1. Thailand Development Research Institute
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. product market Geographic market Market structure Time Dimension
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
product
product
geography
geography
domestic
imported

12. Factors determining Substitutability
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

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