The use and misuse of shipments data in defining geographic markets

• Author: Gregory J. Werden
• DOI: 10.1177/0003603X8102600404
• Published date: 01 December 1981
• Date: 01 December 1981
• Subject Matter: Article

The Antitrust Bulletin/Winter

1981

719

The use and misuse

of

shipments data

in defining geographic markets

BY

GREGORY

J.

WERDEN*

In their 1973 article in The Antitrust Bulletin, Kenneth Elzinga

and Thomas Hogarty condemned what they called the eclectic

methods used to delineate markets in past section 7 cases, where a

variety

of

experts offered conflicting testimony based on differing

reasoning and interpretation

of

the data. IElzinga and Hogarty

asserted that "the only data required to estimate market

areas-at

least in most

cases-are

shipments data in physical terms" and

proposed amarket definition procedure using only shipments

data.'

A second procedure based on shipments has been proposed

by Ronald Shrieves.' More recently Elzinga and Hogarty also

have claimed that "[a] method is superior to an expert because a

Economist, Antitrust Division, U.S. Department

of

Justice.

Elzinga &Hogarty, The Problem

of

Geographic Market Defini-

tion in Antimerger Suits, 18 ANTITRUST

BULL.

45 (1973).

2Id. at 73. Elzinga

and

Hogarty did not clearly identify

any

condition

under

which shipments

data

would, even in their view,

not

be

sufficient to delineate a

market.

It appears

that

the lack

of

suitable

shipments

data

might be the only case they

had

in mind. See id. at

73-76.

3Shrieves, Geographic Market Areas

and

Market Structure in the

Bituminous Coal Industry, 23 ANTITRUST

BULL.

589 (1978).

©1981 by Federal Legal Publications. Inc.

720 The antitrust bulletin

sound and explicit estimation procedure [such as theirs] can be

replicated by many investigators many times.":'

This article shows that Elzinga and Hogarty are incorrect in

both

these claims. While the methodology employed in past

merger cases deserves much

of

the criticism it was given, the

techniques suggested to replace it also deserve criticism. Ship-

ments data, while useful, simply are not sufficient to define

markets. Methods using shipments alone do have the claimed

advantage

of

precision in that they are reproducible, but are not

to be preferred because they are inaccurate in that they may

produce incorrect results. As with its predecessors, this article

illustrates the application

of

market definition principles by

reference to the coal industry.

I.

The concept

of

an antitrust market

Section 7

of

the Clayton Act prohibits mergers the effect

of

which

"may

be substantially to lessen competition, or to tend to

create amonopoly"> The most obvious type

of

merger that may

fall under this prohibition and the most often challenged type

of

merger is

that

between direct competitors. The basic method

of

analysis

of

these horizontal mergers is well established in the case

law and in the Department

of

Justice's merger guidelines." The

main element

of

this analysis is an examination

of

the market

shares

of

the merging firms. Thus, the definition

of

the market in

which those shares are to be calculated is extremely important to

the final disposition

of

a case.

It

is essential that markets be

4Elzinga &Hogarty, The Problem

of

Geographic Market Delinea-

tion Revisited: The Case

of

Coal, 23

ANTITRUST

BULL.

1, 8 (1978).

15 U.S.C. §18 (1976).

6See generally United States v. Philadelphia National Bank, 374

U.S. 321 (1963); Brown Shoe

Co.,

Inc. v. United States, 370 U.S. 294

(1962); Merger Guidelines of the Department of Justice, 1

TRADE

REG.

REP. (CCH) , 4510.