Commission publishes findings of evaluation of Market Definition Notice

On 12 July 2021, the European Commission (the 'Commission') published a staff working document setting out the results of its evaluation of whether the notice on the definition of the relevant market for the purposes of EU competition law – know as the Market Definition Notice (the 'Notice') – is still ‘fit for purpose’.

Overall the staff working document finds – based on an open public consultation, dialogues with national competition authorities, economic studies, and legal research – that market definition continues to be an important step of its assessment in antitrust and merger cases and that the Notice is 'a very useful instrument that remains highly relevant' as it provides 'correct, comprehensive and clear guidance on market definition'.

However, the Commission also acknowledges that the Notice does not reflect a number of developments that have taken place since its adoption in 1997 relating in particular to the digitalisation and globalisation of the economy, the evolution in quantitative economic methods and certain recent EU case law.

In its press release, the Commission states that it will reflect on the need and on how to address the issues that were identified in the context of the evaluation.

Key findings

The staff working document assesses a few key areas but for the most part does not provide conclusive statements on the need to update the Notice based on the evaluation:

Globalisation

An important trigger of the evaluation was the political backlash the Commission faced following its prohibition of the Siemens/Alstom deal.

In a joint manifesto, the German and French government called for a more global, dynamic and long-term approach to competition in order to better account for competition from non-EEA players, including in the assessment of relevant markets.

However, the staff working document suggests that no changes to the Notice are required because it already sufficiently allows for a dynamic and forward-looking assessment of geographic markets, and because out-of-market competition can be fully taken into account where it fulfils the criteria of potential competition.

In fact, the staff working document notes that the Commission already accounts for intensified globalisation in its decision practice as it increasingly uses wider geographic market definitions: while between 1992 and 1996 the Commission assessed a global market in circa 15 per cent of merger cases, that share rose to circa 27 per cent 20 years later (2012–2016).

Digitalisation

Another focus area of the evaluation was the impact of digitalisation and innovation on competition.

Stakeholders had expressed the view that, in digital markets, less emphasis should be put on market definition (see for example Competition Policy for the Digital Era), given the highly dynamic nature and special characteristics of the digital economy, such as the prevalence of multi-sided platforms, zero-price services, and network effects of digital ecosystems.

The staff working document rejects those views quite clearly, and confirms the importance of market definition as the starting point of any competitive assessment also in the digital/tech sphere.

However, it acknowledges that the Notice could be better tailored to increasingly digital and interconnected market conditions, including the use of more sophisticated quantitative techniques.

The staff working document provides as an example the limitations of the SSNIP (‘small but significant non-transitory increase in price’) test in multi-sided/zero-price markets and refers to alternatives such as the SSNDQ (‘small but significant non-transitory decrease in quality’) or the SSNIC (‘small but significant non-transitory increase in cost’) tests.

Other possible areas

The staff working document flags a few further areas that could justify updating the Notice, such as:

• possible differences between market definition for the purposes of forward-looking assessments in merger cases and backward-looking assessments in antitrust cases;
• the need to provide more detailed guidance on the factors that should be taken into account when assessing the relationship between primary markets and aftermarkets; and
• the scope for additional guidance on the use of factual and economic evidence in determining the relevant market (eg the use of techniques such as critical-loss analysis, and the reliance on information on trade flows and price differences/discrimination, and from companies’ internal documents).