Product Market Definition in Pharmaceutical Antitrust Cases: Evaluating Cross-Price Elasticity of Demand


PRODUCT MARKET DEFINITION IN
PHARMACEUTICAL ANTITRUST CASES:
EVALUATING CROSS-PRICE ELASTICITY

OF DEMAND

Anish Vaishnav*

I. Introduction ............................. 587
II. Current Market Definition Practices ............... 589

A. Doctrinal Approach to Market Definition .......... 592
B. Market Definition in the Pharmaceutical

Industry. ...................... ....... 594
III. Addressing the Issues Raised by Pharmaceutical

Markets ........................... ..... 596
A. The Structure of Pharmaceutical Distribution:

Who is the Customer?. . . . . . . . . . . . . ..... . . . . . . 596
1. Patients .............................. 598
2. Physicians ..................... .... 601
3. Pharmacy Benefit Managers ................ 603
4. Pharmacists ............................ 606
5. Third Party Payers and Managed Care ........ 608
6. Hospitals .................... ...... 611

B. Problem Presented by this Structure .... .... 611
1. Employing Cross Elasticity of Demand: The

Relevant Question .............. ..... 617
2. The Merits of Calculating Cross Elasticity

of Demand .................... ..... 617
3. Preliminary Defenses ................. 622

a. Telescoping Demand ............... 623
b. So What? Precedent Demands Cross

Elasticity ....................... 624
C. Two Proposed Solutions .................. 625

* J.D. Candidate 2013, Columbia University School of Law; M.B.A.
Candidate 2013, Columbia University Graduate School of Business; B.A.
Economics and Molecular & Cell Biology, 2007, University of California,
Berkeley. The author would like to thank Professor C. Scott Hemphill for
his guidance.



No. 2:586] PHARMACEUTICAL PRODUCT MARKET DEFINITION

1. Increased Reliance on Scientific Testimony.. 625
2. Adopt the Merger Guidelines Standard........ 627

IV. Implications for Future Cases ........... ..... 630
A. Implications of Increased Reliance on

Scientific Testimony ............... ..... 630
B. Implications of Adoption of the Guidelines

Approach ............................. 632
V. Conclusion .............................. 633

I. INTRODUCTION

The pharmaceutical industry has, for some time, been a
major target of antitrust investigations and litigation.' In
fact, from 2000 to 2010, twenty-eight of the 229 merger
enforcement actions initiated by the Federal Trade
Commission (FTC) involved prescription drugs. During the
same time period, the FTC also initiated ninety-two
nonmerger competition enforcement actions, eleven of which
involved prescription drugs.' Thus, in the eleven-year span
from 2000 to 2010, prescription drugs were the subject of
12% of both merger and nonmerger enforcement actions.
The significance of antitrust enforcement in the context of
the pharmaceutical industry is further highlighted by the
fact that prescription drugs account for approximately 10%
of healthcare spending in the United States.4 Health care
spending increased by 4.0% in 2009 to a total of $2.5
trillion-17.6% of U.S. Gross Domestic Product (GDP)-with
$250 billion being spent on prescription drugs alone.'

1 Howard Morse, Product Market Definition in the Pharmaceutical
Industry, 71 ANTITRUST L. J. 633, 633 (2003).

2 FTC Competition Enforcement Database, FTC.GOV, http://www.ftc.go
v/bc/caselistlindesited Oct. 31, 2010).

3 Id.
4 U.S. Dep't of Health and Human Servs., Ctrs. for Medicare and

Medicaid Servs., Nation's Health Dollar, Calendar Year 2009: Where It
Went, CMS.Gov, http://www.cms.gov/NationalHealthExpendData/downloa
ds/PieChartSourcesExpenditures2009.pdf (last visited Apr. 14, 2011).

s U.S. Dep't of Health and Human Servs., Ctrs. for Medicare and
Medicaid Servs., National Health Expenditures 2009 Highlights,

587



Given the significance of prescription drugs to both
healthcare quality and cost, and the frequency with which
pharmaceutical manufacturers face antitrust scrutiny,
appropriate consideration should be given to the
characteristics of the pharmaceutical market that may
obstruct effective antitrust enforcement. In particular, the
first step in analyzing whether a defendant possesses market
power is defining the "relevant market"6-a step that may be
complicated by the peculiar structure of the pharmaceutical
market. Determining whether the defendant has market
power is important because legality of business conduct often
turns on whether that conduct was performed with or
without market power.' Furthermore, the relevant market
consists of both a geographic and a product market.' This
Note argues that, despite case law to the contrary,' the
traditional tests to determine the relevant product market
for antitrust purposes do not sufficiently address the unique
structure of the pharmaceutical market. Specifically, courts
do not consider all of the "consumers" that affect

CMS.GOV, http://www.cms.gov/NationalHealthExpendData/downloads/hig
hlights.pdf (last visited Apr. 14, 2011).

6 See Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382
U.S. 172, 177 (1965) ("[Without a definition of [the relevant] market,
there is no way to measure [a defendant's] ability to lessen or destroy
competition."); see also Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d
263, 268 (2d Cir. 1979) ("[TIhe first step in a court's analysis must be a
definition of the relevant market." (citing United States v. E.I. du Pont de
Nemours & Co., 351 U.S. 377, 391-93 (1956))).

' Robert Pitofsky, New Definitions of Relevant Market and the Assault
on Antitrust, 90 COLUM. L. REv. 1805, 1806-07 (1990).

8 See, e.g., Brown Shoe Co. v. United States, 370 U.S. 294, 324 (1962)
("The 'area of effective competition' must be determined by reference to a
product market (the 'line of commerce') and a geographic market (the
'section of the country').").

9 See, e.g., SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056, 1063
(3d Cir. 1978) (focusing on options available to the "prescribing
physician"); United States v. Ciba Geigy Corp., 508 F. Supp. 1118, 1126
(D. N.J. 1976) (same); Fed. Trade Comm'n v. Lundbeck, Inc., Nos. 08-6379
(JNE/JJG), 08-6381 (JNE/JJG), 2010 WL 3810015, at *20 (D. Minn. Aug.
31, 2010) (holding that physicians are the relevant consumer and cross
elasticity of demand is the appropriate test).

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pharmaceutical purchasing decisions. As a consequence of
the existence of multiple decision-makers, the traditional
cross elasticity of demando test for defining product markets
is inappropriate in the pharmaceutical context, as relying on
it may result in overly narrow product markets. To
overcome the difficulties presented by cross elasticity of
demand, this Note advocates adopting an approach to
pharmaceutical market definition that focuses on non-price
elements of competition rather than cross elasticity of
demand.

Part II of this Note provides an overview of current
market definition practices employed by courts, while Part
III discusses the structure of the pharmaceutical market,
how this structure presents a problem to traditional market
definition techniques, and two possible solutions to the
problem. Finally, Part IV discusses the implications of
adopting the proposed solutions, and Part V concludes.

II. CURRENT MARKET DEFINITION PRACTICES

As mentioned above, market definition has often been
regarded as the starting point for analyzing a
monopolization claim brought under Section 2 of the
Sherman Act,"' and for analyzing potentially anticompetitive

10 Cross elasticity of demand, also called cross-price elasticity of
demand, is the "ratio of the percentage change of the quantity of one good
demanded with respect to the percentage change in the price of another
good," and is calculated as ([*Q/Q,*100%)/([*P/P]*100%), where Q, and
*Q, are the quantity and change in quantity of Good I demanded,
respectively, and P, and *P, are the price and change in price of Good J,
respectively. This formula simplifies to (*Q/*P)*(P/Q,). DAVID BESANKO
& RONALD R. BRAEuTIGAM, MICROECONOMICS, at 46 (Rhoads et al. eds., 2d
ed. 2005).

"x Sherman Antitrust Act § 2, 15 U.S.C. § 2 (2006) ("Every person who
shall monopolize, or attempt to monopolize, or combine or conspire with
any other person or persons, to monopolize any part of the trade or
commerce among the several States, or with foreign nations, shall be
deemed guilty of a felony . .. ."); see also Walker Process Equip., Inc. v.
Food Mach. & Chem. Corp., 382 U.S. 172, at 177 (1965); Berkey Photo,
Inc. v. Eastman Kodak Co., 603 F.2d 263, 268 (2d Cir. 1979) (citing United
States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391-93 (1956)).

589



COLUMBIA BUSINESS LAW REVIEW

mergers challenged under Section 7 of the Clayton Act.12 In
the merger context the recently revised 2010 Horizontal
Merger Guidelines' 3 have provided a more flexible approach
to competition analysis that allows for reliance on direct
evidence of competitive effects as well. 4 Despite the 2010
Guidelines' reduced focus on market definition, defining the
antitrust market remains an important aspect of merger
enforcement as a result of its familiarity to the court system
and its ease of use when compared to direct analysis of
anticompetitive effects." Indeed, Robert Pitofsky notes, with

12 Clayton Act § 7, 15 U.S.C. § 18 (2006) ("No person engaged in
commerce or in any activity affecting commerce shall acquire, directly or
indirectly, the whole or any part of the stock or other share capital and no
person subject to the jurisdiction of the Federal Trade Commission shall
acquire the whole or any part of the assets of another person engaged also
in commerce or in any activity affecting commerce, where in any line of
commerce or in any activity affecting commerce in any section of the
country, the effect of such acquisition may be substantially to lessen
competition, or to tend to create a monopoly. . . .").

13 U.S. DEP'T OF JUSTICE & FED. TRADE COMM'N, HORIZONTAL MERGER

GUIDELINES (2010), available at http://www.ftc.gov/os/2010/08/100819hm
g.pdf.

" Deborah L. Feinstein, The Revised Merger Guidelines: Did the
Agencies Heed the Lessons of the Past? ANTITRUST SOURCE, Oct. 2010, at 1,
available at http://www.americanbar.org/content/dam/aba/publishing/ant
itrust source/OctlOFeinstein0_21f.authcheckdam.pdf ("[Tjhe 2010
Guidelines establish that . . [wihere direct evidence of competitive effects
is available, the Agencies will rely less on market definition in their
analysis.").

" Dennis W. Carlton, Revising the Horizontal Merger Guidelines, 6 J.
COMPETITION L. & EcON. 619, 625-26 (2010) ("While imperfect and
necessarily crude, the market definition/market concentration framework
has provided a useful starting point for merger analysis and has served
practitioners, courts, federal agencies, and state Attorneys General well.");
Dennis W. Carlton & Mark Israel, Will the New Guidelines Clarify or
Obscure Antitrust Policy? ANTITRUST SOURCE, Oct. 2010, at 1, available at
http://www.americanbar.org/content/dam/aba/publishing/antitrust_source/
Octl0_Carltonl0_21f.authcheckdam.pdf ("Why not skip right to a study of
the pricing effects of interest? The answer is that, particularly for users of
the Guidelines with relatively little antitrust experience, market definition
has one overwhelming advantage. It is easy to use. One does not need a
Ph.D. in economics to understand how to use it once it has been
established.").

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respect to the Sherman Act and Section 7 of the Clayton Act,
that "[d]efinition of relevant market is a critical analytical
tool . . . because the legality of business conduct almost
always depends upon the market power of the
participants."16

Interestingly, and leading to possible confusion, the
standards for market definition under Sections 2 and 7 are
not always identical. Market definition standards for
Section 2 cases are based largely on case law, whereas the
standards for Section 7 cases are based on the Horizontal
Merger Guidelines.17  The difference in standards is
particularly striking in light of the fact that courts have
struggled to develop independently a market definition test,"
and the fact that the Supreme Court has declared that there
is no reason to differentiate between "line" of commerce in
the Clayton Act and "part" of commerce in the Sherman
Act.'9 Perhaps adding to the confusion, the Agencies have
demonstrated some willingness to apply the Guidelines
approach in Section 2 cases and the doctrinal approach in
Section 7 cases.2 0

Pitofsky, supra note 7, at 1806-07.
" Mark A. Glick, Duncan J. Cameron & David G. Mangum, Importing

the Merger Guidelines Market Test in Section 2 Cases: Potential Benefits
and Limitations, 42 ANTITRUST BULL. 121, 122 (1997) [hereinafter Glick et
al.] ("Since its creation, the Guidelines' market definition test has been
utilized by several courts in merger cases. A LEXIS search of all federal
cases, however, reveals no cases in which the market test in the
Guidelines was applied in a monopolization setting.").

18 See, e.g., Pitofsky, supra note 7, at 1807 n.4; Glick et al., supra note
17, at 122.

"' United States v. Grinnell Corp., 384 U.S. 563, 573 (1966). The
Sherman and Clayton acts prohibit conduct that tends to create a
monopoly in any "part" or "line" of commerce, respectively. The Grinell
court's admonition that there is no reason to differentiate between these
two leads some commentators to believe that the market definition tests
under the two acts should be the same. See, e.g., Glick et al., supra note
17, at 122.

20 See, e.g., In re Int'l Tel. & Tel. Corp., 104 F.T.C. 280, 409-11 (1984)
(using Horizontal Merger Guidelines for market definition in section 2
monopolization case); FTC v. Lundbeck, Inc. Nos. 08-6379 (JNE/JJG), 08-
6381 (JNE/JJG), 2010 WL 3810015, at *19-21 (D. Minn. Aug. 31, 2010)

591



While this Note has thus far discussed market definition
in the context of both monopolization and mergers, the
primary focus going forward will be the court-created
product market definition test and its application to the
pharmaceutical industry. Consequently, the argument
presented pertains primarily to monopolization claims
brought under the Sherman Act, but to the extent that the
Agencies and courts use the court-created market definition
test for Section 7 claims, this analysis will be relevant to
mergers and acquisitions as well.

A. Doctrinal Approach to Market Definition

As an initial matter, antitrust plaintiffs bear the burden
of showing monopoly power in the relevant market.2 1 With
the exceptions of certain kinds of conduct that are illegal per
se, conduct challenged under the Sherman Act is typically
analyzed under the "rule of reason," which "requires a
detailed examination of a challenged agreement's effect in a
well-defined market."2 2 Market definition is thus necessary
to provide courts with a context within which to conduct a
rule of reason analysis.2 3 Under certain circumstances
however, courts can avoid analyzing conduct that is not per
se illegal under the rule of reason by taking a "quick look,"
which does not require market definition.2 4 Quick look does
not require market definition because market definition is

(using cross elasticity of demand to define product market in a Section 7
merger challenge).

21 Morse, supra note 1, at 656 n.82.
2 Id. at 652.
* Morse, supra note 1, at 652 n.70.
2 See, e.g., Nat'l Collegiate Athletic Ass'n, 468 U.S. at 109 ("As a

matter of law, the absence of proof of market power does not justify a
naked restriction on price or output. To the contrary, when there is an
agreement not to compete in terms of price or output, 'no elaborate
industry analysis is required to demonstrate the anticompetitive character
of such an agreement.'" (quoting Nat'l Soc'y of Profl Eng'rs, 435 U.S. 679,
692 (1978))); see also FTC v. Ind. Fed'n of Dentists, 476 U.S. 447, 459
(1986) (holding that no elaborate industry analysis is required to condemn
a clearly anticompetitive horizontal restraint).

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only required to determine market power, which itself is only
a proxy for detrimental effect, 25 and quick look is limited to
simple cases where detrimental effect is obvious.2 6 To the
extent that anticompetitive conduct falls in neither the per
se nor the quick look categories, the court must define a
market.2 7

The current metric for product market definition has its
roots in a footnote in Times-Picayune Publishing Co. v.
United States,28 which stated that all products have
substitutes, but a relevant market must exclude those
products to which only a limited number of buyers will turn
in the face of a moderate increase in price of the product in
question-that is, products for which cross elasticity of
demand is low. This test for market definition was
elaborated upon and first employed in United States v. E. L
du Pont de Nemours & Co. 2 9 (a Section 2 case), and
rearticulated in Brown Shoe Co. v. United Statesso (a pre-
Guidelines Section 7 case), which stated that "the outer
boundaries of a product market are determined by
reasonable interchangeability of use or the cross elasticity of
demand between the product itself or substitutes for it.""'
Brown Shoe also indicated that well-defined submarkets
may exist within the broader market defined by cross

25 Morse, supra note 1, at 653.
26 In particular, quick look is only appropriate where "an observer

with even a rudimentary understanding of economics could conclude that
the arrangements in question have an anticompetitive effect on customers
and markets." Cal. Dental Ass'n v. FTC, 526 U.S. 756, 770 (1999).

27 Morse, supra note 1, at 652-53.
28 345 U.S. 594, 612 n.31 (1953) ("For every product, substitutes exist.

But a relevant market cannot meaningfully encompass that infinite range.
The circle must be drawn narrowly to exclude any other product to which,
within reasonable variations in price, only a limited number of buyers will
turn; in technical terms, products whose 'cross elasticities of demand' are
small.").

2 351 U.S. 377 (1956).
30 370 U.S. 294 (1962).
31 Id. at 325.

593



elasticity of demand,32 and that these submarkets may be
determined by looking at certain "practical indicia" that
delineate product markets." While these indicia were likely
intended to reflect underlying demand characteristics, they
have since proven "impossible to implement," and
consequently are rarely used.34

At present, when courts are considering a market
definition based on this doctrinal approach, they consider
whether two products are "reasonably interchangeable" or
whether they exhibit some level of cross elasticity of
demand. These two tests are essentially different
articulations of the same concept of substitutability, as
under most circumstances two substitute goods are both
reasonably interchangeable and will exhibit a high level of
cross elasticity of demand. The primary difference between
these two articulations is that the former is qualitative,
while the latter is quantitative.

B. Market Definition in the Pharmaceutical Industry

While some cases acknowledge that "the pharmaceutical
market is fundamentally different from the market for other
products,"3 6 the Supreme Court in du Pont solidified the
universal applicability of cross-price elasticity as a tool for
market definition by stating that "[tihe 'market' which one
must study to determine when a producer has monopoly
power will vary with the part of commerce under
consideration. The tests are constant."37 Accordingly, the
Agencies, private plaintiffs, and courts are limited to market

" Id. ("W]ithin this broad market, well-defined submarkets may exist
which, in themselves, constitute product markets for antitrust purposes.").

3 Id.

" Pitofsky, supra note 7, at 1822.
* Brown Shoe Co. v. United States 370 U.S. 294, 325 (1962).
* In re Cardizem CD Antitrust Litigation, 200 F.R.D. 297, 311 (E.D.

Mich. 2001) (order granting class certification); accord Geneva Pharms.
Tech. Corp. v. Barr Labs., Inc., 201 F. Supp. 2d 236, 268 (S.D.N.Y. 2002)
(quoting In re Cardizem CD Antitrust Litigation).

7 United States v. E. I. du Pont de Nemours & Co., 351 U.S. 377, 404
(1956).

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definitions based either on the Guidelines or on principles of
reasonable interchangeability, which includes cross elasticity
of demand and the Brown Shoe "practical indicia."

While the Agencies and private plaintiffs have relied on
cross elasticity of demand in defining markets to some
extent," the FTC has come under criticism for its less-than-
perfect transparency when explaining its market definition
methodology." Since there is a relative scarcity of judicial
decisions addressing product market definition in the
pharmaceutical industry, consent decrees provide a major
source for understanding the FTC's market definition
methodology, while still leaving much information to be
desired.40 Though it has been noted that the antitrust bar

" See, e.g., Smithkline Corp. v. Eli Lilly & Co., 575 F.2d 1056, 1063
(3d Cir. 1978); United States v. Ciba Geigy Corp., 508 F. Supp. 1118,
1154-55 (D.N.J. 1976); FTC v. Lundbeck, Inc., Nos. 08-6379 (JNE/JJG),
08-6381 (JNE/JJG), 2010 WL 3810015, at *19-21 (D. Minn. Aug. 31,
2010).

39 Jonathan Ian Glenken, Editor's Note, Symposium on Antitrust
Issues in the Pharmaceutical Industry, 71 ANTITRUST L.J. 577, 580 (2003)
("Given the critical importance of market definition, the FTC's widely
varying market definitions in pharmaceutical cases create a substantial
challenge for antitrust counselors. The complaints filed in FTC merger
challenges typically assert simply that 'the relevant lines of commerce in
which to analyze the effects of the merger' are X, Y, and Z, without any
justification for why X, Y, and Z are proper antitrust markets."); Morse,
supra note 1, at 633-34 ("In nonmerger cases, the FTC and private
plaintiffs generally allege narrow markets, limited to a single drug and its
generic equivalent in some cases and to generic drugs excluding the
bioequivalent 'brand-name' drug in other cases. In its merger challenges,
on the other hand, the FTC has alleged markets ranging from those based
upon a particular chemical compound, to broader markets based upon
various drugs' manner of interaction or dosage form, to still broader
markets of all drugs used to treat a disease or condition. . . . It is not

obvious how all of these cases can meet the Supreme Court's product
market test of 'reasonable interchangeability of use or the cross-elasticity
of demand between the product itself and substitutes for it.'
Unfortunately, most of the government actions contain only barebones
market allegations so they provide little guidance.").

'0 Glenken, supra note 39, at 580 (noting that the "analysis to aid
public comment" required to accompany an FTC consent decree rarely
provides significantly more detail regarding market definition practices
than FTC complaints).

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COLUMBIA BUSINESS LAW RE VIEW

does not have a perfect understanding of the government's
approach to market definition in the pharmaceutical
industry,4 ' the lack of complete understanding does not mean
that what is known cannot be improved. To this end, an
overview of the structure of the pharmaceutical industry will
provide a deeper understanding of the consequences and
faults of using cross elasticity of demand to define product
markets in the pharmaceutical industry.

III. ADDRESSING THE ISSUES RAISED BY
PHARMACEUTICAL MARKETS

A. The Structure of Pharmaceutical Distribution: Who
is the Customer?

The prescription pharmaceutical industry is structurally
unique in that multiple individuals or entities are in charge
of making decisions that have some effect on product
selection.42 In contrast to typical consumer goods-for which

" Id. at 580-81 ("Given the critical importance of market definition,
the FTC's widely varying market definitions in pharmaceutical cases
create a substantial challenge for antitrust counselors. The complaints
filed in FTC merger challenges typically assert simply that 'the relevant
lines of commerce in which to analyze the effects of the merger' are X, Y,
and Z, without any justification for why X, Y, and Z are proper antitrust
markets. . . . Even if the merging firms settle rather than putting the
Commission to its proof, however, the bar would benefit from an
explanation of the FTC's basis for its relevant market definition. For
example, the complaint might allege that the parties' documents discount
the importance of price or innovation competition from products outside
the FTC's alleged market, or that pharmacy benefit managers or other
pharmaceutical payers believe that only products within the market as
alleged will constrain the price of the merging firms' products.").

42 W. E. Ted' Afield, Note, The New Drug Buyer: The Changing
Definition of the Consumer for Antitrust Enforcement in the
Pharmaceutical Industry, 2001 Colum. Bus. L. Rev. 203, 229 (2001) ("The
traditional view of the consumer as physician is certainly no longer
adequate for antitrust enforcement in the pharmaceutical industry.
Direct-to-consumer advertising and the advent of PBMs have required
inclusion of patients and the designers of medical formularies as

596 [Vol. 2011



No. 2:5861 PHARMACEUTICAL PRODUCT MARKET DEFINITION

the end user typically identifies goods capable of satisfying a
need or want, selects among the alternatives, pays for, and
uses the good-prescription pharmaceutical products require
the input of some combination of the end user, physicians,
health plans, and even employers." As a result, courts must
be careful in defining markets based on cross elasticity of
demand, as it is not immediately clear whose demand is
economically most relevant. Additionally, even where it is
clear which party plays the predominant role in shaping
pharmaceutical demand, a test that focuses on the cross
elasticity of demand of only one decision-maker, such as
physicians, risks painting an inaccurate or incomplete
picture of the true interchangeability of two prescription
drugs in the "consumer system."" As a consequence of its
potential to be misleading, therefore, it is not clear that cross

consumers. Certainly, physicians cannot be ruled out of the equation
completely, but the analysis cannot stop with them.").

' Telephone Interview with Markus Meier, Assistant Director,
Federal Trade Commission, Bureau of Competition, Health Care Division
(Oct. 13, 2010).

" Cross elasticity of demand is a quantitative metric of the percentage
change in quantity demanded of one product in response to a given
percentage change in price of another, and as such is only capable of being
applied to one decision-maker's demand function at a time. While
calculating the cross elasticity of demand of physicians, for example, may
have economic meaning in the very narrow sense of providing an estimate
of how physicians respond to changes in drug prices, the value of
physicians' (or any other party's) cross elasticity of demand for
pharmaceutical products is not, and cannot be, indicative of one drug's
"bang for its buck," relative to another's (and thus its interchangeability
with that drug). This is so because, as a consequence of the
pharmaceutical market structure in which physicians and patients choose
drugs while insurance companies pay for them, physicians have an
incentive to consider a drug's "bang" (value) without respect to its "buck"
(price). Since the primary purpose of calculating the cross elasticity of
demand between two products is to determine to what extent consumers
view the two products as substitutes, accounting for price differentials,
calculating cross elasticity is unable to serve its intended purpose in the
pharmaceutical market. There is no single entity whose demand function
both considers a drug's functional benefits and fully accounts for its price,
and this single entity is required in order for cross elasticity of demand to
be economically meaningful.

597



elasticity of demand is a sensible metric under these
circumstances.

As noted above, some courts have observed that the
pharmaceutical market is fundamentally different from the
market for other products."5 However, the cases that have
asserted this proposition have done so with reference to the
fact that generic drugs are legally identical to brand name
drugs (as opposed to generic and brand name watches, for
example). Nevertheless, this statement is also true as it
pertains to the pharmaceutical market's disaggregated
demand. To demonstrate the significance of the
disaggregated demand structure of the pharmaceutical
market and its potential impact on market definition, each
kind of "customer" will be discussed in turn.

1. Patients

While at least one court has considered the role of
patients as consumers,46 the more prevalent view seems to be
that the patient's preferences for prescription drugs are
irrelevant to the demand for such drugs.47 While this

* See supra note 36 and accompanying text.

* See, e.g., In re Cardizem CD Antitrust Litigation, 105 F. Supp. 2d
618, 680 (E.D. Mich. 2000), aff'd, 332 F.3d 896 (6th Cir. 2003) (focusing on
options available to the "consumer patient").

' See, e.g., United States v. Ciba Geigy Corp., 508 F. Supp. 1118, 1126
(D.N.J. 1976) ("The process of marketing specialty drugs is largely directed
at the prescribing physician. While the doctor is not the consumer of the
product, the patient-consumer is generally legally incompetent to choose
between different medications. The object of a marketing compaign [sic],
then, is to convince doctors to prescribe a particular company's drug rather
than one of its competitor's."); In re Schering-Plough Corp., No. 9297, 2002
WL 1488085, at *62 (F.T.C. June 27, 2002) ("Thus, between the doctor, the
pharmacist, and the patient, it is the doctor who exercises most, if not all,
control over which potassium supplement product is selected for any given
patient. Accordingly, the only logical place from which to determine the
relevant product market is from the array of therapeutically substitutable
choices available to the doctor."); FTC v. Lundbeck, Inc. Nos. 08-6379
(JNE/JJG), 08-6381 (JNE/JJG), 2010 WL 3810015, at *15-19, *21 (D.
Minn. Aug. 31, 2010) (focusing on testimony by physicians that a change
in drug price would not cause significant changes in prescribing behavior).

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conclusion may have been sound at some point in the past, it
is somewhat suspect in the "information age," since
information regarding prescription drugs has become readily
available4 8 at the same time that patients and drug
companies are more able to obtain4 9 and provideo such
information, respectively."

Particularly significant in patients' roles as consumers is
the impact of Direct-to-Consumer (DTC) advertising. In
1997, the FDA released draft guidelines allowing the
expansion of DTC advertising into broadcast and electronic
media,52 and from a total expenditure of less than $1 billion
that year, the pharmaceutical industry increased spending
on DTC advertising to a record $4.9 billion in 2007, before
cutting back to $4.4 billion in 2008.53 And while dollars
spent on advertising may not alone be indicative of any effect
on consumers, studies have shown that increases in DTC
advertising were associated with significant increases in
prescription drug sales. In fact, two studies independently
concluded that for every 10% increase in DTC advertising,

a See, e.g., www.webmd.com; www.drugstore.com.
* World Development Indicators, WORLDBANK.ORG, http://data.worldb

ank.org/indicator/IT.NET.USER.P2 (last updated Dec., 2010) (indicating
that U.S. internet users as a percentage of population has increased from
9.4% in 1995 to 75.8% in 2008).

so Ziad F. Gellad & Kenneth W. Lyles, Direct-to-Consumer Advertising
of Pharmaceuticals, 120 AM. J. MED. 475, 477 (2007) ("In 2004, the amount
spent on direct-to-consumer advertising increased to over $4 billion,
another 23% increase from the year prior.").

5 U.S. DEP'T OF JUSTICE & FED. TRADE COMM'N, IMPROVING HEALTH

CARE: A DOSE OF COMPETITION ch. 5, 28 (2004) (stating that former
Speaker of the U.S. House of Representatives Newt Gingrich indicated
that "[wihen consumers have information and knowledge, they will be
empowered to make real choices about their care and take responsibility
for their choices"), available at http://www.ftc.gov/reports/healthcare/040
723healthcarept.pdf.

12 Gellad & Lyles, supra note 50, at 476.
' Direct-to-Consumer Prescription Drug Advertisements;

Presentation of the Major Statement in Television and Radio
Advertisements in a Clear, Conspicuous, and Neutral Manner, 75 Fed.
Reg. 15,376, 15,381 (proposed Mar. 29, 2010) (to be codified at 21 C.F.R.
pt. 202).

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COLUMBIA BUSINESS LAW REVIEW

drug sales increased by an average of 1%.6^ Even presuming
that spending on DTC advertising exhibits diminishing
marginal returns, the approximately 400% increase in
advertising between 1997 and 2007 likely played a
significant role in increasing patients' relevance as
"consumers."

The effect of DTC advertising on patients or potential
patients makes sense. Over 90% of Americans 18 and older
claim to have seen a DTC advertisement."5 Furthermore, a
2002 survey by the FDA showed that 43% of respondents
reported seeking more information about a drug in response
to seeing an advertisement. 6 The same survey also found
that 89% of those who sought more information did so from
their doctors. Given that physicians are more likely to
prescribe a particular drug when they believe a patient
expects to receive that drug, 7 it follows that patients who
gain information from DTC advertising or other sources are

" Meredith B. Rosenthal, Ernst R. Berndt, Julie M. Donohue, Arnold
M. Epstein & Richard G. Frank, Demand Effects of Recent Changes in
Prescription Drug Promotion, 6 FRONTIERS HEALTH POL'Y RES. 1, 16 (2003)
[hereinafter Rosenthal et al.], available at http://www.nber.org/chapters/c9
862.pdf; U.S. GEN. ACCOUNTING OFFICE, GAO-03-177, PRESCRIPTION DRUGS:
FDA OVERSIGHT OF DIRECT-TO-CONSUMER ADVERTISING HAS LIMITATIONS 15
n.21 (2002), available at http://www.gao.gov/new.items/d03177.pdf.

" Helen W. Brown, AARP, DIRECT-TO-CONSUMER ADVERTISING OF
PRESCRIPTION DRUGS: EXPOSURE AND RESPONSE 11, http://assets.aarp.org/rg
center/general/prescription-drug-advertising-10.pdf; see also Helen W.
Brown, AARP, SURVEYS AND STATISTICS: DIRECT-TO-CONSUMER ADVERTISING
OF PRESCRIPTION DRUGS: EXPOSURE AND RESPONSE, http://
www.aarp.org/health/drugs-supplements/info-11-2010/prescription-drug-
advertising-10.html (last visited Apr. 14, 2011).

" Kathryn J. Aikin, John L. Swasy & Amie C. Braman, FOOD AND
DRUG ADMIN., PATIENT AND PHYSICIAN ATTITUDES AND BEHAVIORS
ASSOCIATED WITH DTC PROMOTION OF PRESCRIPTION DRUGS - SUMMARY OF
FDA SURVEY RESEARCH RESULTS, 2 (2004), http://www.fda.gov/downloads/
Drugs/ScienceResearch/ResearchAreas/DrugMarketingAdvertisingandCo
mmunicationsResearch/UCM152860.pdf.

" Gellad & Lyles, supra note 50, at 478 ("Physicians are more likely to
prescribe a medication when they believe that the patient has an
expectation to receive that medication. . . . About half of physicians in [an]
FDA survey reported some pressure to prescribe as a result of direct-to-
consumer advertising.").

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likely to influence the demand for prescription drugs. To the
extent that patients influence prescription drug demand, it
also follows that courts should view patients as playing a
partial role as consumers in the prescription drug context.

It should be acknowledged that a number of facts cut
against considering patients as the relevant consumer for
prescription drug market-definition purposes. Perhaps most
significantly, a patient must have a prescription from a
health care practitioner with prescription-writing authority
in order to purchase a drug.," While patients may have some
influence over physicians' choices, the physician is the
ultimate gatekeeper. Similarly, the fact that most patients
lack the medical training to make informed decisions and the
possibility that they may be unaware of the full spectrum of
available treatments for a particular ailment weigh against
treating patients as the only relevant consumer. Despite
these limitations on the patient's role as consumer, however,
the significance of the patient to the drug selection decision,
as indicated by the statistics above, should not be
overlooked.

2. Physicians

The prevalent view in the courts is that the physician is
the relevant "consumer" for prescription drug purposes."
This view makes sense intuitively, as only physicians and a
few select others have the power to make the ultimate
decision regarding which drug to prescribe.60 Additionally,

" Practitioner's Manual: Section V-Valid Prescription Requirements,
U.S. Dep't of Justice, Drug Enforcement Admin. Office of Diversion
Control, DEADIvERSION.USDOJ.cov, http://www.deadiversion.usdoj.gov/p
ubs/manuals/practisection5.htm (last visited Apr. 14, 2011).

" See supra note 47.
60 Practitioner's Manual: Section V-Valid Prescription Requirements,

supra note 58 ("A prescription for a controlled substance may only be
issued by a physician, dentist, podiatrist, veterinarian, mid-level
practitioner, or other registered practitioner who is:

1. Authorized to prescribe controlled substances by the jurisdiction
in which the practitioner is licensed to practice

601



physicians have historically been the individuals with the
knowledge to make informed decisions as to which drugs will
be effective at treating a patient's ailment.61 To the extent
that physicians will prescribe drugs only that are necessary
to treat their patients, they limit the influence of patients on
demand for prescription drugs.

Pharmaceutical manufacturers' high level of spending on
marketing to physicians supports the physician-as-customer
view. One study found that 95% of prescription drug brands
sent "detailers" to visit physicians' offices to promote the
brands' products,6 2 demonstrating the prevalence of the
practice and the extent to which physicians are viewed as
the decision-makers. In 2008, the pharmaceutical industry
spent $6.5 billion on physician detailing by industry sales
representatives, in addition to $387 million on professional
journal advertising and a retail value of $14.1 billion in free
samples." Approximately $21 billion in promotional
activities were thus aimed at physicians in 2008-about 4.8
times the $4.4 billion spent on DTC advertising that year-
suggesting that pharmaceutical manufacturers believe that
physicians are their primary consumers. Like the typical
consumer, furthermore, physicians respond to advertising by
pharmaceutical manufacturers: one study has found that
detailing "has a significant positive impact" on the number of

2. Registered with DEA or exempted from registration (that is,
Public Health Service, Federal Bureau of Prisons, or military
practitioners)

3. An agent or employee of a hospital or other institution acting in
the normal course of business or employment under the
registration of the hospital or other institution which is registered
in lieu of the individual practitioner being registered provided
that additional requirements as set forth in the CFR are met.").

61 See Rosenthal et al., supra note 54, at 9.
6 Id. at 2 (citing Scott Neslin, ROI Analysis of Pharmaceutical

Promotion: An Independent Study (May 22, 2001) (unpublished
PowerPoint presentation)).

' Direct-to-Consumer Prescription Drug Advertisements; Presentation
of the Major Statement in Television and Radio Advertisements in a Clear,
Conspicuous, and Neutral Manner, 75 Fed. Reg. 15,376, 15,381 (proposed
Mar. 29, 2010) (to be codified at 21 C.F.R. pt. 202).

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prescriptions written for that drug by physicians, and that
this impact increases when free samples are provided to the
physician.'

The fact that other members of the healthcare community
can prescribe some of these products runs counter to the
logic that physicians, per se, are the relevant customers for
market definition purposes.65 Thus, focusing exclusively on
physicians may result in an inaccurate picture of the way
healthcare practitioners as a whole view drug
interchangeability. Because of the influence of patients and
other entities, this potential problem would remain true even
if one were to concede that "the prescriber" is the only entity
whose cross elasticity of demand matters for market
definition purposes. Furthermore, though perhaps less
significant, the fact that prescribing physicians are not
typically the end user of the prescribed drug, combined with
the fact that physicians do not pay for the drug complicates
the traditional view that physicians should be regarded as
the only relevant consumer. Lastly, the changing structure
of healthcare administration practices may also diminish the
role of the physician as the customer. As one group of
commentators notes: "physicians may have less discretion
over choice of brand name drugs than they once did as a
result of direct and indirect constraints placed on their
prescribing behavior by managed care."6 6

3. Pharmacy Benefit Managers

Pharmacy Benefit Managers (PBMs) essentially act as
middlemen between pharmaceutical manufacturers and
health plans, managing the pharmacy benefit of group
health plan sponsors such as HMO plans, employer

" See Rosenthal et al., supra note 54 at 6 (citing Puneet Manchanda,
Pradeep Chintagunta & Susan Gertzis, Responsiveness of Physician
Prescription Behavior to Salesforce Effort: An Individual Level Analysis
(May 2000) (unpublished manuscript) (on file with Puneet Manchanda)).

* See supra note 60.
* Rosenthal et al., supra note 54, at 2. See infra section III.A.5, Third

Party Payers and Managed Care, for elaboration on the impact of
managed care on physician choice.

603



insurance plans, labor union plans, and plans covering public
employees.67 They also create networks of pharmacies so
that enrollees in a health plan can fill prescriptions at
multiple locations.68 PBMs' control over demand for
pharmaceuticals arises out of the fact that PBMs handle
"claims adjudication"" for 95% of patients with prescription
drug insurance and also create formularies to determine
which drugs will be available to enrollees and at what
price.o

A formulary is a list of PBM-approved drugs for treating
various ailments, and is a PBM's main tool to manage
benefits, both in terms of the variety of drugs it makes
available to enrollees in a particular plan, and in terms of
the prices it is able to offer." Generally, formulary decisions
are made by Pharmacy & Therapeutics committees (P&T
committees), which evaluate drugs for effectiveness and
safety and then classify them for inclusion on or exclusion
from the formulary.7 2 Since inclusion on a formulary will

67 U.S. DEP'T OF JUSTICE & FED. TRADE COMM'N, supra note 51, ch. 7,
11.

6 FED. TRADE COMM'N, PHARMACY BENEFIT MANAGERS: OWNERSHIP OF

MAIL-ORDER PHARMACIES i (2005), http://www.ftc.gov/reports/pharmbenefit
05/050906pharmbenefitpt.pdf.

69 Claims adjudication is the process whereby an enrollee in a health
plan who wants to purchase a drug from a pharmacy presents his or her
health plan card to the pharmacy, which then transmits that information
to the PBM to verify the enrollee's entitlements under the plan, and how
much the enrollee owes in copayment. The PBM then records payment by
the plan and copayment by the enrollee (if any) and transmits billing
information to the health insurers. Health insurers then remit payment
to the PBM, which forwards the payment to the dispensing pharmacy.

70 U.S. DEP'T OF JUSTICE & FED. TRADE COMM'N, supra note 51, ch. 7,
11-12 (2004) ("Through a formulary, the PBM controls the price that
health plans and enrollees pay and may influence the use of various drugs
and the mix of drugs dispensed." (footnotes omitted)).

71 Id.
72 Id. at ch. 7, 10 ("[A]n independent pharmacy and therapeutics

(P&T) committee first evaluates the drugs in the particular class for
clinical effectiveness and safety. Each drug is then classified for formulary
purposes as 'include on the formulary,' 'exclude from the formulary,' or
'optional.' The next step for drugs classified as 'optional' is that the P&T

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improve a drug's sales, pharmaceutical manufacturers
compete for presence on formularies by paying PBMs for
inclusion or providing volume discounts to incentivize PBMs
to dispense their drugs-savings that can be passed on to
end users."

PBMs' selection of drugs to include on a formulary shapes
demand in the sense that a patient's ability to obtain a
particular drug at an insured price turns on whether or not
that drug is on the formulary. Once on a formulary,
however, PBMs still exert influence over demand for drugs
by placing them on different tiers within the formulary."
Different tiers reflect different levels of copayment required
by the patient, and are essentially monetary incentives to
induce patients to adopt cost-containment measures.
Consequently, PBMs have influence over the drug selection
process both before and after a drug is placed on a
formulary-influence that suggests PBMs have some role as
a "consumer."

committee ranks them on clinical effectiveness, and then again by cost.
The 'optional' drugs also are examined for their market share and likely
customer reaction if the PBM were to prefer certain drugs over others.
After the rankings are complete, the PBM decides which drugs to include
on its national formulary.").

73 FED. TRADE COMM'N, supra note 68, at i ("Because formulary listing
will affect a drug's sales, pharmaceutical manufacturers compete to ensure
that their products are included on these formularies. They do so by
paying PBMs 'formulary payments' to obtain formulary status, and/or
'market-share payments' to encourage PBMs to dispense their drugs.
These payments are based on the quantity of drugs dispensed under the
plans administered by the PBM.").

7 U.S. DEP'T OF JUSTICE & FED. TRADE COMM'N, supra note 51, ch. 7,
13 (2004) ("Most group health plan sponsors negotiate a three-tiered co-
pay arrangement with the PBM, with the lowest co-pay for generic drugs,
the middle tier for brand-name drugs with no generic equivalent, and the
highest co-pay for brand-name drugs with a generic equivalent. Some
plan sponsors negotiate a fourth tier for drugs not included on the PBM
formulary, and so-called lifestyle drugs, e.g., drugs to combat hair loss."
(footnotes omitted)).

7 Id.

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4. Pharmacists

Pharmacists exert control over the perceived demand of
pharmaceutical products primarily by their control over
generic substitution and therapeutic interchange.76 Generic
substitution is the pharmacist's ability, without prior
authorization from the prescribing physician, to substitute
an FDA-approved generic equivalent of a branded drug when
the branded version is prescribed.7 A pharmacist's ability to
choose whether or not to engage in generic substitution may,
however, in certain situations, be limited by mandatory
generic substitution laws that require pharmacists to
dispense generic versions of prescribed drugs unless the
branded version is specified.78  Therapeutic interchange, on
the other hand, is the pharmacist's ability, with prior
authorization from the prescribing physician, to substitute a
therapeutically equivalent but molecularly distinct

76 Id. at 12-13.
17 FED. TRADE COMM'N, supra note 68, at 61 ("Generic drugs are

bioequivalent to brand drugs, that is, they contain the same active
ingredient(s) of the brand drugs and are, among other things, chemically
identical in strength, concentration, dosage form, and route of
administration. Pharmacists generally can substitute a generic drug for a
multi-source brand drug without prior physician authorization when a
consumer presents a prescription for the corresponding brand drug."
(footnotes omitted)).

78 William H. Shrank, et. al., State Generic Substitution Laws Can
Lower Drug Outlays Under Medicaid, 29 Health Affairs 1383, 1384 (2010)
("U.S. generic substitution laws are determined by individual states and
can differ among states in several important ways. Some state boards of
pharmacy have adopted mandatory generic substitution laws. These
require pharmacists to substitute a generic for a brand-name medication if
the prescriber did not specify that the latter drug should be dispensed.
More-permissive generic substitution laws enacted in other states give
pharmacists more discretion by allowing, but not requiring, pharmacists to
substitute generics. In addition, some states require patients to provide
consent prior to the substitution of a generic, while other states do not.
States that require patient consent provide patients with a greater
opportunity to influence the use of medications.").

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pharmaceutical product for the particular drug prescribed by
the physician."

While therapeutic interchange seems to confer
pharmacists with significant decision-making power,
suggesting pharmacists play a "customer" role, the fact that
therapeutic interchange is relatively rare cuts against such a
finding.o Generic substitution, on the other hand, grants
less significant decision-making power but seems more
prevalent, with some studies finding generic substitution
rates" of approximately 90%." Though the combined effects
of therapeutic interchange and generic substitution are still
likely to have less impact on drug selection than physician or

7 FED. TRADE COMM'N, supra note 68, at 81 ("Therapeutic interchange
refers to situations in which a pharmacy dispenses a preferred drug rather
than the prescribed drug. There are two types of interchanges. The first
type involves brand drug-to-brand drug interchanges ("brand-to-brand").
For example, a patient presents a prescription for the cholesterol-lowering
drug Crestor, but the pharmacy, after obtaining physician approval, fills
the prescription with Lipitor instead. The second type involves brand
drug-to-generic drug interchanges in which a generic drug that is
therapeutically equivalent, but chemically distinct, from the prescribed
brand drug is interchanged ("brand-to-different generic"). For example,
with the prescribing physician's approval, generic Prozac is dispensed for a
prescription for Zoloft.").

so Id. at 84 ("In early 2005 after responding to the Special Orders, two
large PBMs submitted data on the actual number of interchanges during
2002 and 2003. For these two large PBMs, [therapeutic interchange]
affected less than one-half of one percent (0.5%) of prescriptions dispensed
at retail and at PBMs' owned mail-order pharmacies.").

8' DEP'T OF HEALTH AND HuMAN SERVS., OFFICE OF INSPECTOR GEN.,
GENERIC DRUG UTILIZATION IN STATE MEDICAID PROGRAMS ii (2006)
(defining generic substitution rate as "the percentage of all prescriptions
for multisource drugs (i.e., drugs that have a generic substitute) that were
dispensed as generics").

82 See, e.g., id. at ii ("Across all States, both the median and the
average generic substitution rates [for drugs purchased under Medicaid]
were 89 percent. Twenty-three States had generic substitution rates at or
above 90 percent. This compares favorably with a 90% private sector
benchmark."); see also Dong-Churl Suh, Trends of Generic Substitution in
Community Pharmacies, 21 PHARMACY WORLD SCi 260, 260 (1999),
available at http://www.ncbi.nlm.nih.gov/pubmed/10658234 (finding an
increase in generic substitution rate from 47% in 1979 to 96% in 1997).

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COLUMBIA BUSINESS LAW REVIEW

patient preferences (since physicians and patients are the
primary decision-makers), these factors suggest that
pharmacists have some effect on drug selection, and thus
enter into the "customer" equation.

5. Third Party Payers and Managed Care

Insurance companies play a large role in the
pharmaceutical market. In 2009, for example,
approximately 85% of Americans used health insurance to
pay for healthcare expenditures." More specifically, private
health insurers covered 67% of Americans, while government
health insurance programs covered another 29%." With
respect to prescription drugs, private insurance paid for
43.4% of the nearly $250 billion spent on such drugs in 2009,
while Medicare and Medicaid paid for another 21.9% and
8.0% respectively.5 Patients paid 21.2% of prescription drug
expenditures out of pocket in 2009.6

The role of insurance in payment for prescription drugs is
intimately related to the role of PBMs. According to the
FTC, when an insured patient fills a prescription at a
pharmacy, the pharmacist transfers the patient's insurance
information to the PBM, which adjudicates the claim
according to the process described above." The purpose of
prescription drug insurance is to pay some or all of a
patient's cost of obtaining necessary prescription drugs, such
that the amount a patient actually pays varies based on

" U.S. Census Bureau, Health Insurance Highlights: 2009,
CENSUS.GOV, http://www.census.gov/hhes/www/hlthins/data/incpovhlth/200
9/highlights.html (last updated Sept. 28, 2010).

84 Id.

' U.S. Dept. of Health and Human Servs., Ctrs. for Medicare and
Medicaid Servs., National Healthcare Expenditures by Type of Service and
Source of Funds, CY 1960-2009, CMS.cov, https://www.cms.gov/nationalh
ealthexpenddata/02_nationalhealthaccountshistorical.asp (last visited
Apr. 14, 2011).

8 Id.
7 See FED. TRADE COMM'N, supra note 69.

608 [Vol. 2011



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characteristics of the drug." Regardless of the specific
amounts paid by the patient and insurance company,
however, an insured patient purchasing a drug that is
covered by an insurance plan will not pay the full retail price
of the drug. While this model is prevalent in the United
States today, it is not without its critics. Newt Gingrich, for
example, has observed that "a third party payment model is
inherently conflict-ridden because you have the person
receiving the goods not responsible, the person [providing
the] goods confused about who they're responsible to, and the
person who is paying the money irritated with both the
provider and the patient.""

As mentioned above, the concept of managed care may
have taken some discretion away from physicians with
respect to which drugs they may prescribe, and given it to
insurance plans. This is likely due to the more restrictive
nature of managed care systems relative to traditional fee-
for-service systems. According to the United States National
Library of Medicine, "[m]anaged care plans are health
insurance plans that contract with health care providers and
medical facilities to provide care for members at reduced
costs. These providers make up the plan's network. How
much of [one's] care the plan will pay for depends on the
network's rules.""o Generally speaking, the concept of

8 FED. TRADE COMM'N, supra note 68, at 8 ("For example, some plans
may not require members to make copayments for drugs dispensed by
network pharmacies, while others may require varying copayments
depending on whether the drug is a generic, a brand, or an off-formulary
drug and whether it is purchased at a network retail pharmacy, mail-order
pharmacy, or out-of-network pharmacy. Plans also consider other factors,
including generic dispensing rates, the range of prescription drug choices
available to their members, and the price of dispensing fees, drug
ingredient costs, and member copayments. In all, plans seek to match
PBM services to best meet their objectives in offering pharmacy benefit
insurance coverage.").

89 Id. at 28.
* Medline Plus, Nat'l Library of Med., Definition of Managed Care,

http://www.nlm.nih.gov/medlineplus/managedcare.html (last visited Apr.
14, 2011) (The definition goes on to state: "[riestrictive plans generally cost
you less. More flexible plans cost more. There are three types of managed
care plans:

609



managed care aims to improve care and reduce its costs by
emphasizing preventive and primary care, as well as to
provide patients and physicians with incentives to choose
more cost-effective forms of care." While these incentives
may potentially reduce national healthcare expenditure,
they can limit physician choice. Consequently, this limits
the significance of physicians as the "consumer" of
prescription pharmaceuticals while simultaneously
enlarging the role of insurers. Limits on physician choice are
bolstered by the fact that managed care is the predominant
form of healthcare in much of the United States today.92

1. Health Maintenance Organizations (HMO) usually only pay for
care within the network. You choose a primary care doctor who
coordinates most of your care.

2. Preferred Provider Organizations (PPO) usually pay more if you
get care within the network, but they still pay a portion if you go
outside.

3. Point of Service (POS) plans let you choose between an HMO or a
PPO each time you need care.").

* Kaiser Family Found., Kaiser Comm'n on Medicaid and the
Uninsured, Medicaid and Managed Care: Key Data, Trends, and Issues,
(Feb. 2010), http://www.kff.org/medicaid/upload/8046.pdf ("Managed care
is an approach to delivering and financing health care that is aimed at
both improving the quality of care and saving costs. The fundamental idea
is to improve access to care and coordination of care by assuring that
enrollees have a 'medical home' with a primary care provider, and to rely
more heavily on preventive and primary care. As distinct from the fee-for-
service system, in which individual providers are paid for each service
they furnish, traditional risk-based managed care systems put networks of
providers at financial risk, paying them a fixed monthly 'capitation' rate
for each enrollee to provide all or a defined set of Medicaid-covered
services. This payment arrangement provides different financial
incentives to providers, and ideally, supports an approach to practice that
emphasizes early identification and treatment of health problems and
coordinated management of patients' conditions. Capitation also gives
states more cost predictability and control, and contracts with managed
care plans offer states a mechanism, through quality measurement and
improvement requirements, for holding plans accountable for the quality
of care they provide to Medicaid enrollees.").

92 Nat'l Conference of State Legislatures, Managed Care and the
States: Overview, http://www.ncsl.org/Default.aspx?Tabld=14470 (last
updated Jan. 2011) ("Over the past 15 years, managed care has become
the predominant form of health care in most parts of the United States.

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6. Hospitals

Hospitals are also purchasers of pharmaceutical
products." To this end, hospitals often have their own P&T
committees to determine which drugs will be included on the
hospital's formulary.94 As the purpose of the P&T committee
and formulary in the hospital context is analogous to their
purposes in the PBM context, these entities will not be
discussed at length here. To gain a full understanding of the
pharmaceutical distribution and consumption process,
however, it is important to know that P&T committees and
formularies are at work even when a patient does not go
directly to a pharmacy to obtain a particular drug. This
means that hospitals play a role in determining which drugs
a patient ultimately receives as treatment.

B. Problem Presented by this Structure

It should be apparent from the foregoing that many
parties have a say in determining which drugs are available
to treat a patient's particular ailment, as well as how much
the patient actually pays. For example, a patient may not
think she needs any medication (and may in fact not) until
she sees an advertisement notifying her of a particular
health problem and a prescription drug that can treat it.95

More than 70 million Americans have been enrolled in HMOs (health
maintenance organizations) and almost 90 million have been part of PPOs
(preferred provider organizations). Overall enrollment numbers in HMOs
peaked in 2001 and are declining substantially in almost every area, but
managed care generally remains a dominant type of health care and
coverage.").

93 See, e.g., Gov'T ACCOUNTABILITY OFFICE, MEDICARE HosPITAL

OUTPATIENT DRUG PRICES 4 (2005).
' See, e.g., Kent Cnty. Mem'l Hosp. Pharmacy and Therapeutics

Comm., Procedure for Requesting a Drug to be Considered for Formulary
Addition, http://www.kenthospital.org/documents/formulary-request-form
.pdf (last visited Apr. 14, 2011).

" Restless Legs Syndrome-a disorder characterized by a desire to
move one's legs-may be an example of such an ailment. According to Dr.
Christopher J. Earley, an associate professor of neurology at Johns
Hopkins University, "Restless Legs Syndrome is a great example of a

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COLUMBIA BUSINESS LAW REVIEW

The patient may then visit her doctor, who will decide
whether the patient is indeed sick and in need of medication.
If the doctor finds the patient does need to be treated with a
prescription drug, the doctor will prescribe the medication
she thinks is necessary (taking into consideration all
available treatments-both brand name and generic-as
well as pressure to prescribe from the expecting patient).
However, the patient's health insurance may only cover
certain drugs for a given ailment, as it may have entered
into an agreement with a PBM that obtained volume
discounts by purchasing large quantities of a particular drug
to the exclusion of other drugs capable of treating the
problem. While a patient may still be able to purchase a
particular drug not covered by her insurance, doing so would
result in greater patient cost. Alternatively, even if the
patient exhibits no preference for any particular drug that
can treat her ailment, the pharmacist may provide the
patient a generic equivalent of the prescribed drug with no
prior authorization, or use a therapeutic equivalent, if
authorized by the prescribing physician.

In all of this, it is likely that both the patient who
actually consumes the drug and the doctor who prescribes it
will remain insensitive to (and perhaps, completely oblivious
of) prices and price changes." The patient will be paying

suddenly out-of-the-blue disease." Earley further noted that advertising
created an overheated demand for diagnosis among consumers, while drug
samples provided a convenient response for busy doctors. JoNel Allecia,
Without TV Ads, Restless Legs May Take a Hike: Generic Drugs Could
Lead to Less Hype Over 'Jimmy Legs' Syndrome, (May 14, 2008, 8:34 AM),
http://www.msnbc.msn.com/id/24603237/ns/health-healthcare/ (last
visited Apr. 14, 2011).

' Afield, supra note 42, at 217 n.55 ("[Pihysicians as well as patients
might not be fully aware of generic alternatives to brand name drugs or of
the cost information related to each type of drug. Similarly, both
physicians and patients may have less than complete incentives to be
concerned about costs, in part because third-party payers cover an
increasing portion of the costs of pharmaceuticals." (internal quotations
omitted) (citing prepared remarks of Mark D. Whitener, Acting Deputy
Director, Bureau of Competition, Federal Trade Commission: FTC
Antitrust Enforcement in Pharmaceutical Markets (June 16, 1994) (FTC
Today, June 20, 1994))).

612 (Vol. 2011



No. 2:586] PHARMACEUTICAL PRODUCT MARKETDEFINITION

only a fraction of the price of the drug, no matter which drug
is prescribed, and the doctor will be paying nothing, as she
will not be consuming any of the drugs involved in these
transactions. Furthermore, even patients and physicians
who are price sensitive may be unable to express that
sensitivity because the patient's insurance forecloses the
opportunity to purchase a particular prescription drug," or
because copayments are equal for drugs that are not
identically priced. This lack of price sensitivity (or its
expression) in pharmaceutical purchasing has not gone
unnoticed by the FTC," the courts," or commentators."oo
Indeed, the use of formulary tiers and their accompanying
copayments are part of an effort to impose price sensitivity
on patients by creating price differentials for different
drugs.' While copayments may be a valuable cost-

" See supra notes 66-69 and accompanying text.
98 FED. TRADE COMM'N, supra note 68, at 44 ("When a health plan

sponsor pays the bulk of a drug's cost, consumers have little incentive to
select the most cost effective alternative; indeed, consumers often do not
know the full cost of a drug. In addition, physicians, not patients, have the
expertise and authority to select the particular drugs their patients take.
Physicians may not consider the price of a drug or whether it is covered by
a patient's insurance when deciding what to prescribe. This combination
of factors results in a low price sensitivity among consumers for
prescription drugs." (footnotes omitted)).

" See, e.g., SmithKline Corp. v. Eli Lilly & Co., 427 F. Supp. 1089,
1117 (E.D. Pa. 1976), affd, 575 F.2d 1056 (3d Cir. 1978) ("The blunt truth
is that most physicians and hospital administrators, in their daily
practice, are no closer to the cost-benefit analysis advocated by [the expert]
than are little leaguers equal to the performance of the National League
All-Star baseball team.").

" See, e.g., Howard Morse, Product Market Definition in the

Pharmaceutical Industry, 71 ANTITRUST L. J. 633, 662 (2003) ("A key
question in defining markets is the extent to which customers shift their
purchases in response to changes in price. This analysis is complicated in
the case of pharmaceutical markets because-like other health care
markets-they are sometimes said to be unresponsive to price because of
the complex interactions among providers, patients and payers (who may
be the patient, a third-party payer, or a combination of the two where the
patient is required to make co-payments).").

1o1 Formularies are one way to overcome the fact that consumers with
insurance coverage have a low sensitivity to the prices of prescription

613



containment method, copayments are still only a fraction of
drug prices, so patients will likely not be exposed to the full
variation in drug prices, and many courts regard the
physician (who remains completely unexposed to price
variations) as the only relevant consumer. 102

One problematic outgrowth of patient and physician price
insensitivity is that, since these are the two entities most
likely to be regarded as a "consumer" for antitrust market
definition purposes, cross elasticity of demand between two
pharmaceutical products is likely to be low regardless of the
functional interchangeability of two products. Under present
standards, for example, one court defining a pharmaceutical
product market based on cross elasticity of demand found
separate markets for two seemingly similar pharmaceutical
products because cross elasticity of demand was "very low."o3

This finding was despite testimony from at least four
physicians indicating that the drugs were interchangeable.104

While such a narrow market definition may indeed be
appropriate, the use of cross elasticity of demand in this
context, with little consideration of the availability of

drugs. See, e.g., CONG. BUDGET OFFICE, How THE MEDICAID REBATE ON

PRESCRIPTION DRUGS AFFECTS PRICING IN THE PHARMACEUTICAL INDUSTRY 1

(1996) (quoting F.M. Scherer, Pricing, Profits, and Technological Progress
in the Pharmaceutical Industry, 7 J. ECON. PERSP. 97, 99 (1993)); see also
FED. TRADE COMM'N, supra note 68, at 44.

10 See supra note 47.
13 See, e.g., Fed. Trade Comm'n v. Lundbeck, Inc., Nos. 08-6379

(JNE/JJG), 08-6381 (JNE/JJG), 2010 WL 3810015, at *16-21 (D. Minn.
Aug. 31, 2010).

' Id. at *16-18 (citing testimony from Dr. Jeffrey Gerdes: "[gliven
the shortage of Indocin IV in December 2009, he recognized that he would
likely use NeoProfen by the end of 2009 unless Indocin IV became
available;" Dr. Mark Mammel: "[hie would feel comfortable treating the
vast majority of his patients with either NeoProfen or Indocin IV;" Dr.
Nathaniel Payne, explaining his decision not to use NeoProfen: "[olur
ultimate decision was we didn't see any real advantages or differences and
we had a system that seemed to work well using the indomethacin, and we
felt it in everybody's best interest, particularly the babies', to stay with
what we were familiar with and know how to manage and administer;"
and Dr. Phillip Smith: "[wlere NeoProfen unavailable he would be
comfortable using Indocin IV to treat patent ductus arteriosus.").

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functionally similar products, leaves little room for any
conclusion other than narrow and separate markets.

Relatedly, the court's reliance on testimony that certain
physicians would not change their choice of drug even in the
face of a significant price change is less indicative of the fact
that the two drugs in question do not exhibit functional
interchangeability than it is of the fact that many physicians
simply do not care about price."o' Where evidence suggests
that certain consumers do not consider price in making
purchasing decisions, that evidence should not, without
more, be interpreted as indicating that the products are so
vastly different that no amount of money can compensate for
the differences between them. Rather, that evidence should
be interpreted as indicating what it more plainly indicates:
that price is not being considered. Under these
circumstances, asking physicians and patients about their
cross elasticity will understate the true extent of product
interchangeability.

It is also important to note that focusing on the cross
elasticity of demand of physicians or patients ignores the
price sensitivity of hospitals and PBMs-the entities that
actually purchase the pharmaceutical products. 06 While
physician or patient cross elasticity may indeed be low as a
general matter, it may still be the case that P&T committees
consider price when creating formularies. Consequently, two
or more drugs might actually compete with one another on
price despite a showing of low cross elasticity from the
patient's or physician's perspective.o'0 This price competition

105 Id. at *18-19 (citing testimony from Dr. Jae Kim: "[wihere two
drugs are [sic] equally effective, he would not choose the drug that was
less safe even if it was priced 20% less than the other drug;" Dr. Ilene
Sosenko: "cost does not factor into her decision to use NeoProfen instead of
Indocin IV;" and Dr. Mitchell Goldstein: "asked whether a 10% or 20%
decrease to NeoProfen's price would cause him to switch from Indocin IV
to NeoProfen, Dr. Mitchell responded, 'It is irrelevant.'").

'" See supra Parts III.A.3 and III.A.6.
107 Indeed, the American Antitrust Institute recognized as much in its

Amicus Brief filed in the FTC's appeal of Lundbeck. See Brief for
American Antitrust Institute as Amicus Curiae Supporting Appellants at
20 n.5, FTC v. Lundbeck, Inc., Nos. 10-3548, 10-3549, 2010 WL 3810015,

615



COLUMBIA BUSINESS LAW REVIEW

at the formulary level may be indicative of competition
within a single product market even though it cannot be
observed by the traditional cross elasticity radar, and as
such, should not be overlooked by courts defining
pharmaceutical product markets.

Lastly, cross elasticity of demand is incapable of
accounting for non-price competition-a central value of the
antitrust laws. os To the extent that two drugs compete with
one another on aspects of quality, as demonstrated by free
samples or other promotions, cross elasticity may
inaccurately circumscribe the product market. Consumers
may in fact be insensitive to the price of two products, but
still view them as functional substitutes of varying quality,
and thus competitors within the same product market."o'
Product differentiation, moreover, can exist on both positive
and negative dimensions: one drug may be more effective
than another while also having more severe side effects.
Though the possible quality differences among drugs are
incalculable, the bottom line is that cross elasticity of
demand considers only price-related aspects of competition

at *16-21 (D. Minn. 2011) appeal docketed, Nos. 08-6379 (JNE/JJG), 08-
6381 (JNE/JJG) (8th Cir. Jan 3, 2001), available at http://www.antitru
stinstitute.org/content/amicus-brief-ftc-v-lundbeck-mergers-market-definit
ion [hereinafter AAI Brief] ("The court's findings recognize that hospitals
are price sensitive, and they (not doctors) make the actual drug purchases,
and that Lundbeck sought to influence non-physician members of hospital
pharmacy and therapeutics committees to gain access to hospital
formularies." (internal citations omitted)).

" Id. at 8 ("Quality competition and consumer choice are values
protected by the antitrust laws, even in the absence of price
competitiveness in a given market. The Supreme Court has so held many
times."); see also U.S. DEP'T OF JUSTICE & FED. TRADE COMM'N, HORIZONTAL
MERGER GUIDELINES § 1, Overview, at 2 (2010) ("Enhanced market power
can also be manifested in non-price terms and conditions that adversely
affect customers, including reduced product quality, reduced product
variety, reduced service, or diminished innovation. Such non-price effects
may coexist with price effects, or can arise in their absence.").

'" See, e.g., id. at 4 ("Indeed, it is where price competition lacks vigor
that non-price competition is most important."); see also id. at 2 ("A lack of
price competition between two functionally interchangeable products does
not preclude a determination that they are in the same relevant market.").

616 [Vol. 2011



No. 2:586] PHARMACEUTICAL PRODUCT MARKET DEFINITION

and that products frequently compete on non-price
characteristics via product differentiation. A court defining
a pharmaceutical product market, therefore, should not
forget Judge Kavanaugh's admonition that "product
differentiation does not mean different product markets."'

1. Employing Cross Elasticity of Demand: The
Relevant Question

Courts employing cross elasticity of demand in defining
the relevant market for antitrust purposes, whether or not in
the pharmaceutical context, must not do so blindly. Courts
must be careful to consider the causal relation between cross
elasticity and substitutability. The essence of the inquiry is
whether two products are substitutes because they exhibit
cross-price elasticity, or alternatively whether they exhibit
cross-price elasticity because they are substitutes. This Note
argues that the latter is the case-products demonstrating
cross-price elasticity are necessarily substitutes, but
substitutes do not necessarily exhibit cross-price elasticity.
While the last statement-that substitutes do not
necessarily exhibit cross-price elasticity-may seem
counterintuitive, it may at times be true if market structure
decouples payment for, and selection of, a good-as it does in
the pharmaceutical market. Under these circumstances,
courts must be careful not to rely on "false negatives" in the
form of low cross elasticity of demand, when there may in
fact be some meaningful amount of functional
interchangeability between two or more prescription drugs.

2. The Merits of Calculating Cross Elasticity of
Demand

Having asked the causal question posed above, a court
calculating cross elasticity of demand must determine whose
demand to consider when defining the relevant market.
Matt Koehler notes that:

no Fed. Trade Comm'n v. Whole Foods Mkt., Inc., 548 F.3d 1028, 1055
(D.C. Cir. 2008) (Kavanaugh, J., dissenting).

617



COLUMBIA BUSINESS LAW REVIEW

Properly identifying the customer helps to define a
product market because it enables the claimant to
show the court the interchangeability factor. The
customer is critical because it is the customer that is
the flexible element of the "product equation."
"Flexible element" is the claimant's ability to show
why the product is or is not interchangeable due to
the customer's actual or potential purchasing
actions."'

Exactly who the customer is in pharmaceutical
purchasing has proven to be an elusive issue for courts.
Some have concluded that the patient is the relevant
customer because the patient consumes the product, while
other courts argue that the physician is the relevant
customer because the physician makes the choice of which
drug is purchased."2 Calculating cross-price elasticity of
demand based either on patients' or physicians' responses to
price changes may, as mentioned above, produce different
results. Each of these results is likely to foreclose finding a
broad market due to price insensitivity of both patients and
physicians."3 Furthermore, though at least one court has
admitted it must make its pharmaceutical market definition
decision on the basis of consumer-physician practices,
"whether their practices are rational, irrational, or
unnecessarily costly,""4 doing so without consideration of
economic issues related to market structure takes much of
the economics out of what is, "in essence, an economic task
put to the uses of the law.""5

n1 Matt Koehler, Comment, The Importance of Correctly Identifying
the Consumer for an Antitrust Relevant Market Analysis, 67 UMKC L. REV.
521, 534 (1999).

u' See supra notes 46-47 and accompanying text.
us See supra notes 96-98 and accompanying text.
114 SmithKline Corp. v. Eli Lilly & Co., 427 F. Supp. 1089, 1118 (E.D.

Pa. 1976), affd, 575 F.2d 1056 (3d Cir. 1978).
"' United States v. Grinnell Corp., 384 U.S. 563, 587 (1966) (Fortas,

J., dissenting). If defining markets based on cross elasticity of demand is
an economic task to be put to the uses of the law, it makes little sense to
heed mathematical principles of economics (by calculating cross elasticity
of demand) while simultaneously ignoring other relevant principles of

618 [Vol. 2011



No. 2:586] PHARMACEUTICAL PRODUCT MARKETDEFINITION

The essential problem for market definition based on
cross elasticity of demand, then, is how to come to a useful
definition of "consumer" whose demand can be studied to
define a relevant market for pharmaceutical products.
Neither measuring cross elasticity of demand from the
patients' perspective nor from the physicians' perspective
seems entirely satisfactory, but choosing a different party
such as a PBM seems to be even less satisfactory, given that
a PBM neither directly chooses, uses, nor pays for
prescription drugs. While it is reasonable to argue that
either patients or physicians may be suitable "consumers," it
may in fact be more appropriate to regard neither of them as
the consumer, realizing that, as discussed above, a number of
entities play a role in selecting and paying for prescription
drugs.

The "no single customer" view counsels against using
cross elasticity of demand to determine interchangeability of
prescription drugs. Relying on cross elasticity of demand to
determine product substitutability, and therefore to define a
product market, implicitly assumes that the individuals
selecting which products to purchase are also the ones
paying for it. This is because the traditional view of a
market definition based on cross elasticity of demand
consists of products to which a consumer would switch in
response to a variation in price-switching that would occur,
presumably, because a change in price of one product makes
either that product or one of its substitutes relatively "less
worth it" to the payer.211 In the case of pharmaceuticals,
however, switching is unlikely even if price changes make
one drug a worse value than another, because individuals
choosing prescription drugs never have to make an analysis
of how "worth it" a drug is in the first place.m' Under these
circumstances, the separation of product selection and

economics, such as the fact that market structure may affect the relevance
of calculating cross elasticity of demand in the first instance.

116 See supra note 44.
.17 While some physicians may consider a drug's benefit relative to its

price when writing a prescription, it is likely that sufficiently large
numbers of physicians (perhaps even most) do not. See supra note 105.

619



payment undercuts the assumption of unity of customer,
payment, and selection that underlies a market definition
based on cross elasticity. Because the unity assumption is
essential for substitution to be economically rational in the
face of a price change, the fact that the assumption is not
true for pharmaceuticals means observed substitution does
not correlate with a change in a product's value relative to
its price. The failure of customers to respond to changes in a
product's value relative to price, and the fact that "value"
incorporates elements of a drug's functionality, means that
cross elasticity does not reflect functional interchangeability.

Lastly, cross elasticity can be viewed as not entirely
appropriate in the pharmaceutical context from a doctrinal
perspective. Relying on language from Times-Picayune, from
which the use of cross elasticity as a tool for market
definition arose, it seems that the original purpose of
measuring cross elasticity was to limit a product market
from spanning an "infinite range," rather than mechanically
to define narrow markets.""

Relying on cross elasticity of demand to define the
relevant market makes yet another related assumption that
is not true in the pharmaceutical market: the existence of a
single, continuous demand curve for a single product. In a
typical market, consumers choose among products and their
substitutes, considering the various attributes of each
product, including price. In this context, a change in price of
one good (Good A) causes a movement along the consumer's
demand curve for that product.119 Simultaneously, the
consumer seeing a price change in Good A considers his
demand curve for other products (Good B, for example), as

n1 Times-Picayune Publ'g Co. v. United States, 345 U.S. 594, 612 n.31
(1953) ("For every product, substitutes exist. But a relevant market cannot
meaningfully encompass that infinite range. The circle must be drawn
narrowly to exclude any other product to which, within reasonable
variations in price, only a limited number of buyers will turn; in technical
terms, products whose 'cross elasticities of demand' are small.").

11' See, e.g., DAVID BESANKO & RONALD R. BRAEUTIGAM,
MICROECONOMICS Chapter 2.1, Demand, Supply, and Market Equilibrium,
at 26 (Rhoads et al. eds., 2d ed. 2005).

[Vol. 2011620 COL UM B USINESS LA W RE VIE W



No. 2:586] PHARMACEUTICAL PRODUCT MARKET DEFINITION

well as the fact that he only has a limited income (which may
have effectively increased or decreased, depending on
whether the price of A decreased or increased,
respectively),12 0 and responds by allocating purchases in a
way that gives him the most benefit or value for the money
spent.12 ' In the language of economists, the consumer will
"maximize utility" by substituting purchases of one good for
purchases of another in response to a price change in one of
the goods. Under these circumstances, both Good A and
Good B each have familiar downward sloping and continuous
demand curves, and cross elasticity of demand will be an
informative metric of substitutability between A and B.

The pharmaceutical market, however, is structurally
unique, and presuming that pharmaceutical products have
single, continuous demand curves may be unrealistic. This
is because pharmaceutical demand is subject to the input
and limitations of many entities, all of which contribute in
some form to the selection of, price of, and payment for a
particular prescription drug. Given that patients or doctors
may not be able to respond to changes in drug price even if
they wanted to, and given further that they rarely will want
to because of the decoupling of selection and payment in
addition to their incomplete pricing information,'2 2

presuming that pharmaceutical products have demand
functions that accurately depict the relation between price
and quantity demanded (where quantity demanded reflects
some measure of product value) is unrealistic. For these
reasons, the usefulness of studying cross elasticity of demand
is subverted in this context.'23

120 Id. at 98. When the price of Good A changes, the possible purchase
options available to a consumer with a limited income also change. For
example, in a world with only Goods A and B, an increase in the price of
Good A reduces the consumption options available to consumers, in that
they can buy the same number of units of Good B, but fewer units of A.
Thus, consumers' purchasing power has effectively decreased as a result of
the price change. The opposite is true when the price of a good decreases.

121 Id. at 103.
122 See supra notes 96, 105.
123 It is important to recall that the purpose of studying cross elasticity

of demand when defining product markets is to determine

621



The FTC has expressed a belief that at least some
physicians are price sensitive,124 but there is evidence to the
contrary. 12 5  In light of this evidence, insisting that a
judicially created test for market definition premised on
price sensitivity is applicable across industries,'26 without
consideration of economic differences across those industries,
risks putting legal form over economic substance. It is not
the case that therapeutically interchangeable prescription
pharmaceuticals necessarily demonstrate a significant level
of demand cross elasticity from the perspective of the patient
or physician. Furthermore, owing to the decoupling of
selection and payment, there is not a single continuous
demand function from which to measure cross elasticity in a
way that meaningfully incorporates functional
interchangeability of prescription drugs.

3. Preliminary Defenses

Before addressing potential solutions to the problem
posed by relying on cross elasticity of demand to define

"interchangeability of use," United States v. Brown Shoe Co. 370 U.S. 294,
325 (1962), and that cross elasticity of demand is not intrinsically
meaningful when its quantitative value does not correlate with functional
interchangeability. Because the observable demand functions of
physicians and patients consider the utility of a drug without full
consideration of the drug's price, a determination of interchangeability
based on cross elasticity as calculated from either of these demand
functions may find that two drugs are not interchangeable because
consumers do not care to switch in the face of a price change, when in fact
the drugs do have similar therapeutic qualities, and thus exhibit
"interchangeability of use." Therefore, cross elasticity of demand fails to
capture the entire picture of substitutability of drugs when price and
functionality can be considered separately of one another.

124 See In re Warner-Lambert Co., 87 F.T.C. 812, 877 (1976) ("[W]e
cannot assume that all physicians are so fixed in their prescribing habits
that a substantial increase in the existing price differential . . . would
never cause some shift . . . . [We can take notice that some physicians,
even if a minority, are conscious of price differences . . .. We see no reason
to believe that price would never enter into some physicians' decisions.").

125 See supra notes 103, 105.
6 See United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377,

404 (1956).

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No. 2:586] PHARMACEUTICAL PRODUCT MARKETDEFINITION

pharmaceutical product markets, it is worth addressing
potential arguments that, despite the concerns presented
above, there is actually no problem at all.

a. Telescoping Demand

One might argue that, despite multiple "consumers"
expressing demand differently, these individual demand
functions essentially "telescope" into one. For example,
though a patient may see a DTC advertisement that inspires
her to express a preference for a particular drug, the actual
choice the doctor makes will incorporate the patient's
preference. As mentioned earlier, doctors often experience
pressure to prescribe when patients come to their offices
with demands stimulated by outside information.12 7

Nevertheless, doctors are capable of using (and indeed
charged with the duty to use) their professional training to
make informed decisions as to the necessary treatment.
Consequently, the drug a doctor eventually chooses to
prescribe is arguably the result of conscious deliberation by
the doctor that incorporates information and preferences
presented by the patient. According to this line of reasoning,
the "multiple demand functions" argument is not viable, at
least with respect to an independent patient demand.
Similarly, the telescoping demand argument can be used to
eliminate pharmacists from the equation, as pharmacists are
required to obtain prior authorization from the prescribing
physician when substituting a therapeutic equivalent for a
prescribed drug. 128

Admitting that there is some truth to the telescoping
demand theory, the use of cross elasticity of demand to
define pharmaceutical product markets is still likely to be
misleading because the existence of third party payers
decouples selection of and payment for drugs. In some cases,
uninsured patients may pay for pharmaceuticals directly,
but as mentioned above, approximately 85% of Americans
use health insurance to pay for healthcare expenditures, so

127 See supra note 57.
128 See supra note 79.

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COLUMBIA BUSINESS LAW RE VIEW

selection and payment remain decoupled for most patients.129

Owing to the fact that the telescoping demand theory cannot
resolve perhaps the most fundamental reason for avoiding
cross elasticity as a tool for market definition in decoupled
markets, this theory does not fully address the market
definition problem described above.

b. So What? Precedent Demands Cross
Elasticity

Alternatively, one might argue that relying on cross
elasticity of demand to define markets is appropriate
because it is the test courts apply, and the Supreme Court
has already indicated that although industries may vary,
"the tests are constant."' This argument is somewhat more
difficult to overcome, as it is backed by Supreme Court
precedent that has stood for over five decades. Nonetheless,
du Pont itself focused on interchangeability, noting that
"interchangeability is largely gauged by the purchase of
competing products for similar uses considering the price,
characteristics and adaptability of the competing
commodities."m" Thus, it seems that cross elasticity of
demand arose as a tool to measure interchangeability
considering both product utility and price, and should not be
considered doctrinally impenetrable in and of itself when it
is incapable of serving its intended purpose.'3 2

129 See supra note 83. While price sensitivity could be measured from
the 15% of consumers who pay out of pocket, the administrability concerns
of finding these purchasers counsels against doing so.

1o Du Pont, 351 U.S. at 404.
131 Id. at 380-81 (emphasis added).
132 Indeed, some courts have recognized that a product market can be

defined by determining interchangeability without relying on cross
elasticity of demand. See Nobody in Particular Presents, Inc. v. Clear
Channel Commc'ns, Inc., 311 F. Supp. 2d 1048, 1082 (D. Colo. 2004)
(noting that "a plaintiff may, through sufficient evidence of other indicia of
market definition, define a relevant market without economic study of
cross elasticity of demand," and providing extensive analysis of cases
defining markets by determining interchangeability without reference to
cross elasticity of demand).

624 [Vol. 20 11



No. 2:586] PHARMACEUTICAL PRODUCT MARKET DEFINITION

One might argue further, however, that in the case of
pharmaceuticals, even if two drugs are therapeutically
interchangeable in theory, they may not be interchangeable
in fact. For example, if PBMs and insurance companies
allow patients to obtain only one of the two drugs at the
insured price, they thereby create two distinct markets.
While this argument has superficial appeal, it fails to
consider the reality that therapeutic interchangeability of
drugs is a permanent condition, while one's current
insurance provider (and its payment policies) is subject to
change. In the long and medium runs, a consumer in the
hypothetical above who wants a particular non-covered drug
could, at least in theory, obtain it by switching insurers or
obtaining a new insurance policy. Additionally, given the
wide variety of available insurance plans, it is quite likely
that some drugs will be interchangeable in fact for certain
people, even though the cross elasticity of demand between
those drugs is low due to physician and patient price
insensitivity.

C. Two Proposed Solutions

1. Increased Reliance on Scientific Testimony

One potential solution to the problem of market definition
created by the unique structure of the pharmaceutical
industry is to reduce reliance on cross elasticity of demand as
a measure of interchangeability, while increasing reliance on
scientific testimony from physicians, pharmacists,
physiologists, or other qualified scientific experts. Altering
the source of expert testimony from economists to healthcare
practitioners and scientists would change the basis of the
interchangeability determination from perceived consumer
demand to therapeutic effect.133 If, as argued above, cross

a The term "perceived consumer demand" is used to indicate the fact
that because of the structure of the pharmaceutical market, the actual
demand of patients and physicians-that is, their responses to changes in
price-as would be demonstrated by their demand functions, cannot be

625



elasticity of demand was originally employed as a proxy for
"reasonable interchangeability of use,"3 then relying on
scientific testimony to determine interchangeability will
achieve the goal of determining "interchangeability of use"
without the complications created by pharmaceutical market
structure.

Shifting the determination of interchangeability from
cross elasticity of demand to therapeutic interchangeability
would result in a shift from using economists as experts to
using scientists or practitioners, but the shift would not
significantly increase the use of expert witnesses as a
general matter. One potentially significant difference,
however, is the fact that the FTC and DOJ have in-house
economists, whereas they do not have in-house scientists. To
the extent that shifting the source of expertise will result in
additional expenditures, this shift may be burdensome for
the government as an antitrust plaintiff.'

The most significant positive attribute of this proposal is
its consistency with existing doctrine. As the Court in
Brown Shoe put it, "[tlhe outer boundaries of a product
market are determined by the reasonable interchangeability
of use or the cross elasticity of demand between the product
itself and substitutes for it."'"' Since Brown Shoe gives
plaintiffs the option of demonstrating interchangeability of
use as an alternative to cross elasticity, requiring plaintiffs

observed. This is because price does not fully enter into either the
physician's or the patient's consumption decision.

.' United States v. Brown Shoe Co., 370 U.S. 294, 325 (1962).
1"' It is worth noting that even though the Agencies have internal

economists, they frequently rely on experts who are not affiliated with the
Agencies, and these experts can be quite expensive. In Lundbeck, for
example, the FTC hired Jonathan Arnold, Ph.D., who is affiliated with the
economic consulting firm Analysis Group. Though Dr. Arnold did not file
an official report in Lundbeck, his billing rate in 2003 was $450 per hour.
See Affidavit of Jonathan I. Arnold at 1, In re Exide Technologies, 378 B.R.
762 (Bankr. D. Del. 2007) (No. 02-11125), 2003 WL 24196171. Presuming
that the Agencies regularly incur expenses from external economic
witnesses, expenses incurred from reliance on scientific testimony may
result in little if any increase in litigation costs.

"' Brown Shoe, 370 U.S. at 325 (emphasis added).

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No. 2:5861 PHARMACEUTICAL PRODUCT MARKET DEFINITION

to demonstrate interchangeability of use instead of cross
elasticity of demand may be doctrinally appropriate where
cross elasticity is not economically meaningful.'

2. Adopt the Merger Guidelines Standard

An alternative solution to using cross elasticity of demand
for market definition is to adopt the Horizontal Merger
Guidelines approach in all cases. Replacing the court-
created market definition test based on cross elasticity of
demand with the recently revised Guidelines approach would
create uniformity in market definition practices and
eliminate the current confusion regarding which method to
employ. Additionally, the 2010 Guidelines advocate a more
functional approach that allows the agencies to consider the
direct competitive effects of a merger without first having to
define the market."' The 2010 Guidelines' "direct effects"
analysis is particularly useful in markets like
pharmaceuticals that contain highly differentiated products.
Drawing a clear market boundary in such markets is
difficult owing to the fact that products "typically are
positioned by their manufacturers along a competitive
continuum, and compete with one another to varying
degrees."'"' And though the Guidelines' approach defines
markets based on the hypothetical monopolist test, which
relies on consumer price sensitivity,14 0 the Guidelines also

131 As already noted, some courts have concluded that
interchangeability can be determined without reference to cross elasticity
of demand. See supra note 132.

138 U.S. DEP'T OF JUSTICE & FED. TRADE COMM'N, HORIZONTAL MERGER
GUIDELINES § 4, Market Definition, at 7 (2010) ("The Agencies' analysis
need not start with market definition. Some of the analytical tools used by
the Agencies to assess competitive effects do not rely on market definition .

1s9 Eric J. Stock, New U.S. Merger Guidelines Suggest Increased Focus
on Deals in High Tech and Pharmaceutical Sectors, KLUWER COMPETITION
LAW BLOG (Oct. 18, 2010), http://kluwercompetitionlawblog.com/2010/10/
18/new-u-s-merger-guidelines-indicate-greater-scrutiny-of-high-tech-and-p
harmaceutical-transactions.

140 U.S. DEP'T OF JUSTICE & FED. TRADE COMM'N, HORIZONTAL MERGER

GUIDELINES § 4.1.1, The Hypothetical Monopolist Test, at 9 (2010) ("The

627



consider non-price competition in market definition.'4 1

Because it presumes competition between two products to
indicate some level of interchangeability between them, the
Guidelines' more comprehensive view of competition helps
produce a more accurately defined product market than a
test that only considers price.

Related to the effects-based approach to market
definition, the new Guidelines also allow the agencies to
define markets by taking into account customers who might
be subject to price discrimination.' For example, if a
pharmaceutical manufacturer seeks to acquire a competing
product, the agencies may consider whether the two drugs
the manufacturer seeks to own are close substitutes for a

hypothetical monopolist test requires that a product market contain
enough substitute products so that it could be subject to post-merger
exercise of market power significantly exceeding that existing absent the
merger. Specifically, the test requires that a hypothetical profit-
maximizing firm, not subject to price regulation, that was the only present
and future seller of those products ('hypothetical' monopolist) likely would
impose at least a small but significant and non-transitory increase in price
('SSNIP') on at least one product in the market, including at least one
product sold by one of the merging firms.").

.41 Id. at 2 ("Enhanced market power can also be manifested in non-
price terms and conditions that adversely affect customers, including
reduced product quality, reduced product variety, reduced service, or
diminished innovation. Such non-price effects may coexist with price
effects, or can arise in their absence. When the Agencies investigate
whether a merger may lead to a substantial lessening of non-price
competition, they employ an approach analogous to that used to evaluate
price competition."); see also id. at 7 ("Market definition focuses solely on
demand substitution factors, i.e., on customers' ability and willingness to
substitute away from one product to another in response to a price
increase or a corresponding non-price change such as a reduction in
product quality or service.").

142 U.S. DEP'T OF JUSTICE & FED. TRADE COMM'N, HORIZONTAL MERGER
GUIDELINES § 4.1.4, Product Market Definition with Targeted Customers,
at 12 (2010) ("If a hypothetical monopolist could profitably target a subset
of customers for price increases, the Agencies may identify relevant
markets defined around those targeted customers, to whom a hypothetical
monopolist would profitably and separately impose at least a SSNIP.").

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subset of consumers. 1 3 If the agencies believe that there is a
"realistic prospect of an adverse competitive effect on [that]
group of targeted customers,"'" they may define the market
more narrowly than they might in the absence of these
"captive" customers."'

Note, however, that despite the advantages of an effects-
based approach to market definition, the 2010 Guidelines do
not get antitrust plaintiffs entirely off the hook. Though the
new Guidelines allow the agencies to pursue claims without
explaining why the relevant market should exclude certain
seemingly competitive products, the agencies must still
"explain the competitive significance of these other
competing products, and why competition from these
products would not be sufficient to counteract any attempt
by the merging parties to increase prices post-merger." 46

Furthermore, courts hearing challenges brought under the
Guidelines will likely continue to consider market definition
a central aspect of the antitrust claim.147  This will act to
temper the influence of a broad adoption of the Guidelines
approach. Indeed, commentators agree that requiring
market definition under the Guidelines will likely provide
discipline to plaintiffs' and courts' competitive analyses and

"3 Stock, supra note 139. This factual scenario is analogous to that in
Lundbeck, where two drug products competed with one another and with a
surgical technique capable of treating the same illness. Presuming some
but not all customers view the two drugs as close substitutes but view the
surgical technique as an entirely separate product, this approach to
market definition will protect consumers who are not willing to undergo
surgery from a price increase initiated by the owner of the only available
pharmaceutical treatments.

144 HORIZONTAL MERGER GUIDELINES, supra note 142, at 12.
1'" This effects-based narrowing of the defined market would be

valuable in connection with the approach advocated in this note. Since
abandoning cross elasticity of demand as a method of defining
pharmaceutical product markets will result in a general broadening of
market definitions, the Agencies will still be able to pursue narrow market
definitions where appropriate by relying on the Guidelines' effects-based
approach.

146 Stock, supra note 139.
147 See id.

629



will prevent courts from making arbitrary decisions."' It is
important to note that even though the Guidelines do not
specifically rely on "cross elasticity of demand," they require
some analysis of substitutability, for which cross elasticity of
demand may be evidentiary.14 9

IV. IMPLICATIONS FOR FUTURE CASES

A. Implications of Increased Reliance on Scientific
Testimony

The product market will generally be broader when
defined based on interchangeability of use as determined by
scientific and medical testimony than when defined based on
cross elasticity of demand as determined by economic
testimony. This is due to the fact that, given the nature of
the pharmaceutical distribution structure, cross elasticity of
demand, when examined from the perspective of the patient
or the physician, is constrained by the decoupling of drug
payment and selection at levels that may not reflect the true
functional interchangeability of pharmaceutical products.
Additionally, cross elasticity is limited further by structural
features of the market, such as formularies, which may

" Id. ("[Tihe use of the market definition paradigm has been useful,
among other reasons, to provide a discipline for the competitive
analysis."); Dennis W. Carlton, Revising the Horizontal Merger Guidelines,
6 J. COMPETITION L. & ECON. 619, 626 (2010) ("The discipline of forcing
decision-makers to have a reasonable market definition in mind before
finding a harmful competitive effect is likely to be valuable in constraining
agencies and especially courts from making decisions based on arbitrary
criteria."); Carlton & Israel, supra note 15, at 2 ("To eliminate market
definition would likely lead to arbitrariness and discretionary havoc in
courts and at foreign agencies where economics is not as well understood
as at U.S. antitrust agencies.").

149 U.S. DEP'T OF JUSTICE & FED. TRADE COMM'N, HORIZONTAL MERGER

GUIDELINES § 4.1.3, Implementing the Hypothetical Monopolist Test, at 11
(2010) ("In considering customers' likely responses to higher prices, the
Agencies take into account any reasonably available and reliable evidence,
including, but not limited to: (1) how customers have shifted purchases in
the past in response to relative changes in price or other terms and
conditions. . . .").

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No. 2:586] PHARMACEUTICAL PRODUCT MARKET DEFINITION

prevent drug interchange for economic reasons, even if no
therapeutic limit to interchangeability exists.'
Consequently, relaxing the requirement that plaintiffs show
sufficiently high cross elasticity of demand will create a "one
way ratchet." This will enable plaintiffs to demonstrate
"interchangeability of use," without being hindered by a lack
of demand cross elasticity. Note, however, that this
broadening of product markets caused by reduced reliance on
cross elasticity of demand will not result in unreasonably
broad markets-medical testimony will indicate if two drugs
are not substitutes, and the product market will be
appropriately circumscribed.'"'

The final result will be a test for antitrust product market
definition that overcomes the unique structural difficulties
presented by the pharmaceutical market, with resulting
product market definitions that comport with definitions
obtained in other industries. This approach will improve
antitrust enforcement by providing for a more realistic and
customized approach to competitive analysis in the
pharmaceutical industry-one that is also consistent with
doctrine.

0 As already mentioned, formularies may contain one drug to the
exclusion of a therapeutically similar drug to achieve volume discounts on
the chosen drug, which may not be available if a formulary split total
purchase volume among several drugs.

"' The consequences of broader product markets are complicated. As
a general matter, broader markets mean that any given drug is a less
significant player in the market, so acquisition of a particular drug may be
found to be less detrimental to competition than it would be if the market
were narrower. On the other hand, in Lundbeck, the court found that
acquisition of a product was not anticompetitive because the acquired
product was in a different market than Lundbeck's existing product. If the
Lundbeck court had defined the market broadly enough to include both of
the products, then Lundbeck's acquisition would have resulted in
Lundbeck owning all of the products in the market, which may have raised
anticompetitive concerns. Thus, under certain circumstances, broader
markets may mean that a given acquisition will be more, rather than less,
anticompetitive. Regardless of the outcome, however, the solutions this
Note advocates would allow courts to define markets more accurately,
thereby protecting consumers whenever a company attempts to
monopolize a market for products that are functionally interchangeable.

631



B. Implications of Adoption of the Guidelines
Approach

Adoption of the Guidelines approach for all antitrust
market definition purposes would, at the very least, provide
some harmony to a complicated area of the law. More
importantly, however, the Guidelines' direct effects analysis
may be able to overcome the complications of the
pharmaceutical industry. For example, a competitive effects
analysis may have been able to save complainant FTC in
Lundbeck,5 2 which found that the FTC had failed to satisfy
its burden of showing that Lundbeck had engaged in a
competition-lessening acquisition when it acquired both of
the FDA-approved pharmaceutical treatments for Patent
Ductus Arteriosuss and, within two days, increased the
price by 1300%. This Note does not argue that Lundbeck
was wrongly decided, but it does argue that under the cross-
elasticity-of-demand-based market definition relied upon by
the court, the court had no opportunity to come to any
conclusion other than that the two drugs acquired by
Lundbeck were in separate product markets and that
consequently such acquisition would not "tend to create a
monopoly."54

Adopting an effects-based approach to market
definition-which includes non-price effects-would enable
the Agencies and courts to define antitrust product markets
in a more realistic manner. The pharmaceutical market is
just one market in which market structure interferes with
the normal operation of cross elasticity of demand, but there
may be others. If effects analysis can overcome market
structure problems as a general matter, then adoption of the
Guidelines for all market definition purposes may improve
antitrust enforcement outside of the pharmaceutical context
as well. Furthermore, even though competitive effects

152 Fed. Trade Comm'n v. Lundbeck, Inc., Nos. 08-6379 (JNE/JJG), 08-
6381 (JNE/JJG), 2010 WL 3810015, at *22 (D. Minn. Aug. 31, 2010).

'" Patent Ductus Arteriosus is a heart condition that primarily affects
low-birth-weight, usually premature, babies. See id. at *2.

' Clayton Act § 7, 15 U.S.C. § 18 (2010).

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analysis likely cannot carry the day even under the
Guidelines, the test for interchangeability under the
Guidelines is broader than a straightforward application of
cross elasticity of demand.166 The flexible and comprehensive
approach advocated by the Guidelines might overcome many
of the current limitations to effective product market
definition in the pharmaceutical industry.

V. CONCLUSION

Antitrust enforcement in the pharmaceutical industry
has significant healthcare quality and access consequences
for Americans. This is so not only because of pharmaceutical
manufacturers' tendency to be the subject of antitrust
scrutiny, but also, and perhaps more so, because of the
tremendous role pharmaceuticals play in healthcare
administration and outcomes. Similarly, product market
definition is essential to effective antitrust enforcement, as it
provides context for understanding the competitive effects of
corporate conduct.' 6 As with many judicially created tests,
however, the application of cross elasticity of demand to
determine product interchangeability and thus the "relevant
market" for antitrust purposes may not be universally
appropriate. The pharmaceutical industry, owing to its
complex structure and to the lack of identity between users,
choosers, and payers in the pharmaceutical purchasing
process, is one of these cases. In the pharmaceutical market,
in contrast to the market for most goods, neither the patient-
consumer nor the physician-decision-maker pays the price of
the good, and consequently neither the patient nor the
physician exhibits much sensitivity to changes in price,
despite the fact that therapeutically similar drugs may be
available. As a consequence of pharmaceutical market

" See generally U.S. DEP'T OF JUSTICE & FED. TRADE COMM'N,
HORIZONTAL MERGER GUIDELINES § 4.1.3, Implementing the Hypothetical
Monopolist Test (2010).

156 Pitofsky, supra note 7, at 1807 ("Definition of relevant market is a
critical analytical tool in antitrust enforcement because the legality of
business conduct almost always depends upon the market power of the
participants.").

633



structure, then, cross elasticity of demand fails to serve as an
indicator of "reasonable interchangeability of use," and is in
fact devoid of much of its original economic significance."'
The failure of this test to determine interchangeability, in
turn, means that courts may fail to detect a product's
legitimate competitors and consequent harm to competition
when those competitors are prevented from competing. The
problem of reliance on cross elasticity is further exacerbated
when non-price competition exists, because such competition
is not readily detectible by an examination of cross elasticity.

In light of antitrust doctrine's failure to adjust
appropriately to the subtleties of the pharmaceutical market,
a different approach is required. Two solutions are readily
available: the first, which relies on existing doctrine, is to use
medical rather than economic testimony to determine
"reasonable interchangeability of use;" the second, though
not based in doctrine, is to harmonize merger and
monopolization market definition practices. Either approach
would likely achieve more economically meaningful results,
thereby restoring lost power to antitrust enforcement in the
pharmaceutical industry. Which, if either, of these
alternatives is ultimately adopted is up to the Agencies,
courts, and other members of the antitrust bar, but this
glitch in the antitrust system is significant enough, in its
effects on both dollars and lives, that some reform is
necessary.

Barring a change of heart on the part of pharmaceutical
executives or the government's enforcement agenda,
pharmaceuticals will likely remain a major focus of antitrust
law. As a consequence of this continued significance, careful

' One could analogize relying on cross elasticity of demand as a
metric for reasonable interchangeability of use to simultaneously stepping
on the clutch and gas pedals of a car with a manual transmission and
concluding that the transmission is incapable of transferring power to the
wheels. By pressing the clutch, the driver creates a disconnect between
the engine and the wheels, such that stepping on the gas turns the engine
but not the wheels. Similarly, calculating cross elasticity of demand can
be thought of as turning the engine, but because selection and payment
are disconnected, calculating cross elasticity of demand does not produce
the end result of determining interchangeability.

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No. 2:586] PHARMACEUTICAL PRODUCT MARKET DEFINITION

attention should be given to market definition methodology
to ensure that markets are properly defined, and that
doctrine is not blindly applied to novel circumstances
without consideration of whether the doctrine remains
appropriate. As Justice Fortas noted, using cross elasticity
of demand to define markets is "in essence, an economic task
put to the uses of the law,"' but it would hardly seem
appropriate to perform an economic task without considering
the economics of the market in which the task is being
performed.

" United States v. Grinnell Corp., 384 U.S. 563, 587 (1966) (Fortas,
J., dissenting).

635