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What is a Relevant Market?

Christine Hudson
Christine Hudson

A relevant market is determined by a company’s direct competition. If one company has a certain type of product and another has the exact same product or one which is extremely similar, then it would be considered the relevant market. Basically, any two companies which can be considered “competitors” can also be considered relevant markets. When two or more companies are considered to be in the same relevant market, certain laws will govern their competitive behavior. These laws are usually specific to the area in which they do business.

Assessing substitute goods and analyzing opposing playing fields is precisely a relevant arena. Whether or not a market is relevant boils down to geography and products. Ranked on price range, primary functions, and target markets, a product deemed relevant is one that may be seen as a worthy rival to another similar or leading item. Relevant markets are determined by legal assessors as well as by every company as they "scope" the competition.

Man with hands on his hips
Man with hands on his hips

Direct competition is one of the largest factors considered, but direct competitors are not always the only companies included in the assessment. When the items of companies are virtually interchangeable, this market is considered relevant. It is where the demand contest occurs and companies can then compare earnings, techniques and demographics to determine their standing within it. All market-entering and market-available products that carry close price points within the same time span are factors in a relevant market.

In legal circles, the goal of a relevant market is to help companies establish effective rules of competition. Rules related to the abuse of a dominant position, restrictive practices, and merger policies are developed within this context. The key is that companies involved in competitive arenas must work within the constraints of two confines. First, demand substitution presupposes that buyers can choose among a variety of products with similar characteristics. Then, it assumes that suppliers do not encounter hindrances to providing said products or services to a certain market.

Access conditions are examined, patterns are measured and statistics are analyzed to determine demand elasticity. In the European Union (EU), a regulatory commission may go so far as to perform spontaneous inspections in order to evaluate real conditions and gauge compliance. In the process of market share calculation, typically unveiled based on sales numbers, capacity can also be exposed. A relevant market is the playing field, and consumers are the players.

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