European Commission adopts a revised Market Definition Notice

As noted by Executive Vice-President Vestager, “if something happens every 25 years, it deserves attention.[1]” Last Friday, the European Commission (the EC) published its revised Market Definition Notice (the Revised Notice). It follows a lengthy consultation process, to which more than 100 stakeholders contributed.[2] The Revised Notice is the first update to the Market Definition Notice since it was originally published in 1997, and provides important up-to-date guidance for antitrust practitioners and businesses alike. 

This blog provides a brief background on the role of market definition in EU antitrust and merger control, the changes introduced by the Revised Notice, and its likely influence both within the EU and further afield.     

The role of market definition

As we set out in our blog announcing the launch of the EC’s public consultation on the Market Definition Notice, market definition is a fundamental concept within all aspects of antitrust enforcement and merger control. In abuse of dominance cases under Article 102 TFEU, assessments of restrictive agreements under Article 101 TFEU, and in merger control cases, strength of market participants and competitive effects are appraised within the confines of appropriately determined relevant markets.  

As the EC (rightly) notes in the Revised Notice, rather than being an end in itself, market definition is an “intermediate tool” designed to structure and facilitate the assessment of parties’ market power. Nevertheless, in all but the most clear-cut of cases, market definition can have a very significant bearing on the outcome of a competitive assessment.    

What’s new and not new under the Revised Notice? 

Unsurprisingly, the fundamental concept of a relevant market is unchanged. A relevant market is still defined as typically comprising a product and a geographic dimension, with the former including interchangeable or substitutable products and the latter covering a geographic area where the conditions of competition are sufficiently homogeneous.

However, despite a continuity in the basics, in the 25 years that have passed since the original Market Definition Notice was published, innovation, digitalisation and globalisation have laid the foundations for wholly new markets to emerge and the dynamics of competition within existing markets to be dramatically transformed, and with this, the ways in which competition authorities approach market definition.

The Revised Notice reflects these developments and can be seen as a non-binding codification of the various methodologies already used by the EC to assess market definition in its decisional practice over the past decades, rather than an attempt to push through radically different policy positions. 

We identify the following key updates and changes in the Revised Notice that businesses and their advisors should be aware of:

• A heightened emphasis on non-price parameters of competition

While the 1997 Market Definition Notice stated that “[t]he exercise of market definition focuses on prices for operational and practical purposes[3],” the Revised Notice notes that non-price parameters of competition may be relevant to market definition, including innovation and quality (e.g. in the form of sustainability, durability, interoperability and privacy protection afforded). The Revised Notice further notes that in assessing demand-side substitution, the EC will assess the underlying reasons why customers would or would not consider two products to be substitutable, again emphasising the importance of non-price considerations.[4]

EVP Vestager underlined this development in a speech announcing the publication of the Revised Notice, noting that:

“The revised notice explains how we commonly consider elements other than price. We consider a product's innovativeness or its quality in different aspects. For example, we have had cases where a product's sustainability and durability, or the variety of uses that it offers, were important.[5]”

While the EC’s decisional practice has indeed recognised the importance of non-price parameters of competition for some time, EVP Vestager’s emphasis on these points comes against the backdrop of a recent controversial opinion piece in the Financial Times in which the EC was described as being stuck in a “narrow, technocratic world of pricing models” not suited to digital markets.[6] The article prompted a strongly worded defence of the EC’s enforcement record in digital markets from Olivier Guersent, the Director-General of the EC’s Competition directorate.[7]

• A broader range of tests 

The 1997 Market Definition Notice afforded great prominence to the so-called SSNIP (Small but Significant and Non-Transitory Increase in Price) test.[8] While the SSNIP test can provide a useful conceptual basis for thinking about market definition in ‘traditional’ markets characterised by price competition, the EC now underlines its limited use in markets where price is not the primary parameter of competition (e.g., in relation to zero monetary price products), as well as in highly innovative markets. The Revised Notice expressly acknowledges these limitations, noting that there is no obligation on the EC to apply the SSNIP test empirically and that “other types of evidence are equally valid,[9]” such as product characteristics, intended use and general customer preferences.  A key issue in practice is the reliability of the evidence used to assess matters such as “product characteristics” or “customer preferences” and the objectivity of the assessment of such evidence.  It can be expected that there will continue to be ongoing debate between companies and their advisers on those issues.

• Forward-looking assessments

Expected structural market changes are at the core of some merger control cases. To what extent should the EC conduct forward-looking assessments without taking the risk to rely on changes that are too hypothetical and that eventually do not materialise?

The Revised Notice helpfully confirms that future structural market transitions, such as in highly innovative industries, may be taken into account in the market definition – especially in cases characterised by fast technological progress (e.g., the digital sector). In order to be taken into account, market transitions must lead to effective changes, and “there must be reliable evidence that there is sufficient likelihood that the projected structural changes will take place” going “beyond mere assumptions that observed trends will continue or that certain undertakings will change their behaviour.[10]” The burden of proof is high, although the EC has ultimately adopted the standard of “likelihood” over the originally proposed test of “certainty” in the draft Revised Notice.

• Guidance for specific market types

The Revised Notice supplements its general principles on market definition with additional guidance on aspects of market definition that are specific to digital and innovation-intensive markets. The Revised Notice now includes sub-sections setting up the Commission’s approach to market definition in the presence of: (1) significant differentiation; (2) discrimination between customers or customer groups; (3) significant R&D; (4) multi-sided platforms; and (5) after-markets, bundles and (digital) ecosystems – currently a hot topic in merger control, both in the EU and internationally.

In relation to industries characterised by significant R&D, the Revised Notice confirms that pipeline products may belong to an existing relevant product market or to a new product market if there is sufficient visibility to establish with which other product(s) the pipeline product is likely to be substitutable.[11]

As for multi-sided platforms, the Revised Notice states that the EC may define a product market by reference to either the products offered by a platform as a whole, or the products offered on each side of the platform.[12] Evidence is key, and this is an area where a complex assessment of the relationship between the different sides of a multi-sided platforms which may supply products at a zero monetary, or even negative, price on one side of a two-sided market. In these cases, the Revised Notice confirms that the Commission will continue to focus on non-price parameters.

The Revised Notice also provides (admittedly non-committal) guidance on the ways in which it may assess digital ecosystems in which the consumption of a primary product leads to the consumption of a connected secondary product or products – something that has come up in several recent EC merger control investigations. The Revised Notice notes that – depending on how the secondary products are offered to the market – the EC may apply the approach it takes for after-markets, or for bundled products. Other factors, such as network effects, switching costs and homing decisions may also be relevant.  

Significance of the Revised Notice? Within the EU and further afield

As noted above, the guidance sticks relatively faithfully to the EC’s recent decisional practice, rather than trying to push through new policy positions. It thoroughly consolidates the EC’s precedents in a structured way, and it now reflects the significant developments that have taken place in the past twenty-five years in various sectors, including life sciences and tech. 

As such, the Revised Notice constitutes a very important and useful tool not only for businesses and external advisors, but also for EU national competition authorities. Those and national courts are expected to be stimulated by the revised Notice to gravitate towards the EC’s approach, for instance when dealing with cases in the tech sector involving multi-sided platforms or ecosystems. The same holds true for many non-EU competition authorities, which in practice often rely on the EC’s guidance and precedents.

To find out more about our thoughts on the key trends and developments to be aware of in the coming year, read our Global antitrust in 2024: 10 key themes report.

[1] See the comments of Executive Vice President (EVP) Vestager announcing the Revised Notice here: https://ec.europa.eu/commission/presscorner/detail/en/speech_24_710

[2] Ibid. 

[3] See para. 15 of the 1997 Market Definition Notice.

[4] See paras. 15 and 50 of the Revised Notice.

[5] https://ec.europa.eu/commission/presscorner/detail/en/speech_24_710 (emphasis added)

[6] https://www.ft.com/content/065a2f93-dc1e-410c-ba9d-73c930cedc14 

[7] https://www.ft.com/content/80ae2bed-1471-4082-aefd-8cb5b7343495 

[8] The SSNIP test starts with the narrowest plausible candidate market and asks whether a hypothetical monopolist in the candidate market would find it profitable to implement a small but significant non-transitory price increase. If in response customers would switch to an alternative product such that the price increase would not be profitable for the monopolist, it suggests that the relevant market should include that alternative product. The process is then repeated until a set of products is identified for which a price increase would be unprofitable.  

[9] See para. 31 of the Revised Notice. 

[10] Ibid, paras. 21 and 77.

[11] See para. 91 of the Revised Notice.

[12] Ibid, para. 95.