Explaining The Concept of Relevant Market

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The concept of relevant market is used in the field of business administration and antitrust law. Relevant market includes all products which are similar in material, workmanship, form and technical design.

As well as all products that are characterized by high cross-price elasticity, and goods that meet the same basic need/function. And also comprises all competing products, taking into account a supplier’s sales plans, which are subjectively viewed as interchangeable.

The concept of relevant market is applied so as to distinguish the items and tasks that are directly in competition as regards the operations of a commercial enterprise. The implemention of the competition law is impossible without mentioning the market where competition occurs.

The magnitude at which companies are in a position to raise prices beyond ordinary competition levels hinges on the potential for customers to purchase alternative items plus the capacity of other companies to provide the goods.

The fewer the alternative goods, the harder it is for other companies to commence providing the items. The less flexible the demand curve is, the likelier it is to obtain higher prices.

In antitrust law, the concept of relevant market is an analysis which determines the effect of a restrictive agreement, a merger or determining whether a firm enjoys a dominant position. With the relevant market, there is the distinction between the spatial and temporal.

The relevant product market comprises of all goods and services which are opposite with respect to their properties and their intended use as substitutes. The relevant geographic market comprises the area in which the demand side requires the goods or services.

The concept explains what happens when a small, stable price of a product or product group increases by a given percentage. Divergence between the demand for other products makes the price increase unprofitably. Such an analysis tests is known as the SSNIP (Small but significant increase in price) which is nontransitory.

The SSNIP test can be misleading when the price of a dominant firm’s product is already too high (so-called cellophane fallacy). In addition, the SSNIP test does not apply in markets of the new economy because they would prevent the meaning results of major fluctuations.

Supply substitution clarifies whether it is possible suppliers of other products, to bring them to the market in response to small, permanent production increases, without incurring significant additional costs or risks. A good example is the paper market, mill operators can change sizes with almost no any financial and organizational burden of production on different paper types.
 

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