27 years after the first edition, the European Commission ("EC") adopted on 8 February 2024 a revised Market Definition Notice (the "Revised Notice") reflecting "new market realities", including significant developments in the life sciences and technology sectors.

Focusing on factors other than price – such as innovation, quality, security of supply, and sustainability – the Revised Notice represents a useful tool for businesses, advisors, antitrust authorities, and national courts alike. Here we consider some of the key changes introduced by the Revised Notice.

Role of market definition and Revised Notice

Market definition is a tool used to define the boundaries of competition between companies, and an important framework used by the EC in both antitrust enforcement pursuant to Articles 101 and 102 on the Treaty on the Functioning of the European Union ("TFEU"), and in merger control enforcement under the EU Merger Regulation.

Its main purpose is to provide, as an intermediate step, a framework to structure and facilitate the competitive assessment, by identifying in a systematic way the effective and immediate competitive constraints faced by the companies involved when they offer particular products or services to customers in a particular area. Establishing a relevant product and geographic market thus allows the EC to assess the relative competitive strength of companies, including the extent to which a company holds market power.

In 1997, the EC published its first market definition notice (the "1997 Notice") to provide guidance on the application of the concept of the "relevant market" for EU antitrust and merger control enforcement. As recently remarked by EC Executive Vice-President Vestager, the way markets work today, how companies compete, and how consumers access products and services has changed since the 1997 Notice was adopted.

In an increasingly digitised and interconnected global landscape, it has become necessary for the EC to fill gaps in guidance to ensure legal certainty and predictability for businesses. The Revised Notice therefore serves to bring the EC's guidance into line with new market realities, as well as with the EC's existing decisional practice and EU case law. In particular, it provides guidance on the EC's approach to specific issues in digital and innovation-intensive markets, as well as revised guidance on geographic markets and the role of imports.

Key changes under the Revised Notice

Non-price competition parameters

The Revised Notice places greater emphasis on non-price elements of competition, such as innovation and quality, including sustainability, resource efficiency, durability, the value and variety of uses offered by the product, the possibility to integrate the product with other products, the image conveyed or the security and privacy protection afforded, availability, resilience of supply chains, reliability of supply, and transport costs. While helpful to acknowledge modern forms of non-price parameters, it remains unclear how these factors will be weighed in the EC's analysis.

Alternatives to the SSNIP

The traditional method used to determine whether a candidate market constitutes a relevant antitrust product market – where price is the key parameter of competition – is to assess whether a hypothetical monopolist in the candidate market would find it profitable to implement a small but significant non-transitory increase in price (the "SSNIP" test).

However, when companies compete on factors other than price, the application of the SSNIP test poses a challenge. This is particularly evident in the context of zero monetary price products and highly innovative industries.

The EC expressly acknowledges these limitations, noting that there is "no obligation on the Commission to apply the SSNIP test empirically, and other types of evidence are equally valid to inform the market definition." These may include, for example, the assessment of switching behaviour of customers of the zero-price product in response to a small but significant non-transitory decrease in quality (known as the "SSNDQ" test).

Given the inherent difficulties in defining a precise quantitative standard for the degradation of quality for the purposes of the SSNDQ test, the EC is expected to take into account a wide range of factors when defining the scope of markets characterised by parameters other than price, such as digital markets.

Innovation and significant R&D activities

Innovation competition is a particular focus area in the Revised Notice, with a section dedicated to highly innovative industries characterised by frequent and significant research and development ("R&D"), such as life sciences.

The Revised Notice includes new guidance on market definition for those products still under development ("pipeline products"), noting that visibility on the R&D process would allow the EC to ascertain the likely substitutability of such products, including whether they belong to an existing relevant market or a new market. In some cases, an R&D process may not be closely related to any particular product but instead to early stages of research.

Early innovation efforts may still be relevant to identify the boundaries within which companies compete in such early innovation efforts to assess whether there could be a loss of innovation competition. In such an assessment, factors including the scope of the innovation efforts, the objectives of lines of research, and the specialisation of the teams involved may be relevant for defining the exact boundaries.

Multi-sided platforms

Multi-sided platforms support interactions between different groups of users, creating a situation where the demand from one group of users influences the demand from other groups, facilitating so-called indirect network effects.

With multi-sided platforms, the EC may define a relevant product market for the products offered by a platform as a whole, in a way that encompasses all user groups, or it may define separate product markets for the products offered on each side of the platform. The latter may be more appropriate where there are significant differences in the substitution possibilities on the different sides of the platform. The Revised Notice confirms that the EC will assess factors such as the degree of product differentiation on each side of the platform, behavioural factors such as the homing decisions of each user group, and the nature of the platform.

Multi-sided platforms may supply a product to a user group at a zero monetary price, in order to attract users to products offered on the other sides of the platform and monetise their products on those sides. In such cases, non-price competition parameters are particularly relevant for the assessment of substitution, including product functionalities, intended use, evidence of hypothetical substitution, barriers or costs of switching, or the SSNDQ test.

Digital ecosystems

The EC notes that digital ecosystems can, in certain circumstances, "be thought of as consisting of a primary core product and several secondary (digital) products who consumption is connected to the core product, for instance, by technological links or interoperability". For example, a digital ecosystem may comprise an ecosystem of products built around a mobile operating system, including hardware, an application store, and software applications.

To address the challenges posed by digital ecosystems, the EC confirms that it may apply principles similar to those applied to aftermarkets and bundles to define the relevant product markets in digital ecosystems, i.e., in one of the three following ways:

  • as a system market comprising both the primary and the secondary product;
  • as multiple markets, namely a market for the primary product and separate markets for the secondary products associated with each brand of the primary product; or
  • as dual markets, namely the market for the primary product on the one hand and the market for the secondary product on the other hand.

When the secondary digital products are offered as a bundle, the EC may also assess the possibility of that bundle constituting a relevant market on its own. The EC will consider, where relevant, factors such as network effects, switching costs, and single- or multi-homing decisions when defining the relevant product markets.

Imports & consumer markets

As with its approach to product market definition, the EC defines the scope of the relevant geographic market by reference to an assessment of whether the conditions of competition are sufficiently homogeneous for the effects of the conduct or concentration to be able to be assessed. While these general principles remain unchanged, the EC does acknowledge more explicitly in the Revised Notice that some geographic markets may be global in scope, reflecting an increasingly globalised and interconnected landscape.

In addition, it includes an approach to the assessment of imports in determining the geographic market definition, noting that the "the mere existence of imports or the possibility of switching to imports in a given geographic area does not necessarily lead to a widening of the geographic market to include the area from which the goods were or could be exported".

In cases where there are significant imports, the assessment focuses on whether trade between certain geographic areas or other supply and demand conditions are sufficient to lead to sufficiently homogenous conditions of competition. However, the competitive pressure exerted from imports must be examined as part of the competitive assessment, and this has enabled the EC to clear some mergers with (per EVP Vestager) "very high market shares".

Other elements to be considered when defining the relevant geographic market include distance-related factors such as transport costs, security or reliability of supply, sustainability, product perishability, customer preferences, and purchasing behaviour.In consumer markets, such as airports, supermarkets or petrol stations, travel distance or time to the supplier is a particularly important consideration.

Where competitive conditions change as a function of the distance between each supplier and the customer, the EC may define the geographic market based on catchment areas. These are generally either measured in terms of customers' travel distance or time, or in terms of the delivery distance or time, around a location within which a given proportion of sales occur.

Market share calculation

The Revised Notice provides new guidance on the EC's approach to determining market shares, particularly in the cases of zero-price markets in a digital context. Whereas the EC has traditionally focused on merchant sales or purchasing volumes as the basis for the calculation, it has now introduced complementary metrics to determine market shares including (inter alia):

  • capacity or production;
  • the number of suppliers;
  • the number of contracts awarded;
  • usage metrics such as the number of active users;
  • the number of website visits or streams;
  • the number of downloads;
  • the volume of transactions concluded over a platform.

In innovation-driven markets, the level of R&D expenditure or the number of patents or patent citations may be used as relevant metrics to assess the relevant competitive position of companies. Metrics used internally companies in their general course of business generally prove particularly relevant.

Forward-looking assessments

The EC recognises those instances where the case calls for a forward-looking assessment in those markets expected to undergo structural transitions, such as technological or regulatory changes. It confirms that it may take into account short-term or medium-term structural market transitions where they would lead to effective changes in the general dynamics of supply and demand in a market within the relevant period for the EC's assessment.

For example, technological change and innovation may suggest that there is sufficient probability that new types of products are about to emerge on the market. The EC caveats that there must be reliable evidence that there is sufficient likelihood that the projected structural changes will take place, which must go beyond mere assumptions that observed trends will continue or that certain companies will change their behaviour.

Evidence carries a higher probative value if it can be established that it could not have been influenced by the EC's investigation, such as evidence pre-dating discussions of a concentration or conduct. To that end, contemporaneous internal documents of market participants produced in the ordinary course of business, or independent industry reports including projections, may be particularly relevant.

Conclusion

The Revised Notice restates many of the fundamental principles in defining a relevant market as set out in the 1997 Notice, while reflecting a number of significant market developments in the subsequent years, including in particular globalisation, digitalisation, and innovation. In addition, it contains extensive references and citations to decisional practice/case law from the past 25 years, which provide useful context to users in certain specific circumstances.

The EC understandably leaves open a number of elements set out in the Revised Notice, such as the weighting to be attributed to non-price parameters of competition. Given the ongoing rapid technological shifts across so many industries, this is likely to ensure EC retains sufficient flexibility in how it defines market boundaries in borderline cases going forward, and that the Revised Notice will serve as a valuable tool to businesses, practitioners, and competition authorities alike for many years to come.

Oscar Burman, Trainee, also contributed to this article.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.