Market definition in the media sector
The current partners of Reckon LLP were the main authors of a research report entitled "Market definition in the media sector: economic issues" (146 pages, PDF) prepared in 2002 for DG Competition of the European Commission.
Overview of the report
The report considers media market definition in detail, drawing on two complementary lines of analysis:
- A review of the economics of the media sector is used to identify the methodological issues that could render market definition analysis particularly challenging. This includes topics such as market definition in the context of bundling and price discrimination, the supply of free content and technological convergence.
- A review of the problems that have arisen in practice, drawing on previous decisions by the Commission. This part covers issues such as the importance, especially in media markets, of identifying precisely the relevant services as a starting point for the analysis, and the need to move away from product "similarity" and "dissimilarity" as guides to market definition.
While the nature of media markets means that there can be no recipe book of market definitions, the report discusses how some of the key challenges may be addressed. It also provides examples of how market definition may be taken forward in the sector on a sound economic basis, even in cases where rapid change means that relevant precedents and quantitative data are absent.
A key conclusion of the report is that, in cases where supply chains are complex and relevant services are interrelated, market definition, drawing on the hypothetical monopolist thought experiment, can make a substantial contribution to a robust understanding of the competitive process and competitive effects.
Implications for market definition more generally
Whilst the report was prepared in the context of relevant markets in the media sector, the analysis of the role and nature of market definition has wider relevance.
The report addresses the arguments advanced by some economists and other practitioners that market definition is an inappropriate tool in the context of dynamic markets, or that the hypothetical monopolist test is not applicable in these markets.
The report concludes that market definition, if properly done, is a relevant and useful tool in these markets. It is not market definition as a concept that ceases to be valid when markets are fast-moving. All that happens is that some of the techniques, particularly those that draw heavily on quantitative evidence from market outcomes, cease to be reliable in dynamic markets (if they ever were reliable in other markets).
Selected links
Research reports:
- Market definition in the media sector: economic issues (November 2002)
http://ec.europa.eu/comm/competition/pu…s/studies/european_economics.pdf
The report outlined above.
- Other reports commissioned by DG Competition on competition law in the media sector
http://ec.europa.eu/comm/competition/publications/publications/#media
Includes studies from a legal perspective on the market definitions used in past media cases by the Commission and in different Member States. Links updated in July 2005 to include new reports concerning market definition in Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia.
- Report commissioned by the OFT on "innovation and competition policy" (March 2002)
Part 1 (PDF) – Part 2 (PDF)
This raises useful caveats about competition analysis in innovative markets, but undervalues the benefits that market definition as an analytical tool can bring to the analysis. In doing so, the report promotes a misleading distinction within "market power" between "pricing power" and "exclusionary power"; a more robust approach would instead identify whether there is market power in different markets/services within the supply chain.
- OECD report from the Roundtable on Media Mergers (September 2003)
http://www.oecd.org/dataoecd/15/3/17372985.pdf
A discussion of market definition and other competition and policy issues for media mergers, including a large amount of information on a country-by-country basis.
- Report commissioned by the OFT on "the role of market definition in monopoly and dominance inquiries" (July 2001)
PDF
This includes a good discussion of the problems of market definition in dominance cases (including the problem with the "competitive price" solution which is still advanced by the OFT). But the authors do not actually propose a way to define markets in dominance cases, and instead seek to lessen the importance that is attached to this part of the analysis.
- Evans & Schmalensee working paper on antitrust in dynamic markets (May 2001)
http://www.nber.org/papers/w8268 (payment or subscription required for access to full article)
A widely-cited paper that argues that the hypothetical monopolist test is inappropriate in dynamic markets because it fails to reflect that competitive pressures that firms may face from future innovation. However, the article fails to recognise a crucial point: it is quite possible for a firm to face strong competitive pressures to innovate, and yet to hold a dominant position in a current product market; the fact that the firm must compete in innovation in order to assure its position in future markets does not, in itself, prove any competitive pressures to the benefit of current customers.
Official guidelines on market definition:
- European Commission notice on market definition
http://ec.europa.eu/comm/competition/antitrust/relevma_en.html
- OFT guidelines on market definition (December 2004)
PDF
In these guidelines, the OFT has reaffirmed its interpretations of the HMT as a test of the ability to price above competitive levels.
Related Reckon Open pages:
- A definition of the media sector
If nothing else, to meet demand from Internet users searching for such a definition and who would otherwise be misdirected to this page.
- The iTunes Music Store: does competition law hold the key to a closed shop?
An article considering the scope for challenging, under EC competition law, Apple's apparent decision not to license its digital rights management (DRM) technology FairPlay to competitors of the iTunes Music Store.
- Market impact assessment
An introduction to the concept of "market impact" analysis in the context of recent UK Government reviews of BBC services.
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Last changed by Franck at 7:23 AM on Saturday 24 March 2007.