On November 8, 2022, the Commission published its draft Revised Market Definition Notice (the “Revised Notice”) for consultation in view of a formal adoption in the third quarter of 2023.[1] The revision of the current 1997 Market Definition Notice (the “Original Notice”) was initiated in April 2020, with a particular focus on improved analysis of global and digital markets.[2] In addition to guidance on these issues, the Revised Notice largely confirms the principles set in the Original Notice, integrates as additional background recent EU decisional practice and preserves the Commission’s margin of discretion in market definition assessments.
Market definition – a mainstay of EU competition analysis
The Commission uses the concept of market definition to determine the boundaries of competition for a given product or service. Although there has been some debate as to the utility of market definition in recent years,[3] it still serves as the starting point to identify the competitive constraints bearing on the relevant undertakings in antitrust and merger control cases.[4] Once a market is defined, the Commission is able to calculate market shares, which provide a preliminary indication of the involved undertakings’ market power on the relevant market.
The market definition tool is applied in the assessment of cases under Articles 101 and 102 TFEU, as well as in merger control proceedings. Its application may, however, vary in practice depending on the nature of the proceedings in which it is applied. Merger assessment presents a greater focus on forward-looking elements whereas antitrust investigations tend to concentrate on past infringements with more limited forward-looking analysis to assess whether future practices may constitute an infringement.[5] This distinction affects the Commission’s analysis, in particular for rapidly evolving markets, as the boundaries of relevant markets may evolve over time along with market dynamics. As a result, the Commission may define different relevant markets for the same economic activity or products over time and depending on the nature of the proceedings.[6]
The Commission’s Market Definition Notice – a 25 year-old institution
The Commission adopted the original Market Definition Notice in 1997 to provide guidance on how it applies the concept of relevant market in its enforcement of EU law and improve transparency and legal certainty for businesses. While the principles it prescribes are only binding on the Commission, it has been widely relied on also by national competition authorities and courts and is often referred to in the Court of Justice’s case law.[7]
In the aftermath of the Siemens/Alstom prohibition decision,[8] a number of EU Member States called for revisions of EU competition law, including to better reflect the reality of “global” markets.[9] Increased scrutiny over digital markets has also spurred debate over market definition and the best approaches for capturing the competitive realities of ecosystems and multi-sided platforms.[10] In this context, the Commission announced plans to review the Market Definition Notice in 2020, shortly after Vice President Vestager’s appointment to her second term as Commissioner for Competition.[11]
What is staying and what is changing
In line with the Original Notice, the main objective of the Revised Notice is to “offer more guidance, transparency and legal certainty for businesses to facilitate compliance”.[12] In doing so, the Revised Notice retains the core principles of the 1997 Notice and, in particular, the notions of product and geographic markets and its focus on demand-side substitution over supply-side substitution .[13] But the Revised Notice also provides welcome additional guidance in several areas.
- Beyond the SSNIP test: taking account of non-price competition. While demand substitution in the Original Notice was centered around the question of whether “the parties’ customers would switch to readily available substitutes or to suppliers located elsewhere in response to a hypothetical small (in the range 5 % to 10 %) but permanent relative price increase” (the “SSNIP” test), the Revised Notice expands the assessment to take account of other competitive parameters and forward-looking elements such as quality and innovation. The Revised Notice recognizes that price-based substitution may not always be the best means of assessing demand substitution when undertakings compete on other parameters, or in the context of “zero monetary price products and highly innovative industries”. The Revised Notice refers to Google Android as a case where an SSNDQ test (“small but significant non- transitory decrease of quality”) was applied to assess consumer switching between Android app stores to app stores for other licensable mobile operating systems.[14]
- Multi-sided platforms. The Commission’s consultation identified digitization as a key trend that needed to be reflected in the Revised Notice,[15] with many respondents highlighting the lack of coherent regulatory guidance on the assessment of market definition for multi-sided platforms. The Revised Notice provides detail on the Commission’s approach to assessing markets in cases involving multi-sided platforms, discussing how the regulator will take into consideration factors specific to these kinds of businesses, such as indirect network effects and non-price elements.[16] For instance, the Commission may define a relevant product market for the products offered by a platform as a whole,[17] or it may define separate relevant product markets for products offered on each side of the platform.[18] When doing so, and in particular where products are offered for free, the Commission can focus on non-price elements such as product differentiation and product functionalities, intended use, competitive constraints based on industry views and barriers to switching, such as interoperability with other products.[19]
- After-markets, bundles and digital ecosystems. Following limited guidance on connected markets (primary and secondary or “after” markets) in the Original Notice, the Revised Notice clarifies how the Commission will take into consideration competitive constraints in these markets. The Revised Notice elaborates on the three different approaches the Commission may adopt in such cases,[20] including its treatment of “bundle” products.[21] Furthermore, it also explains that these principles could apply to digital markets. Additional guidance on this issue may have been welcome, particularly when the Commission’s evaluation report referred to further case studies on when digital products might be viewed as primary and secondary products.[22]
- Updated approach to geographic markets. The Revised Notice now explicitly recognizes that markets can be defined as global in scope, and offers guidance on when this may be the case. For example, “when customers around the world have access to the same suppliers on similar terms regardless of the customers’ location, the relevant geographic market is likely to be global”.[23] The Revised Notice also acknowledges temporal considerations when defining the relevant geographic market, including factors such as seasonality and peak/off-peak time considerations,[24] again taking into account the feedback of some stakeholders who highlighted the need to consider cyclical variations in the market definition analysis. In addition, following the Siemens/Alstom prohibition decision, stakeholders advocated for changes in the European competition framework to take greater account of “potential future competition” and the relevant timeframe applied in this regard in order to better account for geopolitical pressure that originates outside the defined geographic market.[25] In this respect, the Revised Notice takes into consideration stakeholders’ feedback[26] on the need to introduce forward- looking evidence in the assessment of potential competition, with additional detail on how imports and trade flows can contribute to the assessment of competitive constraints.[27]
- Codifying evidentiary practices. Finally, the Commission clarifies the possible sources of evidence and their probative value when defining relevant markets. The Commission’s “open approach” aims at making effective use of available information, while still allowing for differentiation in different cases. As certain types of evidence may be decisive in one case, others can be of limited importance in other cases. While the Revised Notice notes that it will not rigidly cling on to a strict hierarchy of different sources of information, it nevertheless considers that higher probative value is attributed to evidence that cannot have been influenced by the Commission’s investigation (such as pre- dating discussions of concentrations or conduct pre-dating a Commission’s investigation).[28] This means that documents prepared in view of an investigation would carry less importance than ordinary internal documents.
Conclusion and key takeaways
The Revised Notice is the result of a comprehensive update effort and thorough review of the Commission’s decisional practice. It builds on the principles set out in the Original Notice, while including expanded guidance to address issues such as global markets, digital and platform markets, and non-price competition. The principles outlined in the Revised Notice favor a forward-looking approach to market definition to better account for factors such as innovation and potential and global competition.
In developing this improved guidance, the Commission has maintained a degree of flexibility in the approach it must follow in market definition assessments, both in its application of substantive principles and methodology for collecting and evaluating evidence. The result is a valuable tool that will enable undertakings and their counsel engaged in or preparing for merger control or antitrust proceedings to anticipate the key market definition issues that the Commission is likely to examine according to its latest theory. However, while the Revised Notice offers greater guidance and clarity, the Commission retains substantial leeway over how to conduct market definition analyses in specific cases, as the Revised Notice appears to have sought a balance between the promotion of legal certainty and ensuring that the Commission retains a measure of flexibility in years to come.
[1] Commission Press Release IP/22/6528, “Competition: Commission seeks feedback on draft revised Market Definition Notice,” November 8, 2022.
[2] Cleary Antitrust Watch, “The Commission Test 1997 Market Definition Notice’s “Fit-for-Purpose,” April 3, 2020, available at https://www.clearyantitrustwatch. com/2020/04/the-commission-tests-1997-market-definition-notices-fit-for-purpose/
[3] See e.g., CMA, Merger Assessment Guidelines, paras. 9.1 and following, available at https://assets.publishing.service.gov.uk/government/uploads/system/ uploads/attachment_data/file/1051823/MAGs_for_publication_2021_–_.pdf, including the idea that evidence gathered as part of the competitive assessment may capture competitive dynamics more fully than formal market definition and the CMA’s shift away from market definition towards a looser “frame of reference” approach.
[4] Communication from the Commission – Commission Notice on the definition of the relevant market for the purpose of Union competition law (“Revised Notice”), paras. 1 and 5, available at https://ec.europa.eu/commission/presscorner/detail/en/ip_22_6528
[5] Commission Staff Working Document – Evaluation of the Commission Notice on the definition of relevant market for the purpose of Community competition law of 9 December 1997, SWD(2021) 199 final of July 12, 2021, p. 33, (“Commission Staff Working Document”).
[6] For instance, the Commission has defined different markets for similar products over time in the market for rail technology in ABB/Daimler-Benz (Case COMP/M.580), Commission decision of October 18, 1995 and Alstom Holdings/Areva T&D (Case COMP/M.5754), Commission decision of March 26, 2010 or in the market for steel and aluminum for automotive applications in Alcan/Pchiney (Case COMP/M.3225), Commission decision of September 29, 2003 and Novelis/Aleris (Case COMP/M.9076), Commission decision of October 1, 2019.
[7] See Commission Staff Working Document, pp. 27-29.
[8] Siemens/Alstom (Case COMP/M.8677), Commission decision of February 6, 2019.
[9] See our February 2019 EU Competition Law Newsletter.
[10] See The EU’s Competition Policy for the Digital Era, Final Report 2019, available at: https://ec.europa.eu/competition/publications/reports/kd0419345enn.pdf.
[11] Commission Press Release IP/20/1187, “Competition: Commission consults stakeholders on the Market Definition Notice,” June 26, 2020.
[12] Commission Press Release IP/22/6528, “Competition: Commission seeks feedback on draft revised Market Definition Notice,” November 8, 2022.
[13] See Revised Notice, paras. 12, 14 and 20.
[14] See Revised Notice, para. 32; The SSNDQ test aims to assess whether consumers would switch away to a competitor in the event of a “small but significant non- transitory decrease of quality”. See also, Google Android (Case COMP/AT.40099), Commission decision of July 18, 2018: the Commission found that Google’s mobile operating system Android and Apple’s operating system iOS belonged in separate relevant product markets. The Commission argued that in case of a small but significant and non-transitory decrease in quality of Android, users would not switch to iOS. See our October 2021 and October 2022 European Competition Law Newsletters.
[15] See Commission Staff Working Document, p. 78.
[16] See Revised Notice, paras. 94-98.
[17] Revised Notice, para. 95; in Microsoft/LinkedIn, the Commission thus defined a single market for online recruiting services that encompassed both job seekers and recruiters (Case COMP/M.8124, Commission decision of December 6, 2016, paras. 126 and following).
[18] Revised Notice, para. 95; in Mastercard, the Commission thus defined the issuing and acquiring side of payment card systems as distinct relevant product markets (Case COMP/AT.34759, Commission decision of December 19, 2007, paras. 286 and following).
[19] Revised Notice, para. 95-98.
[20] General Electric/Alstom (Case M.7278), Commission decision of September 8, 2015; Watch Repair (Case AT.39097), Commission decision of July 29, 2014; Assa Abloy/Agta Record (Case M.9408), Commission decision of February 27, 2020; and CEAHR v Commission (T-427/08) EU:T:2010:517.
[21] For instance, the Revised Notice explains that in case of primary and secondary products, the market can be defined as: (i) a system market comprising both the primary and secondary product (e.g. in General Electric/Alstom (Case COMP/M.7278), the Commission defined a market for the sale of gas turbines and subsequent servicing); (ii) multiple markets consisting of a market for the primary product and separate markets for the secondary product associated which each brand of the primary product (e.g. in Watch Repair (Case COMP/AT.39097), the Commission defined multiple separate markets for spare parts, each associated with a particular watch brand); (iii) dual markets consisting of the market for the primary product on one hand and the market for the secondary product on the other hand (e.g. in Assa Abloy/Agta Record (Case COMP/M.9408), the Commission defined a market for after-sales services without distinguishing the service provider). In addition, the Commission’s approach to digital ecosystems constitute a possible fourth category: in such cases, the markets can be thought of consisting of separate markets for a primary core product and several secondary digital products whose consumption is connected to the primary product (an example of a digital ecosystem would be an ecosystem of products built around a mobile operating system, including hardware, an application store and software applications).
[22] See, Commission Staff Working Document, p. 53.
[23] Revised Notice, para. 70.
[24] For instance, in Ryanair/Laudamotion (Case COMP/M.8869), the Commission made a distinction between the summer and winter season in air passenger transport (paras. 96-97).
[25] A Franco-German Manifesto for a European industrial policy fit for the 21st Century, February 2019, p. 4, available at https://www.gouvernement.fr/sites/ default/files/locale/piece-jointe/2019/02/1043_-_a_franco-german_manifesto_for_a_european_industrial_policy_fit_for_the_21st_century.pdf
[26] Summary of the stakeholder consultation to the Evaluation of the Market Definition Notice, July 12, 2021, p. 18, available at https://competition-policy.ec.europa. eu/system/files/2021-03/summary_of_contributions_stakeholders.pdf
[27] Revised Notice, paras. 44-45 and 75.
[28] Revised Notice, para. 76.