DEFINING MARKET BOUNDARIES

This study shows how spatial information about product supply and dema nd can be used to determine the geographic extent of markets. It demon strates that markets thus defined allow finer-grained measurement of c ompetitive conditions than is possible using conventional approaches. Two procedures are developed and contrasted: one, called a natural mar ket approach, is drawn from the Industrial Organization economics lite rature; the second, called an enactment approach, is associated with t he open systems perspective on organizations. Applied to a set of hosp itals in the San Francisco Bay area, geographic market boundaries esta blished in these ways are shown to lead to finely defined markets, and to reveal strong variation in competitive conditions across the area- variation not detectable if conventional approaches to market definiti on are used. It is shown that these approaches have applications beyon d geographic market definition, and can also be applied to define mark ets in terms of product or service types.