Managerial Economics Article - Essay Example

Managerial Economics Article David Huettner’s article, “Product Market Definition in Antitrust Cases When Products Are Close Substitutes or Close Complements”, addresses the two major areas of continuing divergence. The first issue regards what economic practitioners do to in case two products are close substitutes are found in a similar product market. The second concept regards how practitioners define product market when contemporary product relationships exist.In light of what product marketers would do regarding close substitutes, the author highlights the major cases which demonstrates that products are close substitutes or interchangeable in end use.

Huettner discusses the L&L Enterprises v. U.S Brass, a case in which the plaintiff held that the copper pipes and polybutylene pipes comprised of different antitrust product markets. On the other hand the defendant held that both copper pipes and polybutylene pipes were in similar antirust product market. Nonmetals, both the plaintiff and the defendant based their arguments on the provisions and guidelines by the Department of Justice.A wide range of microeconomic, antitrust economic as well as managerial economic literature contend that there lacks quantitative standard upon which close substitutes could be defined.

Thus, practitioner divergence reflects the prevailing failure of economic theory to offer a quantitative definition of close substitutes.According to various economists, prices of close substitutes should keep track of each other such that they should have one price existing in the market. Nonetheless, practitioners are opposed to this rule. Perhaps, this explains why there has been unceasing controversy regarding the one-price rule in reference to Sun operating systems and Microsoft operating systems which sell at prices about 50 and 100 percent respectively, yet they are close substitutes.

Basing on this argument, the author concludes that the one-price rule should be applied to close substitutes. This implies that close substitutes should have the same price, a price ration of one and should track each other closely over time. In addition, close substitutes should have a cross-price elasticity of unity. On the other hand, products that are not close substitutes should not keep track of each other closely over time. They should also have unequal prices as well as price ratio that differ from unity.

Works CitedHuettner, David A. "Antitrust Bulletin Product market definition in antitrust cases when products are close substitutes or close complements.”. Highbeam Business, 22 Mar 2002. Web. 3 Dec 2012. < http://business.highbeam.com/420683/article-1G1-87029924/product- market-definition-antitrust-cases-products>