ABSTRACT
This chapter addresses special issues that arise in market definition in retrospective harm cases, with particular attention to the Cellophane fallacy. Market definition is often the most critical step in evaluating market power and determining whether business conduct has or likely will have anticompetitive effects. In practice, courts rarely employ supply substitution to help define markets in the context of merger analysis; deviation from an exclusive demand-side focus is more likely to occur when courts define markets under the Sherman Act. Under the demand substitution approach of the Horizontal Merger Guidelines, the problem would also sensibly be addressed by assigning low market shares to firms that lack substantial divertible capacity. The Merger Guidelines instead account for supply substitution in steps of merger analysis that take place after market definition, either in the identification of market participants or the evaluation of entry conditions.
