On 8 February 2024, the European Commission (“EC”) adopted the revised Market Definition Notice (the “revised Notice”) for the purposes of EU competition law, marking the first update since its adoption in 1997. This has been a much-anticipated development and comes in response to significant societal and economic challenges that have arisen from the emergence of new technologies, digitalization and fast-paced globalization. In this respect, the revised Notice intends to reflect current market realities and developments, taking into account both the European Union courts’ case law and the EC’s decisional practice.
Why is this important?
The concept of market definition is pivotal to the EC’s assessment of mergers and antitrust cases, as it enables the latter to define the perimeter and the boundaries within which undertakings compete with each other, as well as to assess whether a company holds market power.
What does the EC’s revised Notice bring?
The key developments introduced with the EC’s revised Notice can be summarized as follows:
Non-price elements
The EC’s revised Notice highlights the significance of non-price factors and parameters when defining the relevant markets in situations where customers consider them in their purchasing decisions. These may include, inter alia, the product’s degree of innovation (e.g. the use of sustainable technology, resource efficiency, durability), the product’s image, the security and privacy protection afforded as well as differences among distribution channels (online/offline), reliability of supply and the quality of products and services. This greater emphasis on non-price factors could be of significant relevance in relation to the market definition of multi-sided platforms.
Digital markets, multi-sided platforms and digital ecosystems
The revised Notice provides thorough guidance with respect to the specificities of market definition in certain digital markets, and namely in relation to:
- multi-sided platforms (e.g. payment card systems, and advertising-sponsored platforms) for which the revised Notice acknowledges that the traditional SSNIP test may not be a relevant tool to define the relevant market, given that in these markets the products or services are offered for free or at least without monetary compensation, and there is therefore no price competition. In such instances, the EC may also consider alternatives to the SSNIP, such as assessing the switching behaviour of customers of the zero-price product in response to a small but significant non-transitory decrease of quality (‘SSNDQ’), and
- digital ecosystems, i.e. systems consisting of a primary core product and several secondary digital products whose consumption is linked to the primary product through interoperability or other technological links, for the market definition of which the revised Notice provides that the EC will apply similar principles to those applied to after-markets.
Innovation-intensive markets
The revised Notice introduces specific principles on how the EC may interpret and assess the specificities of innovation-driven markets i.e. markets characterized by frequent and significant research and development (‘R&D’) for the purposes of market definition. Specifically, the revised Notice provides extensive guidance on the assessment of the relevant product and geographic market of the so-called pipeline products. The specificities of such products are that, although they may not yet be available to customers, their R&D process is sufficiently visible and therefore it may be difficult to establish with which other product(s) it is likely to be substitutable, when the product is brought to market.
Market shares
Among the main novelties of the revised Notice is the approach adopted in relation to the use of market shares for the purposes of assessing a company’s competitive strength. In particular, the revised Notice acknowledges that, although market shares may be relevant and a valuable indicator in markets with rather homogeneous products and limited changes in market dynamics over time, this would not necessarily apply in situations when the EC assesses effects on innovation, the market power of otherwise competitively significant undertakings (such as start-ups), or future market entries. In such instances, the EC may rather rely on other factors to assess a company’s market power.
Market definition based on a forward-looking assessment
Despite the fact that the EC has so far in general looked at historic data in relation to market definition, the revised Notice clarifies that in certain instances a forward-looking application of market definition is more appropriate. This is particularly the case in markets where structural market transitions (such as regulatory or technological changes) are expected with a sufficient likelihood.
Market definition in relation to global markets
Importantly, the EC’s revised Notice acknowledges that markets can be global at scope, particularly in cases where customers around the world “have access to the same suppliers on similar terms regardless of the customers’ location”, while also citing a number of precedents where markets have been defined as global by the EC in the past. In addition, the revised Notice provides thorough guidance on the role of specific factors e.g. prices, customer preferences, purchasing behaviour, switching costs and other barriers to supplying customers in different areas, transport costs, as well as trade flows. Lastly, the revised Notice highlights that structural transitions that specific markets may undergo can be taken into account when defining the relevant market, including transitions that may be related to globalization.
Sources of evidence
The revised Notice provides extensive guidance on possible sources and types of evidence to be used by the EC when defining the relevant markets. In this respect, the EC may rely on both qualitative and quantitative information and will not apply a rigid hierarchy of different sources of information or types of evidence.
Concluding remarks
In general, the revised Notice aspires to enhance transparency and predictability with respect to the EC’s assessment in relation to the definition of the relevant markets, as well as to increase legal certainty for both undertakings and their advisors. At the same time, the revised Notice seems to take a better account of the major technological and societal changes, at the forefront of which are the development of digital markets and globalization. Nevertheless, it remains to be seen in practice how the EC will tackle less “traditional” mergers and antitrust cases in the future, and whether the EC will depart from the principles and guidelines enshrined in the revised Notice.
