| Mergers & Acquisitions Primer |
|
Product Market
Under the
Guidelines
, the final determination regarding whether products belong within the same market involves estimating the particular group of products that a monopolist could control in order to maximize profits by imposing a "small but significant and non-transitory" increase in price. If such a price increase would cause buyers to shift to other products so that the price increase would be unprofitable for the monopolist, the government expands the market to include the closest substitutes for the product and repeats the process until a group of products is identified for which the price increase would be profitable. The enforcement agencies will then add the next best substitutes and continue this process until there are no practicable substitutes to which the consumer may shift. At this point, the product market is defined.
When determining whether product substitutability exists, the agencies will consider the following: (1) evidence of whether the buyer's perceive the products as substitutes; (2) price movements in the products involved -- do they parallel each other or are they different; (3) similarities or differences in design and usage of the products; and (4) the seller's perception of the substitutability of the products.
Geographic Market
For each product market of each merging firm, the enforcement agencies must identify the geographic market(s) in which the firms sell. Generally, the agencies will attempt to identify the geographic market in which the hypothetical firm, the only present and future producer or seller of the relevant product, could impose a "small but significant non-transitory" price increase. If a buyer of the product could respond to this increase by purchasing outside of the immediate area, the geographic area is to narrow and the enforcement agencies will continue to expand the geographic market area by adding outside locations until it defines an area in which the hypothetical producer or seller could maximize profits by increasing the price.
When determining whether geographic substitutability exists, the agencies will consider the following: (1) shipment patterns of the merging firms and competitors; (2) evidence demonstrating that buyers have shifted from geographic area to another in response to a price increase; (3) differences or similarities to price movements within geographic areas; (4) transportation and distribution costs; and (5) excess capacity of firms outside the location of the merging firm.
Copyright 1999
Robert W. Doyle, Jr.
