Biases and errors in the assessment of market boundaries for ex ante regulation with an application to internet services in the UK

The Hypothetical Monopolist Test is being applied as a means of establishing Relevant Economic Markets for the purposes of ex ante regulation in the EU. This paper points out some common types of bias and error in the application of the test. The likely consequence is that regulatory authorities will tend to find overly narrow economic markets (and this increases the subsequent chance of incorrectly finding market power at the level of the individual firm). Recent practice concerning broadband and narrowband internet market boundary assessments in the U.K. is used to illustrate the general arguments.