Over the past several months, there have been a number of statements by politicians and Member State governments regarding the reform of EU competition law. Much of this debate is fundamentally linked to how authorities should define the relevant product and geographic markets that guide their antitrust and merger investigations.

In this context, in December 2019, EU Commissioner for Competition and Executive Vice President for ‘A Europe Fit for the Digital Age,’ Margrethe Vestager, announced that the Commission is preparing to revise its formal guidance document on market definition (the “Market Definition Notice”),[1] to reflect current competitive trends, noting that “changes like globalisation and digitisation mean that many markets work rather differently from the way they did, 22 years ago.” Published in December 1997, the Market Definition Notice is now over two decades old.

Geographic market definition

Many antitrust and merger investigations turn on the extent to which the Commission will accept that companies from outside the EEA are able to constrain domestic players. Since the Siemens/ Alstom prohibition decision—which was widely criticized by European politicians for failing to take sufficient account of Chinese competitors, thereby preventing the creation of a “European champion” for rail—there has been ongoing debate as to whether the Commission is adequately taking international competition into consideration in its investigations.

The French and German governments proposed radical reform in favor of a presumption of global markets.[2] These proposals have now been joined by the Austrian government, where the newly elected government calls for “greater consideration of global competition, and reformulation of market definition in merger control.”[3]

In addition to the Franco-German and Austrian proposals, the Dutch government’s Ministry of Economic Affairs and Climate policy published a non-paper on competition law reform on December 9, 2019.[4] The paper strikes a balanced approach, by first cautioning that any relaxation of merger control rules to facilitate the creation of national champions “removes too much competitive pressure from European economic operators and is harmful to consumers,” but then suggests that the Commission adopt a “level playing field approach” that allows it to take into account any current or future effect on competition within an EEA market that may stem from market distortions arising from non-EU countries (e.g., foreign government subsidies and other support to local champions).

Commissioner Vestager appears to acknowledge the political concerns raised by national governments, noting the increasing trends of globalization affecting Europe, but also explicitly references a recent investigation, Tata/ThyssenKrupp, where the Commission thoroughly investigated whether Chinese steel represented “a genuine alternative to steel made in Europe.”

Ultimately, it may be unlikely that the Commission’s revised Market Definition Notice will radically change its approach to defining geographic markets. While occasionally politically controversial, the overall approach is relatively mature, increasingly rooted in economics, and in large part accepted amongst practitioners. Nevertheless, an acknowledgement of the increasing ease of cross- border trade would be welcome. Companies would also benefit from guidance on how to identify the evidence required to demonstrate that their markets are global.

Product market definition

In addition to geographic market definition, the Commission’s revision of the Market Definition Notice will also allow it to update its guidance on determining which products and services compete with one another. The most significant issue in this exercise will be how the Commission addresses digital markets, an area of considerable current scrutiny, and where the 1997 Market Definition Notice offers little direction (indeed, the terms “internet,” “online,” and “e-commerce” do not feature at all).

The Commissioner seems to acknowledge that digitization and the availability of free online services has had a profound impact on “which products consumers are willing to substitute for each other.” Ms. Vestager also remarked that the SSNIP test,[5] which examines the “products people would switch to if the price for the one they’re using goes up,” is not fit for the digital age, and that alternative methods of evaluating the market may be necessary.

Prompted by the recent debate over the impact of “Big Tech” companies taking place on both sides of the Atlantic,[6] Commissioner Vestager mentioned that digital businesses are “often active in a whole range of different areas, providing consumers with an ecosystem of services,” which makes it difficult for consumers to switch from one ecosystem to another. This view was echoed by the European Parliament, which published a briefing paper that claimed that “ecosystems may raise barriers to entry if they integrate complementary services without making them inter-operable with alternative offers.”[7] Ms. Vestager’s comments suggest that the revised Market Definition Notice may propose guidance on how to identify and correlate different goods and services into “ecosystems.”

In revising the guidance on product market definition, some caution may be advisable. While the Commissioner rightly pointed to a variety of considerations that make the application of the current guidance to digital markets difficult, adopting a framework for digital product market definition prematurely may lead to unpredictable outcomes that deter companies from engaging in effective competition.

The analyses that the Commission, National Competition Authorities (“NCAs”), and other global enforcers are developing to assess digital competition are not consistent,[8] and the Commission’s decisions in the Google Shopping,[9] Google Android,[10] and Google AdSense investigations,[11] each of which involved complex questions regarding the definition of inter-connected services, are all under appeal before the General Court. While a more structured outline of the Commission’s approach to digital product market definition would be helpful for companies to understand its current thinking, creating formal guidelines ahead of any economic or legal consensus may be a step too far.

[1]              Commission Notice on the definition of relevant market for the purposes of Community competition law, available at: https://eur-lex.europa.eu/legal-content/ EN/ALL/?uri=CELEX%3A31997Y1209%2801%29.

[2]              The proposed reform of EU Merger Control Rules after Siemens/Alstom was discussed in our February 2019 EU Competition Law Newsletter.

[3]              See page 176 of the program (“Stärkere Berücksichtigung des globalen Wettbewerbs, Neudefinition der Marktabgrenzung bei Fusionskontrolle”), available at: https:// www.dieneuevolkspartei.at/Download/Regierungsprogramm_2020.pdf#page=176.

[4]              Non-paper strengthening the level playing field on the internal market, available at: https://www.permanentrepresentations.nl/documents/ publications/2019/12/09/non-paper-on-level-playing-field.

[5]              The test of small but significant and non-transitory increase in price (SSNIP) can be a useful starting point to define relevant product markets in competition law cases.

[6]              See, e.g., https://www.bloomberg.com/news/articles/2019-10-25/how-elizabeth-warren-would-break-up-big-tech.

[7]              http://www.europarl.europa.eu/RegData/etudes/BRIE/2020/646117/EPRS_BRI(2020)646117_EN.pdf.

[8]              For example, various EU NCAs have taken different approaches to the regulation of most-favored-nation clauses in the context of hotel booking websites.

[9]              Case AT.39740, Commission decision of June 27, 2017, available at: https://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=1_ 39740.

[10]             Case AT.40099, Commission decision of July 18, 2018, available at: https://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=1_40099.

[11]             Case AT.40411, Commission decision of March 20, 2019, not yet published. The press release is available at: https://ec.europa.eu/commission/presscorner/ detail/en/IP_19_1770.