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The Cellophane and Merger Guidelines Fallacies Again

The Cellophane Fallacy is a very familiar topic in antitrust literature. The expression comes from the famous antitrust case of the 50's when the United States Supreme Court made an overly broad definition of the relevant market, thereby failing to detect the market power of du Pont, which held a virtual monopoly on cellophane. In the presence of a concentrated market structure the Merger Guidelines method (1982) also fails, leading to overestimation of the size of the relevant market. Given these similarities the Merger Guidelines Fallacy and the Cellophane Fallacy are generally taken to be identical. In fact, however, the two fallacies arise for different reasons and need to be clearly distinguished. This paper traces the origins of the two fallacies and provides a correction for the Merger Guidelines approach.