LAW & ECONOMICS: LOCAL MARKET - RELEVANT MARKET - MARKET SHARE CALCULATION - COMPETITIVE PRESSURE

Remarks on the calculation of local market shares

The method usually applied to compute local market shares is severely flawed. Once the relevant geographic market has been defined, it consists in computing the ratio between the total value of sales by all plants or stores of the firm located in the relevant market over the total value of sales operated by all plants and stores within the area. This method, which exclusively focuses on the competitive situation that would be faced by a hypothetical customer located precisely in the centre of the relevant market, is biased since it considers that (i) some suppliers whose catchment areas do intersect with the relevant market do not exert any competitive pressure in the relevant market, and (ii) the competitive pressure exerted by the suppliers that are taken into account in the market share calculation is the same whatever their location. This paper presents two alternative methods, which significantly reduce this bias, with no need for additional data.

1. Despite their well-known limitations, market shares play a big role in the assessment of competition cases. In merger control, they are used as a screening test in order to determine whether a market is likely to be «affected» by the contemplated merger, and to identify market segments or geographical areas where the merger is expected to have a significant impact. In antitrust cases, they are widely considered as a crude but meaningful measure of the market power of various firms, and they are used when evaluating whether a firm (or set of firms) is likely to enjoy a single (or collective) dominant position. 2. Whether market shares accurately reflect market power is an issue widely debated, and the limits of market share figures in markets characterised by low entry barriers,

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Antoine Chapsal, Laurent Eymard, Remarks on the calculation of local market shares, February 2011, Concurrences Review N° 1-2011, Art. N° 33935, pp. 37-41

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