Measuring Market Power: Shares and Other Techniques

An important part of antitrust analysis is to try to identify whether a
firm or group of firms has or could obtain market power once a relevant
market has been defined. Market share and concentration statistics are
frequently a useful starting point in an assessment of whether a firm or
group of firms have sufficient control over the supply in a market to
exercise market power, but too much attention to share and concentration
statistics can obscure the market characteristics that underlie those
statistics and that determine the actual market power of the firm or group
of firms.1 Market share does not equal market power but rather can be an
initial indication as to whether market power might exist. Identification
of low market shares or concentration can be used as a screen to suggest
that the existence of individual or joint market power is unlikely to exist.
High market shares, however, need not imply the existence of market
power. For example, a high market share may not indicate significant
market power if entry barriers are low, if expansion could be readily
accomplished by incumbent firms, if competitors are well positioned to
expand, or if historical sales are not indicative of a firm’s ability to
compete for future sales.2
MERGER GUIDELINES § 4 (2010) (“The measurement of market shares and
market concentration is not an end in itself, but is useful to the extent it
illuminates the merger’s likely competitive effects.”), available at [hereinafter
MERGER GUIDELINES]; id. § 5 (“The Agencies evaluate market shares and
concentration in conjunction with other reasonably available and reliable
evidence for the ultimate purpose of determining whether a merger may
substantially lessen competition.”).
2. See, e.g., United States v. Gen. Dynamics Corp., 415 U.S. 486, 493-94
(1974) (explaining that General Dynamics’ share at the time of the
inquiry overstated its power in the coal market because its share was
expected to decline due to its limited reserves); see also The Boeing Co.
and McDonnell/Douglas Corp., No. 971-0051 (F.T.C. 1997) (explaining
that although Boeing had nearly 60 percent of the current large
94 Market Power Handbook
This Chapter first explains the traditional methods of calculating
market shares and concentration levels, and identifies numerous issues to
consider in applying these methods. The Chapter then discusses issues
related to the interpretation of market shares and concentration and the
range of characteristics that may make it more or less likely that market
power exists individually or jointly for a given level of concentration or
market share. Because market shares and concentration are generally at
most an initial indicator of the potential for market power to exist, the
final part of this Chapter discusses other empirical methods for
measuring market power directly.
A. Fundamentals of Market Share and Concentration Data
The definition of the relevant market will affect substantially the
calculations of market shares and, as a result, is often the biggest source
of dispute in market share calculations.3 As the definition of the relevant
market broadens, the market shares of the firm or firms in question often
decline as a broader market definition may result in the addition of more
firms in the relevant market. For example, a superpremium ice cream
manufacturer with a 50 percent market share of the superpremium
segment may have a much lower share if the relevant market is defined
as all ice cream (including superpremium, premium, and store brand
products), which would include many more manufacturers.4 On the other
hand, a broader market definition may imply a higher rather than lower
market share for the firm or firms in question.5 Thus, market definition is
a necessary and crucial first step in the measurement of market shares.
commercial aircraft market, McDonnell Douglas no longer constituted a
meaningful competitive force in the commercial aircraft market).
3. See supra ch. IV for discussion of market definition.
4. This example is adapted from Analysis of Proposed Consent Order to Aid
Public Comment, In re Nestle Holdings, Inc., available at
5. For example, in a debate about whether HMO and PPO insurance plans
are in the same market, whether a firm’s share increases or decreases
under the broader market definition will depend on the firm’s relative
share of HMO and PPO lives.
Measuring Market Power: Shares and Other Techniques 95
Market Share Calculation
Once a relevant market is properly defined, the calculation of market
shares may appear relatively straightforward; however, a number of
factors impact the reliability and usefulness of any statistics, including
the metrics, data sources, and time period used. Calculation of market
shares must also consider any relationships among the competitors.
a. Choice of Metric
The choice of metric used to calculate market share can be
influential.6 Sales are often seen as the de facto measure of a firm’s
market share. However, market share can also be calculated based on
production, capacity, or volume of reserves. The Merger Guidelines
In most contexts, the Agencies measure each firm’s market share
based on its actual or projected revenues in the relevant market
. . . . In cases where one unit of a low-priced product can
substitute for one unit of a higher-priced product, unit sales may
measure competitive significance better than revenues . . . .
In markets for homogeneous products, a firm’s competitive
significance may derive principally from its ability and incentive
to rapidly expand production in the relevant market in response
to a price increase or output reduction by others in that market . .
. . In such markets, capacities or reserves may better reflect the
future competitive significance of suppliers than revenues, and
the Agencies may calculate market shares using those measures.7
In theory, if products and associated services are truly homogeneous,
it should not matter whether dollars or units are used, since prices will be
the same across firms or brands. More often, however, products are
either physically differentiated or sold with different services (e.g.,
different amounts of product support, including presale and postsale
service and warranties) resulting in disparate pricing.8 When products are
6. See Gregory J. Werden, Assigning Market Shares, 70 ANTITRUST L.J. 67,
73-78 (2002).
7. MERGER GUIDELINES,supra note 1, § 5.2.
8. See Werden, supra note 6, at 74-75 (explaining the difficulty of finding a
“common denominator” across products, using bread as an example of a

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