Market definition is often a crucial first step in an antitrust analysis. The results of a market definition study can influence one's conclusions about an industry dramatically, a consequence well known to those familiar with the history and practice of antitrust. There are a variety of statistical and econometric methods available to the modern economist, but few emphasize the speed with which prices adjust.

This article describes a new empirical test that attempts to measure the speed with which arbitrage works to reduce differentials in price. The speed of arbitrage is a natural measure of the degree of interindustry competition because it is determined by the willingness of consumers to switch from one product to another and by the competitive response of sellers that are affected when producers in another industry change their price. This test can be therefore be used to delineate antitrust markets and to assess interindustry competition. The methodology, which is based on an econometric technique known as cointegration, is applied to study competition between the metal and glass container industries, which was the central issue in the landmark antitrust case, U.S. v. Continental Can Co.

This article was published in The Antitrust Bulletin, Vol. XLII, No. 1, Spring 1997.