This study explores the relationship between small area and economic approaches to defining hospital markets. Both approaches attempt to link populations receiving care with providers who deliver it. The approaches differ fundamentally, however, in their view of the role of alternative sources of inpatient services. The small area approach attempts to minimize the number of hospitals in a market. Economic approaches attempt to include substitute sources of care. The economic literature also suggests that the availability of substitutes influences the use of health services. This literature is briefly reviewed, and the implications for the analysis of physician practice patterns are discussed. The study concludes that economic approaches to market definition are likely to be more fruitful in explaining variations in the use of services. © 1993, J.B. Lippincott Company.