Explain why defining a market narrowly or broadly can make a difference in how antitrust policy is implemented.

Asked on by ryno3628

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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The more broadly a market is defined, the harder it is to show that a firm is in violation of antitrust policies.  The more narrowly the market is defined, the easier.

Antitrust legislation is meant to prevent firms from dominating a market and being able to dictate market prices and market conditions in that market.  Clearly, a market that is defined narrowly is much more susceptible to being dominated by a given firm.

To take an example from real life, the EA company has been sued for antitrust violations related to its Madden NFL game.  If we say that the market in question is simply the market for football video games licensed by the NFL, the market is small and EA dominates it.  If, however, we define the market as the market for all video games, there is a great deal of competition from all sorts of non-football video games.

Thus, defining the market is very important to the way in which antitrust policy will be implemented in a given case.

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