ARTICLE REVIEW

GEORGE R. HALL - MARKET DEFINITION AND ANTITRUST POLICY

Washington and Lee Law Review Volume 20 Issue 1 Article 4 1963

Submitted by – Kopal Yadav (Reg. no.-15040141082 )

BA.LLB. SEMS. IX

The author of the article provides a comprehensive overview of the market definition Market
definition has been a serious concern for antitrust law only in the last two decades. However, as long as
anti-trust policies were concerned in the main with exclusionary and predatory conduct, market
definition was a small problem, as long as the anti-monopoly policy was primarily about predatory
behaviour. It is a very different situation today. The definition and determination of an effective
competitive area are often the major issues of antitrust cases. Courts use economic concepts such as
"cross-demand elasticity," legal newspapers discuss business theories and economic newspapers debate
judicial analyses. In a series of major cases concluded between 1945 and 1955, the current market
definition doctrine under the Sherman Act was laid down, which found that the Decision on monopolies
required a market definition and required an economic substitution analysis for this task.

The main case mentioned in this article was the United States against Aluminum Co. of America,but
since the ruling of Judge Hand is so well known, it is unnecessary to consider the case extensively.
Hand's emphasis on market rule as the essence of monopoly placed market borders at the center of the
stage. The functional interchangeability doctrine was elaborated also and stated to be necessary for a
finding of monopolization. During the trial there was a lengthy dispute about how the market for
cellophane should be defined. The defense argued that one could not consider cellophane without also
considering substitutes. The government contended, on the other hand, that a single product could be
considered a line of commerce under the antitrust laws. In order to find monopolies, the functional
doctrine of interchangeability was also elaborated and made necessary.The trial involved a long dispute
over how to define the market for cellophane. Without considering substitutes, the defense alleged that
cellophane can not be considered. On the other hand, the government contended that a single product
could be regarded as a trade line pursuant to antitrust legislation.

As per reader’s understanding , according to the Cellophane principle, both technical and
competitive prices are theoretically part of the functional interchangeability doctrine; academic
criticisms -the decision has been mainly based on the fact that these have been ignored in the decision-
making and that the market has overestimated the economic alternatives that packagers can use. A
number of other cases also provided courts with technical or price-quantity data on which a market
definition can be based. Examining such cases demonstrates that the test used in the cases in paragraph
does not necessarily produce the definition of market "narrow" or "broad." If attention is limited to
"technical or technical possibilities for substitution," as in Cellophane and Times-Picayune, then the
"facilitative interchangeability" doctrine will probably lead to a relevant market, which includes a large
number of suppliers or goods. If the technical costs of making substitutes are taken into account,
however, the market concerned can not be broadened and will often be narrower. Two interpretations
of substitution are allowed in the doctrine "functional interchangeability."

Three proposals can summarize the role of market definition in the Sherman Act cases. Firstly,
it was clearly established that the borders of that market must be established on the basis of economic
principles before a company is held to have monopolized a market. Secondly, a measure of possible
substitution-functional interchangeability is a criterion for determining the market size. Thirdly, some
considered both the costs of substitution as well as the possibilities of technical substitution; other suits
viewed functional interchangeability as an engineering problem nearly exclusively.

The present confusion about whether a "market" according to the Sherman Act is the same as a
"Market" according to the Clayton Act, is clearly presented in Judge Weinfeld's United States decision
v. Bethlehem Steel Corporation . The proposed merger of Bethlehem and Youngstown Sheet and Tube
Com. was legal to determine. Judge Weinfeld stressed that the relevant market for the two companies
should be determined. Much of his decision is concerned with the economics of the steel industry and
with the theory of market measurement problems. In order to understand the current interpretation of
the Cellar-Kefauver Amendment, Judge Weinfeld's rejection of the' production flexibility or functional
interchangeability ' rule and its acceptance of the particular characteristics and uses criteria are essential.
The market was therefore defined by the availability of substitutes for a product with specific
characteristics from various concerns.The appropriate trade line was considered the iron and steel sector
and, in view of both the product and the geographic aspects of the market, the proposed merger was
illegal.

In the landmark case American Crystal Sugar Co. v. Cuban-American Sugar Co., the author stated
that a different approach to replacement from Brown Shoe was adopted.The case has been ignored but
it is one of the most interesting examples of judicial competition analysis. In order to establish–that
canes and beets can not be interchanged for consumer purposes–it should be shown that consumers
would not change from one price to the other in a given price range. The current unresolved market
definition under the Clayton act can be seen in these cases. Both the District and the Supreme Court in
Brown Shoe tested and overlooked price relations with functional interchangeability and the Court
carried out a careful price analysis of the data in American Crystal Sugar. The Court found in
Bethlehem-Youngstown that the Doctrine Cellophane did not apply in the case of section 7.
BethlehemYoungstown –the corresponding market in the northeast quadrant of the USA was defined
as' iron and steel,' and Erie Sand produced and sold in 12-mile strips along Lake Erie in the
corresponding market. "Lake Sand". Much of the problem is the confusion between testing for market
control or monopoly within the meaning of the Sherman Act and testing for a considerable reduction in
competition prohibited by the Clayton Act.

To summarize, two judicial doctrines have been established over the past twenty years on market
definition. One of these was the functional interchangeability rule, which was primarily the result of the
litigation of the Sherman Act and which states that it consists of all items with' high cross Elasticities
for Demand.' The second doctrine, the peculiar features and applications rule, is derived primarily from
the litigation of the Clayton Act and states that the market is made up of the items whose aspects
distinguish them from all other products. How are these two procedures related to determining the
relevant field of competition?

The Supreme Court suggested a possible reconciliation of this in the Brown case. Functional
interchangeableness could be employed to achieve the market's "outer limits" and the submarkets
reveling in the 7 cases could otherwise be determined.This, however, does not solve the problem.
Unanimously, the courts have held that definition of the market is an economic problem in antitrust
cases. If so, in the words of Adelman, the market in question is "the locus of the price-determining
supply force." In any given case, therefore, only one rule can be valid: Either the locus of forces is a
certain submarket; the functional rule of interchangeability does not apply or the outer boundaries of
forces and specific characteristics do not apply.In addition, since Article 7 deals with the interests of
producers, there may be market differences than in the case under the Sherman Act, which protects the
interest of consumers.

The reason for competition as a tool to organize an economy is not good for producers, but good for
competitors. There should therefore always be a focus of consumer interests in antitrust laws. In either
the legal history, the Celle Kefauver amendment is not indicated, or the competition is explicitly
considered as a competitor protection process in the cases handed down under this act. However, certain
commentators believe that some recent cases involve more producers than consumers implicitly. The
essence of competition for the custom of the public is rivalry among businesspeople, so any law
protecting companies ' marketplaces is anticompetitive. Since the Sherman Act and the Clayton Act are
designed to promote competition, a distinction between them can not be drawn on the basis that they
protect different interests. Naturally, both acts vary. The difference is however in the amount of market
control necessary for finding guilty, not on the appropriate market limits. Both laws are designed to
prevent monopoly or market power and there is no need to distinguish the locus of this power when a
firm fixes a price from consummating a merger. The Sherman Act, however, requires real rule while
the Clayton Act only requires a reasonable probability of increasing market power. Although these
suggested reconciliations are unsatisfactory, both doctrines have close ties to substitution, but for each
doctrine the stressed substitution is somewhat different.
 The author stated that Custom rivalries, which are the essence of competition, take place by offering
buyers alternatives or alternative goods. Therefore the supply and demand relationships for a group of
companies can be determined by both doctrines if price relations and technical opportunities are
examined. The major difference between the market definition and the cases of antitrust is not the
doctrine, but rather that both price and engineering data are analyzed. When only engineering
opportunities are looked at, the decision-maker has almost always a large number of choices. The most
criticized decision by economists was that in which the judicial focus was primarily on technical
substitution. Cellophane, Times-Picayune and Brown Shoe are some of these examples. In situations
where prices as well as engineering data were weighed by the courts, the market definitions were closer
to what most economists consider to be the effective competitive zone. The Kobe Pump, Hughes and
American Crystal Sugar examples. Examples include: The significant differences between market
definitions in antimonopoly cases, from an economic point of view, are not applied by legal doctrine
but in the extent to which substitute costs are assessed.

While two different doctrines apply in antitrust market definitions, there are great similarities
between the functional interchangeability and peculiar features and uses-from an economic point of
view. Both of them argue that markets have to be defined by looking at alternatives. Either the
appropriate supply-and-demand relationships can be properly defined. The major difference between
judicial handling of the problem of setting market boundaries does not lie in the doctrine but in whether
the alternative is economically advantageous and technically feasible. The important distinction is the
use or rejection of price quantity data. The courts in both cases of the Sherman and the Clayton Act
concern the application of economic theory to empirical issues. This is an extremely hard task. In the
last 20 years, judicial reflection on this problem has increased in sophistication and the quality of the
economic criteria applied has improved considerably. However, as this review shows, there is still a lot
to be improved and confusion remains over the appropriate market borders.