//= do_shortcode('[niu_breadcrumbs single_blog="1"]') ?> European Commission updates market definition notice Authors: Clement Mifsud-Bonnici, Chris Grech Published on March 27, 2024 On 8 February 2024, the European Commission (‘Commission’) published the revised Commission Notice on the definition of the relevant market for the purposes of Union competition law (‘Revised Notice’). The Revised Notice provides a much-needed revision to the 1997 version—more than 25 years later. What is a relevant market? The starting point for competition analyses carried out by the Commission and national competition authorities, including Malta’s Office for Competition, is the definition of the boundaries within which competition is taking place amongst businesses. These boundaries constitute the relevant market. The identification of the relevant market is the cornerstone of any analysis under EU competition law—be it merger control, abuse of dominance and coordinated conduct. Products which are deemed to be homogenous or substitutable by consumers, within a specific geographic catchment area, are placed in one ‘market’. If products fall within this ‘market’, such products are taken to compete against each other and to exert competitive constraint on one another. The relevant market is the metric against which a business’s market share is measured from a product and geographic perspective. The market share is calculated based on the total market size and the business’s share of the market, generally, sales, or purchases, but other indicators may be more relevant. These concepts were already stated in the 1997 Notice, but the Revised Notice attempts to explain the relevant principles in more practical terms and to adapt the methodology to globalisation, digitalisation and innovation of markets and competition. The Revised Notice is clear that market definition is a means and not the ends itself. Its purpose is to allow the Commission to identify the parameters within which competition is taking place without prejudging the outcome Commission’s eventual competition analysis. Key Changes While the Revised Notice restates generally known principles applicable to the definition of the relevant market, it also codifies a number of changes which reflect recent decisional practice of the Commission. First, the Revised Notice recognises that, apart from pricing, other non-pricing factors such as the product’s innovation, quality and availability may need to be considered to define the relevant market. The Commission lists the following factors: Sustainability, resource efficiency, durability Value and variety of uses, interoperability Image conveyed Security and privacy protection Lead-time, resilience of supply chains, reliability of supply and transport cost Second, the Revised Notice recognises the SSNIP test’s limitations when businesses compete on innovation, quality and availability rather than on pricing. Traditionally, the SSNIP, being significant and non-transitory increase in price, test was one of the key tools that the Commission has relied on in defining product markets. The Revised Notice clarifies that application of the SSNIP test is not mandatory and reliance on other evidence may be used in defining the market. Summarily, the Revised Notice refers to ad hoc surveys and information from public authorities. While acknowledging its challenges, the Commission proposes the use of the SSNDQ, being a small, but significant non-transitory decrease in quality, test—where markets are based on zero monetary, or even, negative prices. Third, the Revised Notice considers a dynamic and forward-looking assessment to consider anticipated structural market transitions because of the introduction of new or newly developed products or processes and technological, regulatory or legal changes. The likelihood of such projected structural changes needs to be substantiated by reliable evidence. Fourth, the Revised Notice contains ad-hoc guidance for defining markets in specific circumstances. Where businesses differentiate between customers based on location, age, gender and other factors, the Commission may consider a narrower, distinct relevant market. In the case of innovation-intensive industries which require frequent and significant R&D, potential outcomes of R&D processes, including pipeline products, may be factored in the assessment. In the case of multi-sided platforms, where the demand of a user group on that platform may have an influence on the demand by other groups, the Commission may define the relevant product market as the whole platform (by including all user groups) or by defining separate, but interrelated markets. The latter is preferred where there are significant differences in substitution. In the case of after-markets, where primary products lead to the consumption of connected secondary products, the Commission proposes that such markets are either defined as a “system market” comprising of both primary and second products, or alternatively, as “multiple markets” or “dual markets”. The Commission takes the view that (digital) ecosystems can be treated in the same way if appropriate. Takeaways The Revised Notice is welcome. It is ultimately a written statement as to how the Commission intends to approach the definition of relevant markets in competition analyses. This should make the exercise more predictable to businesses. The recognition of the increasing importance of non-pricing factors tallies with the surge of ESG initiatives. Businesses are competing against each other on sustainability and quality aspects of their offering more than ever before. Malta’s Office for Competition is expected to adopt and apply the Revised Notice in its competition analyses. This article was first published in the ‘Times of Malta’ on 17/03/2024. Go back