How to Choose the Lesser Evil When Defining Local Markets?

Alexis WalckiersOlivier Body, Journal of European Competition & Practice (JECLAP), April 2021

Economists often weigh the pros and cons of different alternatives, none of which is ideal (or first best in economic jargon). The latest paper of our director Alexis Walckiers and his former colleague of the Belgian Competition Authority, Olivier Body, discusses one of such choices: whether to define local markets by relying on catchment areas or by applying a hypothetical monopoly test. It argues that competition authorities should recognise more explicitly that this choice should be driven by the quality of the available data.

They address the issue of geographic market definition, which could be discussed in the context of the review of the Communication on the definition of the relevant market. Specifically, based on the observation that competition authorities use two methods to define the relevant geographic market (the SSNIP test and catchment areas), they argue that the Guidelines should more explicitly recognize that the quality of the available data should guide the choice of the most appropriate method.

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