Redefining relevant market in competition law

The relevant market

The definition of the relevant market, consisting of the relevant product and geographical market, is a valuable tool in competition law. It allows undertakings and competition authorities to determine the boundaries between actual and potential competitors, calculate their market shares, and thus assess their market power. Ultimately, it is a key tool to assess whether, e.g., an undertaking can benefit from certain exemptions from the prohibition of cartels or simplified merger clearance procedures, and whether it has a dominant position.

The Commission has left the basic concept of the relevant market unchanged: the relevant market is still defined by products that are interchangeable and substitutable, and by a territory with homogeneous competition conditions. The relevant market can thus be limited to a small municipality or a single country or extend to the EU or even the whole world. For example, the Commission notes that if customers have access to the same suppliers all over the world under similar terms regardless of where the customer is located, the relevant geographic market is likely to be worldwide.

Alternative indicators for calculating market share

However, the way in which the relevant market is defined is changing. While in the past, price used to be a key parameter, now the Commission recognises the importance of non-price parameters, especially where the service is available free of charge (e.g., for multi-sided platforms). It also lists additional indicators for determining market shares, such as the number of suppliers, capacity, number of active users, number of website visits, number of downloads, volume or value of transactions concluded over the platform, etc. To promote their products, multi-sided platforms often offer some products free of charge (e.g., basic membership or app versions). In such cases, traditional tools such as the SSNIP test cannot be effectively used. The SSNIP (a small but significant and non-transitory increase in price) test defines the product market by looking for a substitute for the reference product in the event of a slight increase in price. Therefore, the Commission places more emphasis on non-price parameters such as the degree of innovation, sustainability, durability, the possibility to integrate the product with other products, privacy, etc. if customers take them into account in their purchasing decisions.

SSNIP test clarification

In view of digitisation and globalisation, the notice focuses in more detail on digital platforms (e.g., payment card systems, social networks, etc.) or highly innovative industries. Equally importantly, it clarifies certain procedures applied in defining the relevant market, such as the SSNIP test, which should make the definition of the relevant market easier in practice.

After-markets, bundles and (digital) ecosystems

The notice also outlines a way to define the relevant market in cases where the consumption of a durable product leads to the purchase of another related product (after-markets) or where customers consume several products together as a bundle (e.g., a package holiday with a tour operator). In the case of (digital) ecosystems consisting of a primary core product and several secondary (digital) products connected by technological links or interoperability (e.g., products linked by operating system, services, and applications), similar principles as in the case of after-markets and/or bundled services can be applied to define the relevant product market(s).

The Commission expects the revised notice to enhance transparency and legal certainty for all market players and to allow for a more effective enforcement of competition rules. In turn, the notice may help businesses avoid potential breaches of competition law.