Same Rule, Different Result: How the Narrowing of Product Markets has Altered Substantive Antitrust Rules
| Author | Christine S. Wilson and Keith Klovers |
| Position | Respectively, Commissioner, U.S. Federal Trade Commission; and Member of the District of Columbia and Virginia Bars |
| Pages | 55-93 |
SAME RULE, DIFFERENT RESULT: HOW THE
NARROWING OF PRODUCT MARKETS HAS
ALTERED SUBSTANTIVE ANTITRUST RULES
C
HRISTINE
S. W
ILSON
K
EITH
K
LOVERS
*
It has long been recognized in antitrust cases that market definition is typi-
cally malleable and frequently outcome-determinative. In United States v.
Grinnell, a Section 2 case, Justice Abe Fortas dissented from the definition of
a market so narrow he called it a “strange red-haired, bearded, one-eyed man-
with-a-limp classification.”
1
In more recent years, commentators have argued
both that the Court in Grinnell defined “excessively narrow submarkets”
2
and
that those submarkets were “consistent with the evidence as to demand substi-
tution.”
3
In other words, the market could be both implausibly narrow and
correct, particularly if judged by today’s standards, when product markets
often require multiple adjectives.
The breadth of the relevant market mattered in Grinnell, as it does in
merger challenges brought under Section 7 of the Clayton Act, because—as
the Supreme Court recognized many years ago—“market definition generally
determines the result of the case.”
4
Former U.S. Federal Trade Commission
* Respectively, Commissioner, U.S. Federal Trade Commission; and Member of the District
of Columbia and Virginia Bars. This article grew out of a speech Commissioner Wilson gave at
the University of Oxford while Mr. Klovers was serving as one of her Attorney Advisors. The
views expressed in this article are solely those of the authors and do not necessarily reflect the
views of their respective institutions or colleagues (including any other Commissioner). The
authors thank John Goerlich, Pallavi Guniganti, John Harkrider, Jonathan Jacobson, John Nan-
nes, Alison Oldale, Jeremy Sandford, D. Daniel Sokol, Michael Vita, Koren Wong-Ervin, and
Joshua Wright for helpful comments. Any errors are our own. The authors have worked on
many Section 7 cases and investigations over the years, including FTC v. RAG-Stiftung, which is
discussed in this article.
1
United States v. Grinnell Corp., 384 U.S. 563, 591 (1966) (Fortas, J., dissenting).
2
Robert Pitofsky, New Definitions of Relevant Market and the Assault on Antitrust, 90
C
OLUM
. L. R
EV
. 1805, 1807 n.4 (1990) (discussing the market defined in Grinnell).
3
Jonathan B. Baker, Market Definition: An Analytical Overview, 74 A
NTITRUST
L.J. 129, 150
n.76 (2007) (defending the market defined in Grinnell).
4
Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 469 n.15 (1992).
55
56
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NTITRUST
L
AW
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OURNAL
[Vol. 84
Chairman Robert Pitofsky likewise called it “the most important single issue
in most enforcement actions.”
5
And former FTC Chief Economist Jonathan
Baker has said the issue has determined “the outcome of more cases . . . than
. . . any other substantive issue.”
6
Market definition continues to play a deter-
minative role in merger challenges today, especially as alleged markets have
become narrower.
7
The primacy of market definition in antitrust analysis—at least in the
courts
8
—reflects the large number of substantive legal rules that rely, either
5
Pitofsky, supra note 2, at 1807.
6
Baker, supra note 3, at 129.
7
See, e.g., FTC v. Peabody Energy Corp., 492 F. Supp. 3d 865, 886 (E.D. Mo. 2020) (grant-
ing injunction, remarking that “this Court’s task is to identify the narrowest market within which
the defendant companies compete”); FTC v. RAG-Stiftung, 436 F. Supp. 3d 278, 287 (D.D.C.
2020) (concluding that the FTC’s failure “to properly define a market in terms of both product
and geography . . . all but precludes the Court from siding with it”); see also FTC v. Tenet Health
Care Corp., 186 F.3d 1045, 1054 (8th Cir. 1999) (reversing district court decision granting pre-
liminary injunction because the FTC’s geographic market was too narrow); United States v.
Oracle Corp., 331 F. Supp. 2d 1098, 1110 (N.D. Cal. 2004) (denying injunction because product
and geographic definitions were too narrow); United States v. Long Island Jewish Med. Ctr., 983
F. Supp. 121, 140 (E.D.N.Y. 1997) (denying preliminary injunction because “the Government
failed to establish its definition of the relevant product market”); United States v. Engelhard
Corp., 970 F. Supp. 1463, 1466 (M.D. Ga. 1997) (holding that the government failed to prove
alleged market), aff’d, 126 F.3d 1302 (11th Cir. 1997); FTC v. Thomas Jefferson Univ., 505 F.
Supp. 3d 522, 557 (E.D. Pa. 2020) (finding the FTC’s proposed markets too narrow and denying
a preliminary injunction); FTC v. Lab. Corp. of Am., No. SACV 10-1873 AG (MLGx), 2011
WL 3100372, at *15 (C.D. Cal. Mar. 11, 2011) (denying preliminary injunction, in part, because
government failed to prove its alleged markets); FTC v. Foster, No. CIV 07-352 JBACT, 2007
WL 1793441 (D.N.M. May 29, 2007) (holding that FTC’s market definition was too narrow).
The government has won many cases using relatively narrow market definitions, even those that
460, 475 (7th Cir. 2016) (defining a market of 11 out of 74 hospitals in a metropolitan area and
excluding closer competitors outside of the alleged market); United States v. H&R Block, Inc.,
833 F. Supp. 2d 36, 57–58, 104 (D.D.C. 2011) (defining a market that excluded several close
competitors to the merging parties).
8
While the Agencies have long asserted that direct proof of market power relieves the plain-
tiff of its obligation to define a relevant antitrust market, courts continue to view market defini-
2284–85 (2018) (Amex) (“Here, the plaintiffs rely exclusively on direct evidence to prove that
Amex’s anti-steering provisions have caused anticompetitive effects in the credit card market.
To assess this evidence, we must first define the relevant market.” (emphasis added)); United
States v. Marine Bancorporation, Inc., 418 U.S. 602, 618 (1974) (“Determination of the relevant
product and geographic markets is ‘a necessary predicate’ to deciding whether a merger contra-
venes the Clayton Act.”); and RAG-Stiftung, 436 F. Supp. 3d at 291 (“Defining the relevant
market is a necessary predicate to finding a Clayton Act violation.”) (internal citations and quota-
tions omitted), with U.S. Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines
§ 4, at 7 (2010) [hereinafter 2010 Horizontal Merger Guidelines], ftc.gov/os/2010/08/
100819hmg.pdf (demoting the role of market definition, explaining that “[s]ome of the analytical
tools used by the Agencies to assess competitive effects do not rely on market definition,” and
that direct evidence “may more directly predict the competitive effects of a merger”), and J.
Thomas Rosch, Comm’r, Fed. Trade Comm’n, Remarks Before the ABA Section of Antitrust
Law’s 59th Spring Meeting: The Past and Future of Direct Effects Evidence 2 (Mar. 30, 2011),
www.ftc.gov/sites/default/files/documents/public_statements/past-and-future-direct-effects-evi
2021]
N
ARROWING OF
P
RODUCT
M
ARKETS
57
explicitly or implicitly, upon it. For merger matters brought under Section 7
of the Clayton Act, how the decision-maker defines the ambit of the market
determines both whether the merging firms are deemed competitors in the
first place
9
and whether their merger would substantially diminish competi-
tion.
10
Since at least 1963, when the Supreme Court decided United States v.
Philadelphia National Bank,
11
courts reviewing Section 7 claims have as-
sessed the competitive effects of a transaction within, rather than across,
markets.
12
Despite the importance of market definition, the rules that govern it are
flexible enough to support a range of permissible choices. As the U.S. De-
partment of Justice Antitrust Division (together with the FTC, the Agencies)
observed in a brief filed in 2015, “[f]requently, the government alleges narrow
markets, the defendants describe broad markets, and the court must choose
between the competing approaches.”
13
The choice is often outcome-determi-
native, leading many to charge that market definition is “an essentially ex post
choice”
14
designed “to achieve the desired results in calculating market
dence/110330aba-directeffects.pdf (arguing that an assessment of whether the Clayton Act is
violated “may turn on market definition, but it doesn’t have to . . . .”; “direct evidence can shed
light directly” on the ultimate question).
9
See, e.g., United States v. Sabre Corp., 452 F. Supp. 3d 97, 136 (D. Del. 2020) (holding that
a one-sided firm could not compete in a two-sided market as a matter of law), vacated, No. 20-
1767, 2020 WL 4915824 (3d Cir. July 20, 2020) (per curiam); FTC v. Lundbeck, Inc., No. CIV.
08-6379 JNE/JJG, 2010 WL 3810015, at *22 (D. Minn. Aug. 31, 2010), aff’d, 650 F.3d 1236
(8th Cir. 2011) (concluding that the FTC failed to show that acquired products were in the same
market).
10
See, e.g., United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586, 593 (1957) (“De-
termination of the relevant market is a necessary predicate to a finding of a violation of the
Clayton Act because the threatened monopoly must be one which will substantially lessen com-
petition within the area of effective competition.” (internal quotation marks omitted)).
11
374 U.S. 321 (1963).
12
Id. at 370 (rejecting the suggestion that “anticompetitive effects in one market could be
justified by procompetitive consequences in another”). Courts also focus upon in-market an-
ticompetitive effects in Sherman Act cases. See, e.g.,Amex, 138 S. Ct. at 2284 (explaining that
“[u]nder [the rule of reason], the plaintiff has the initial burden to prove that the challenged
restraint has a substantial anticompetitive effect that harms consumers in the relevant market”
and defining a two-sided transaction market); FTC v. Qualcomm Inc., 969 F.3d 974, 992 (9th
Cir. 2020) (evaluating “[t]he district court’s consideration of anticompetitive impacts outside of
the relevant markets”); see also United States v. Microsoft Corp., 253 F.3d 34, 51 (D.C. Cir.
2001) (en banc) (per curiam) (explaining that, under the “structural approach” to assessing mar-
ket power, “monopoly power may be inferred from a firm’s possession of a dominant share of a
relevant market that is protected by entry barriers”).
13
United States’ Pretrial Mem. at 15–16, United States v. AB Electrolux, No. 1:15-cv-01039,
2015 WL 9694688 (D.D.C. Dec. 10, 2015) [hereinafter Electrolux Pretrial Brief],
www.justice.gov/atr/file/801726/download.
14
Louis Kaplow, Market Definition and the Merger Guidelines, 39 R
EV
. I
NDUS
. O
RG
. 107,
124 (2011).
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