Relevant market
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| Competition law |
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In competition law, a relevant market is a market in which a particular product or service is sold. It is the intersection of a relevant product market and a relevant geographic market. The European Commission defines a relevant market and its product and geographic components as follows:
The notion of relevant market is used in order to identify the products and undertakings which are directly competing in a business. Therefore, the relevant market is the market where the competition takes place. The enforcement of the provisions of competition law would be not possible without referring to the market where competition takes place. The extent to which firms are able to increase their prices above normal competition levels depends on the possibility for consumers to buy substitute goods and the ability for other firms to supply those products. The fewer the substitute products and/or the more difficult it is for other firms to begin to supply those products, the less elastic the demand curve is and the more probable is to find higher prices. For all these reasons it is necessary to define the relevant markets for the different cases which fall under the Law.
The relevant market contains all those substitute products and regions which provide a significant competitive constraint on the products and regions of interest. An interesting guiding principle provided by Bishop and Darcey (1995) states that a relevant market is something worth monopolising, in the sense that the relevant market includes all the substitute products and therefore control of that market would allow the monopoliser to profitably increase the prices of the products to the monopoly level. This can only be possible if the products in this "market" are not subject to significant competitive constraints by products outside that market.
In the United States, there exist a set of merger guidelines—written by the Antitrust Division of the Department of Justice (DOJ) and the Federal Trade Commission (FTC)—which specify methods for analyzing and defining markets. Since 1980, the DOJ and the FTC have used these guidelines to convince courts to adopt a more explicitly economic approach to antitrust policy.
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