supply response to price changes Time required for substitute products to become available Factors determining Substitutability

  13. Supply and Demand must be considered simultaneously • Pencil case (only supply) • United Brand case (only demand)

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