Preprints of the Max Planck Institute for Research on Collective Goods No. 2003/11
Anti-trust cases more often than not hinge upon market definition. The anti-trust authorities use standardised tests for the purpose, like the small but significant and nontransitory increase in price test prevalent in US law. These tests are often read as neoclassical economics, watered down to legal scale. They then are interpreted by economic concepts like cross price elasticities. These interpretations rest on methodological individualism. Social phenomena, like competition, are explained from the perspective of actors maximising their individual utility. If one wants to understand how an individual firm is controlled by competition, this is a most helpful approach. But for defining the effective area of competition, or the relevant market, methodological holism is more powerful. Its basic conceptual unit is not the individual, but communication. Markets are seen as implicitly or explicitly organised entities, giving an industry an identity, and helping the consumers orient themselves in a complex environment. Specifically, a market turns out to be a hybrid between co-operation (for constituting the area of competition) and conflict (within the area thus defined). This alternative approach is important for anti-trust practice. The decisive fact is not whether two products objectively ought to be substitutes. What market participants see as substitutes is the only thing that matters. Consequently, for market definition, anti-trust authorities may not (only) rely on their own wisdom. They must find ways to reconstruct the communication among market participants.