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A firm, which is the only supplier of a good located in a particular town, is accused of engaging in anticompetitive tactics in order to protect its monopoly position in that town. As part of its defense, the firm has argued that the geographic antitrust market includes a larger neighbouring city with multiple firms. The defense offers two pieces of evidence in support of its larger geographic market: (1) the correlation coefficient between the price in the town and the nearby city is 0.95, looking at weekly prices for recent years, and (2) a recent survey of consumers in the town, conducted by the firm's marketing branch, revealed that a 5% increase in prices above current levels would be unprofitable because too many consumers would switch to purchasing from the city. In this larger geographic market, the firm's market share is low. Therefore, the defense claims, the firm does not have the market power necessary to carry out anticompetitive practices or to make them worthwhile.
Offer a critique of the firm's arguments regarding market definition. Can we conclude that the relevant geographic market is larger than the town based on the evidence presented?
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