Market definition is the key to defining the borders for applying EU competition rules. Market definition is required to determine if a company has a dominant position, and, if so, to determine whether a particular practice constitutes an abuse. TFEU Article 102 applies if there is “any abuse by one or more undertakings of a dominant position within the internal market….” In the event of a suspected infringement, the first element to be considered is the relevant market.
To establish the context for analysis, you must determine what field of commerce is at issue. The Commission will interpret market shares in the light of the relevant market conditions, and in particular of the dynamics of the market and of the extent to which products are differentiated. In In Hoffmann-La Roche v. Commission, the commission stated, “the concept of the relevant market in fact implies that there can be effective competition between the products which form part of it, and this presupposes that there is a sufficient degree of interchangeability between all the products forming part of the same market in so far as a specific use of such products is concerned.” This is referring to the relevant market, which consists of (1) the product market and (2) the geographic market.
Product Market Definition
The relevant product market is comprised of all products and/or services which the consumer considers to be interchangeable due to their characteristics, their prices, and their intended use. EU anti-competition rules refer to this concept as substitutability.
Substitutability. When products from a consumer perspective are not substitutable, they are not in the same product market. A market is competitive if customers can choose between a range of products with similar characteristics and if the supplier does not face obstacles to supplying products or services on that market. Substitutability can be broken down into (1) demand-side substitutability and (2) supply-side substitutability.
- Demand-side Substitutability considers whether customers for the product in question can readily switch to a similar product in response to a small but permanent price increase (of between 5% and 10%) – this concept is known as cross-price elasticity. The commission will consider evidence of substitution in the recent past, quantitative tests, views of customers and competitors, consumer preferences, barriers and costs associated with switching demands, and different categories of consumers and price discrimination.
- Supply-side Substitutability considers whether other suppliers can readily switch production to the relevant products and sell them on the relevant market
Geographic Market Definition
The relevant geographic market is an area in which the conditions of competition for a given product are homogenous. It comprises the area in which the firms concerned are involved in the supply of products or services and in which the conditions of competition are sufficiently similar. The geographic market can be distinguished from neighboring areas because the conditions are appreciably different in those areas.
Homogeneity. The competition authorities underline that the geographic market must conform to the area in which, for economic operators, objective conditions of competition for the product or service are “similar” or “sufficiently homogeneous”. Homogeneity can be broken down into (1) demand-side homogeneity and (2) supply-side homogeneity.
- For supply-side homogeneity in a defined area, the competition authorities consider the characteristics of products, the administrative regulation, the offerors, and the degree of maturity of the market are identical or the volume of exchanges and level of substitutability of supply are high.
- For demand-side homogeneity the competition authorities consider consumer behavior, the organization of distribution, the structure of the demand, supply policies and level of imports. The fact that there is no difference in prices between products within a given geographic area is regarded as an essential indication of the homogeneity of that area.
The commission also considered relevant factors and evidence in defining the geographic market.
Relevant factors to determine the geographic market include:
- Nature of the product of service: certain services, such as airports, are only interchangeable to a limited extent and thus constitute a distinct geographic market
- Location of the operators and customers:
- National market: characterized by close geographical proximity between the purchasers and suppliers present at the level of the Member State
- Global dimension: the products in question are manufactured by a large number of undertakings operating on a global scale and are sold throughout the world – broader
- Existence of national or EU regulatory barriers
- [In certain cases] socio-psychological assessment: customer preferences, cultural practices, local customs
Evidence for defining the geographic market includes:
- Past evidence of diversion of orders to other areas
- Basic demand characteristics
- Views of customers and competitors
- Current geographic pattern of purchases
- Trade flows/patterns of shipment
- Barriers and switching costs associated to divert orders to companies located in other areas
Caselaw Defining The Relevant Market
The following chart provides examples of cases in which the commission defined the relevant product market and the geographic market.
|CASE||PRODUCT MARKET||GEOGRAPHIC MARKET|
|Hoffmann-La Roche v. Commission||bananas||multiple European member states|
|United Brands v. Commission||specific vitamins||the common market (France, West Germany, Italy, Benelux)|
|Michelin v. Commission||tires||France|
|British Airways PLC v. Commission||airline tickets||United Kingdom|
Market definition combines the product market and geographic market. Once the relevant market is defined, it can then be determined if an entity has a dominant position in that market. Market definition helps to understand the competitive environment in which firms operate. Since markets are not static, the analysis needs to be repeated for each case, to take account of changes in production processes, consumer preferences, and other market specialties. As of November 2022, the commission is seeking feedback on market definition, stating that “certain updates and clarifications are necessary to bring in developments in the Commission’s practice, the EU courts’ case law, and the new market realities.” The main objective of the revised Market Definition Notice is to offer more guidance, transparency, and legal certainty for businesses. This is specifically important for markets that are expected to undergo structural transitions, such as technological or regulatory changes.
- Commission Noticeon the definition of relevant market for the purposes of Community competition law (OJ C 372, 9.12.1997, pp. 5–13).
- European Commission, Review of the Commission Notice on the definition of relevant market for the purposes of Community competition law, https://competition-policy.ec.europa.eu/public-consultations/2022-market-definition-notice_en (last visited December 5, 2022).
- European Commission, Procedures in Article 102 Investigations, https://competition-policy.ec.europa.eu/antitrust/procedures/article-102-investigations_en (last visited December 5, 2022).
By: Caitlin Hillebrand