After a lengthy period of consultation, the European Commission has adopted a new Notice (‘Notice’) on the definition of the relevant market for purposes of EU competition law.  The Notice comes on the heels of a significant period of updating competition laws, including (i) a number of new block exemption regulations setting safe harbors (e.g. for vertical agreements, R&D, specialization agreements); (ii) new guidelines on vertical agreements; (iii) new guidelines on horizontal agreements, which have a chapter dedicated to sustainability arrangements; (iv) the Digital Markets Act; (v) the Digital Services Act; and (vi) the Foreign Subsidies Regulation.

It is worth recalling that the purpose of the Notice is to provide guidance (including transparency) to business on the approach the Commission will take in analyzing the boundaries of competition between companies and the level of market power being exercised in a market (or the level of change in market power which occurs or might occur).  The new Notice acknowledges that the world has changed considerably since the previous market definition notice which dates from 1997, with the advent of digital markets, more complex supply chains and the multiple challenges of digital and green transitions (for example, carbon zero, environmental sustainability factors).  The Commission acknowledges that product characteristics, price and intended use are not the only competitive parameters.   Other factors may play a role, such as security and privacy protection, durability, possible integration with other products, range of possible uses, as well as possible behavioral biases from choosing the default option on offer.  The Commission wants to reflect these developments as well as developments in jurisprudence, its own practices and ensure consistency with other competition authorities.  The Notice seeks to increase the transparency and therefore the predictability of the Commission’s thinking, through publication of the methodology it will follow and the evidence and criteria it will seek to rely on in the application of the competition rules.  This should help businesses anticipate the sorts of information which the Commission considers to be relevant for purposes of market definition.

The Commission uses market definition as a tool for analyzing (i) proposed mergers and full function JVs under the merger regulation; (ii) antitrust enforcement relating to bi-lateral or multi-lateral conduct under Article 101 TFEU; (iii) antitrust enforcement relating to unilateral conduct by companies which may be dominant under Article 102 TFEU; and (iv) enforcement of equivalent provisions under the Agreement on the European Economic Area.  Customers take a number of factors into account, which the Commission looks at.  These include price, innovation, various aspects of quality (including factors of sustainability, security, reliability of supply). 

What the Commission is interested in are the factors which operate as ‘effective and immediate’ disciplinary forces or restraints on suppliers of a given product and for this it looks primarily at demand substitution, then at supply substitution.  These two help to identify the products and suppliers in the relevant market.  For purposes of the market definition exercise, it does not look at potential market entry (i.e. from outside the market).  Rather this is considered subsequently as part of the competitive assessment.

In addition to clarifying and expanding on existing and well-understood market definition principles, the Notice provides practical examples and there is also discussion in the Notice on a number of new topics.  These include:

  • Product differentiation: this could occur at product or geographic levels and could result in a finding of separate markets or of a single broad market where there is no clear distinction;
  • Customer groups: they could be differentiated (including by customer location) if there are different conditions of supply.  Three conditions are required to be present: identifiable groups, an absence of arbitrage and non-transitory discrimination between them;
  • R&D: where R&D and innovation efforts are in the mix, the Notice indicates that the Commission will consider whether the R&D identifies pipeline products which can be visible for ‘expected transitions in the structure of  a market’, in which case it could form part of the present or a future product market.  For innovation efforts, the Commission will assess what the objectives of the R&D are and whether it is too early a stage of innovation and whether the boundaries of competition can be identified and who the rivals are: ‘is there sufficient probability that new types of products are about to emerge’?
  • Digital markets: the Notice outlines the Commission’s approach to multi-sided platforms where competition may not be on price and after-markets.  For multi-sided platforms, the analysis seeks to determine whether there is one market for all products or separate and distinct markets for products on each side.  The Commission will look to see what substitution possibilities exist.  Where products have zero (or even negative) monetary value, what are the relevant non-price elements (including quality and sustainability factors) and are there alternatives to the SSNIP test (which would not be applicable in such circumstances).  For after-markets, the Notice indicates that the Commission will examine whether there are system markets, multiple markets or dual markets.

The update to the Notice on the definition of the relevant market is welcome and long overdue.  At the same time, businesses should not forget that the relevant market analysis involves both legal and economic arguments, with interpretation of the relevant concepts in a fact-specific context.  Also, markets are constantly developing and evolving and regard will need to be had to guidance from the European Courts.  One point which the Commission has made clear is that the Notice only offers guidance to business: it is not a regulation binding on the Commission and nor is it bound by past decisions.  Parties will certainly rely on the Notice to support their submissions, but the Commission will need to justify its position if it intends to depart from the methodology outlined in the Notice.