An extract from The Dominance and Monopolies Review - 7th edition

Market definition and market power

i Market definition

A market is defined in terms of its product scope and geographical scope. However, markets are sometimes defined very narrowly when compared to merger control, such as in terms of specific areas, services or customers.

The most noteworthy case regarding market definition is NTT East. The JFTC defined the market somewhat narrowly as 'FTTH [fibre to the home] services for detached residential properties in the East Japan region'. While the company naturally countered that the market should be defined as the broadband services market (including asymmetric digital subscriber line (ADSL) services), the Supreme Court affirmed the JFTC's decision.

Markets have been defined as:

  1. 'the field of supply for glass tubes in the West Japan region for which the consumers are ampoule processing companies with headquarters in the same region and the suppliers are NIPRO and processing companies', in the later NIPRO case;
  2. the 'transmission of music to retail shops in Japan' in the USEN Corporation case;
  3. 'the market for the sale of CPUs to computer manufacturers in Japan' in the Intel case; and
  4. 'the Molybdenum-99 market in Japan' in the Nordion case.

There is also debate as to whether market definition is required for unfair business practices, and the JFTC's position is to define markets as necessary on a case-by-case basis. That is to say, its basic position is that this is not necessary. However, in Microsoft, the JFTC did not shy away from defining the market, but instead defined it as the computer audiovisual technology trading market. Even for unfair business practices, it is not possible to consider the anticompetitive effect if the market is not defined, and so there are many situations where companies and the JFTC contest the point.

ii Market power

As mentioned previously, under the Private Monopolisation Guidelines a company is required to have a share of over 50 per cent in the relevant market for private monopolisation to apply.

Private monopolisation is established where such companies 'create, maintain or strengthen their market power' through either exclusionary conduct or controlling conduct. There are many cases where private monopolisation is committed by companies that already have market power, and in doing so maintain or strengthen that power. While in this sense it is rare for such companies to create market power, there are cases where, for instance, an enterprise that already has market power in another market uses that position to create new market power in another separate market; that is to say it makes use of its leverage.

In the case of unfair business practices, there is no need for the company committing the conduct to have market power, and it is enough for them to have a strong position within that market. The Guidelines Concerning Distribution Systems and Business Practices under the Antimonopoly Act contain safe harbour provisions whereby an enterprise is not considered to have a strong position where it has a share of 20 per cent or less in respect of some types of conduct. Whether the safe harbour provisions apply varies depending on the type of conduct that is alleged to be an unfair business practice, and the aforementioned Guidelines should be consulted accordingly.

For instance, safe harbour provisions are not available in the case of restrictions on resale prices or abuse of a superior bargaining position, and so may be violated even where the JFTC considers the company in question to have a market share of only 10 per cent. Further, the market share is dependent on the market definition, so it is important to be mindful of the fact that a company's relative market share will increase where the market is narrowly defined.