Study of Tesco Essay

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The concept of market definition often plays an important role in competition authorities’ work, for example, in merger or abuse of dominance cases. Please briefly explain what this concept means and why a competition authority would use it. Further, what key issues would you consider when defining a market?

Defining a market is one of the first, and one of the most important, steps that a regulatory body makes when decided how to approach a microeconomic problem or situation. The main interest of a regulatory body is a market is at its maximum efficiency, whether this is through expansive Government influence, or a more hands off, laissez-faire approach. A regulatory bodies’ main responsibility is to protect market stakeholders, through the promotion of fair and efficient competition.
A reasonable assumption would be that perfect competition is the ideal, the point where resources are allocated with Pareto efficiency, with no barriers to entry or exit, information symmetry and no externalities affecting third parties. These would be examples of key issues that have to be looked at when trying to promote competition. While these outcomes may not be possible in many real world markets, these points can be used as a reference point to apply in smaller doses in practice.
In the case of merger, the role of market definition is to provide a framework for the analysis of the competitive effects of the merger. For example, a merger between Microsoft and Apple would be rejected by any regulatory body, as any merger of this size and significance would not be promoting competition, and could lead to abuse of dominance of a business’ market position, which would not be promoting the interests of consumers, through potential price increases/lack of choice, or potential market entrants, such as high barriers to entry like technology costs. If it is seen that a merger will have beneficial effects to the economy at large, then the merger will be authorised.

It is important, though, to
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