Exogeneity Tests of Market Boundaries Applied to Petroleum Products

US antitrust law makes market definition and the calculation of marketshare statistics an integral part of the determination of the anticompetitive impact of a merger. Because markets frequently overlap, however, market definition is rarely an easy task. A statistical test that can be used as an aid in defining markets is proposed here. Time-series techniques are used to test if price in one region is exogenous to the process that determines price in another. The rejection of exogeneity can be an indication that the two regions are economically linked and thus may belong to a common geographic market. The test is applied to petroleumproduct prices from various regions of the United States. TIME-SERIES techniques have long been appreciated by macroeconomists. The uses to which they have been put range from testing for the exogeneity of variables used in the construction of macroeconomic models (Sims [1972], for example) to discovering empirical regularities in macroeconomic data without imposing a priori structure on the observations (Ashenfelter and Card [1982], for example). In contrast, these techniques have not been so