Market Delineation and Product Differentiation

The purpose of this study is to analyse theoretically the implications of applying the procedure for market delineation used by competition authorities in the EU and in the US. Specifically, we investigate the circumstances under which the procedure will lead to a positive relation between actual market power and the assessed degree of market dominance. Another objective is to test whether the procedure is neutral in the sense that it does not discriminate among different sources of market power. In order to address these issues, we develop an oligopoly model that allows for an arbitrary number of firms as well as for vertical and horizontal product differentiation. It is found that the correlation between actual market power and assessed market dominance is likely to be weak and that the procedure discriminates strongly among different sources of market power. JEL Classification: K40, L13, L40