David Golden has an interesting article in Law360 this week entitled “Interchangeability in the Tablet Product Market.” (The full article may be behind a paywall.) I had some earlier, preliminary thoughts here.
Why does this issue matter? Because the smaller the relevant market, the higher the participants’ market shares. At the extremes, you may end up with a monopolist (or several monopolists in different markets). Monopolists are subject to special rules of dealing that do not apply to other firms.
David makes the following reasonable points:
Reasonable interchangeability is the touchstone of product market definition.
Product specifications and technical abilities (screen size, storage capacity, etc.) are unlikely (at least in all cases) to capture the concept of reasonable interchangeability from a consumer’s perspective. Instead, it may be more worthwhile to look at product functions (such as the ability to run an operating system, to load and run applications, to browse the Internet, to send e-mail, etc.).
Cost of substitution may also be relevant – if one tablet manufacturer raises prices substantially, will consumers substitute away to other tablets? To other smartphones?
Network effects are one aspect of cost of substitution. Consumers who have all their music, documents, and data tied to one tablet / OS may find it difficult to switch to another one easily, because they want/need to share with others on the same platform.
I think all these points are good ones. David goes on to note that given the diversity of tablets on the market, courts might conclude that there are a number of submarkets. Although David notes some courts have not viewed the concept of “submarkets” favorably, I would go further – many courts have correctly held that the concept has no real meaning. A market is a market, and it must be defined appropriately. Labeling a market as a “submarket” is usually just the equivalent of waving hands.
As far as I know, we haven’t yet seen a case tackle the question of product market definition in the tablet computing area. It’s only a matter of time, though.