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Unit 3: Economic Analysis in Competition Law
3.1 Role of Economics in Competition Law
Competition cases are decided on economics: what the market does, what the conduct caused, and what the remedy will do next. Economics supplies (i) the market (the arena’s boundaries), (ii) the power (who can raise prices), (iii) the theory of harm (how the conduct injures), and (iv) the counterfactual (what would have happened but for the conduct). Law asks is it prohibited; economics answers did it hurt.
3.2 Market Definition, Types and Market Power Analysis
Market definition — the hypothetical monopolist test (SSNIP: a small but significant non-transitory increase in price — if customers would switch away, the market is wider): the product market (substitutability) and the geographic market (where customers could turn).
Types:
| Market type | Structure | Competition law’s concern |
|—|—|—|
| Perfect competition | Many, identical | None (the benchmark) |
| Monopolistic competition | Many, differentiated | Advertising/brand issues |
| Oligopoly | Few interdependent | Coordination risk (parallel behaviour) |
| Duopoly | Two | Merger watch |
| Monopoly / monopsony | One seller / one buyer | Abuse of dominance/power |
Market power — the ability profitably to raise price above cost or restrict output; measured by share (within the defined market), entry barriers (regulatory, scale, network), and consumer-switching frictions. Share is the starting point, not the verdict: 60% with free entry may be weaker than 40% behind a licence wall.
3.3 Economic Theories of Harm
- Coordination harm (cartels): price elevated by agreement — the per se evil; consumers pay the cartel tax.
- Exclusionary harm (abuse of dominance): the dominant firm raises rivals’ costs, forecloses distribution, or ties its way into the next market — competition for the market destroyed.
- Exploitative harm: dominant firms extracting unfair terms directly (the EU’s unfair-price prong).
- Conglomerate/eco-system harm: platforms leveraging one market into another (the theory of the Big-Tech era — self-preferencing, the app-store gates).
This is a preview. The complete Competition Law notes — full unit, Exam Focus box and model questions — are in the PDF / full version. Get the complete notes →