Market Definition in Differentiated Goods When the Final Consumer Buys the Good: Insights from the H&R Block Case

• Author: Malcolm B. Coate
• Published date: 01 September 2014
• Date: 01 September 2014
• DOI: http://doi.org/10.1177/0003603X1405900311
• Subject Matter: H&R Block: A Merger in a Consumer Good—Article

THE ANTITRUST BUL L E T I N :Vol. 59, N o. 3/Fall 2 014 :619

Market definition in differentiated

goods when the final consumer

buys the good: Insights

from the H&R Block case

BYMALCOLM B. COATE*

This article addresses the development of market definition analysis

in three recent merger cases: Staples,Whole Foods, and H&R Block. The

discussion traces the evolution of the market concept from the naïve

Brown Shoe criteria to the price discrimination analysis implicit in Sta-

ples to the current application of diversion theory in the H&R Block

case. By replacing fact with theory, the diversion approach to market

definition runs the risk of returning to the world of Brown Shoe. Addi-

tional discussion of H&R Block s uggests t hat price d iscrimin ation

remains relevant and could have been developed through further fac-

tual study. Moreover,even if theory is used to define a narrow market,

the analyst must address a range of entry issues befo re concluding

that the merger is likely to substantially lessen competition.

KEY WORDS:m arket de finiti on,diffe rentiat ed goods, H &R Block , price

discrimination,merger policy,antitrust

© 2014by Federal Legal Publications, Inc.

* Economist, Federal Trade Commission.

AUTHOR’S NOTE: The analyses and conclusions set forth in this paper are my own

and do not necessarily represent the views of the Federal Trade Commission, any indi-

vidual commissioner, or any commission bureau. I would like to thank Jeffrey Fischer

and Kent Bernard for helpful comments on this article.

I. INTRODUCTION

H&R Block is the latest in a series of unilateral-effects merger deci-

sions addressing competition in differentiated product markets in

which the customer is an individual consumer.1Mergers in these mar-

kets are more difficult to evaluate, because (1) product differentiation

complicates the market definition analysis by shifting the focus from

market-wide to localized competitive effects, and (2) the sale of the

product to individual consumers marginalizes one important source

of evidence. Because the standard approach to market definition

offered in the 1982 Horizontal Merger Guidelines expects market-

wide effe cts, merger revie w in many different iated markets m ust

shoehorn a customized unilateral concern into the market definition

algorithm. This may be particularly difficult if anticompetitive effects

are limited to a niche in a broad po tential market. Interviews with

final consumers generally provide no real insight into either market

definition or likely competitive effects due to the obvious limitations

on information available to the individual consumer. Given the rele-

vant case law finds failure to prove a concentrated market means the

dismissal of the merger challenge,2plaintiffs face strong pressure to

define markets by any means necessary.

Although the plaintiff’s angst over market definition is under-

standable, economic analysts can define narrow markets when it is

appropriate. For example, price discrimination concerns may justify a

focus on a competitive niche within a broader market. But the applica-

tion of theoretical structures designed to create narrow markets runs

the risk of establishing a policy in which competition is evaluated only

by reviewing the product offerings of the merger partners and their

immediate competitors. Such a policy could block mergers even when

broader competitive realities preclude supracompetitive pricing.

620 :THE ANT I T R U S T BULLETIN:Vol. 59, No. 3/ Fall 2014

1United States v. H&R Block, Inc., 833 F. Supp. 2d 36 (D.D.C. 2011). For

a discussion of the cas e, see Joseph J. Simons & Ma lcolm B. Coate, U.S. v.

H&R Block : An Illust ration of t he DOJ’s New, but Co ntrovers ial Appro ach to

Market Definition, J. COMPETITION L. & ECON. (forthcoming 2014), available at

http://ssrn.com/abstract=2225395.

2See, e.g., Un ited States v. Englehard C orp. 970 F. Supp. 1463 (M .D.

Ga.), aff’d, 126 F.3d 1302 (11th Cir. 1997), and United States v. Sungards, 172 F.

Supp. 2d 172 (D.D.C. 2001).