Foreign competition, domestic market power and antitrust policy: A theoretical, empirical and survey analysis

An important challenge facing antitrust authorities in merger analysis is the appropriate geographic market delineation within which to measure market shares of industry participants. The role that foreign firms should play in this geographic delineation has been the topic of many debates. The first chapter of this dissertation provides a survey and analysis of the literature concerning the treatment of foreign firms within antitrust markets. Early contributions revealed that the larger the presence of foreign imports, the smaller is the affect of domestic concentration on domestic profits. Beginning in the 1980s, antitrust literature began recognizing the ability of foreign firms to restrain domestic producers' potential abuse of market power. More recent literature, however, has identified the limitations of foreign firms at disciplining such abuse. It has been shown that, while foreign firms should be factored into antitrust analysis, they are often not an adequate replacement for domestic competition.;Using time series data, the third chapter addresses the significance of geographic proximity to the American apparel industry; an industry historically characterized by manufacturers necessarily locating in low wage countries. It is shown that recent changes in demand have increased the importance to firms of proximity to final markets; particularly for producers of high fashion products. This chapter also illustrates the usefulness of empirical applications in geographic market analysis and, in so doing, reveals that the appropriate geographic market for the apparel industry is no larger than the United States.;The second chapter introduces the Ratio index, a new geographic market test useful in identifying antitrust regions. Unlike many existing tests, this index specifically contemplates the potential of foreign firms to constrain the ability of domestic firms to profitably increase prices. The usefulness of the index and one other selected geographic market test is illustrated through an oligopoly model where asymmetric cost information exists between domestic and foreign producers. A conclusion is reached that, when such uncertainty exists, both real and expected costs are important determinants of market delineation. Moreover, the greater the uncertainty faced by foreign firms the less reliable a constraint they are at potential abuses of domestic market power.