On 8 February 2024, the European Commission adopted a revised Market Definition Notice, reflecting new market realities and developments in the Commission’s case practice and EU case law.
Background
Market definition is a tool used by the Commission to identify the boundaries of competition between companies. The main goal is to define the relevant product and geographic market, aiding in the identification of actual and potential competitors that influence business decisions, including supply conditions. This process allows for the calculation of market shares, providing valuable information for assessing market power. The dynamic nature of markets requires a repeated analysis for each case, considering changes in production processes, consumer preferences, and various market characteristics. The Market Definition Notice offers guidance on principles and best practices for applying relevant product and geographic market concepts in enforcing EU competition law.
The Commission initiated an evaluation of the current Market Definition Notice in April 2020, with the results published in July 2021. More than 100 stakeholders participated in the evaluation phase, contributing to the draft revised Notice. A public consultation in November 2022 gathered feedback from around 70 stakeholders, which influenced the final text adopted today.
Although the Commission’s fundamental approach to market definition remains largely unchanged, an evaluation found that certain updates and clarifications were necessary to adapt to the Commission’s practice, EU case law and the evolving market reality.
The revised Market Definition Notice
Although many changes have occurred since its adoption in 1997, this revision marks the first update to the Notice. The revision reflects significant developments witnessed in modern competition, including digitalisation and increasingly interconnected and globalised commercial activity.
Key highlights:
- Accessibility and practical application. The revised Notice offers a more accessible guide with a detailed structure and concrete examples, illustrating the practical application of market definition concepts.
- General principles. A description of the general principles of market definition is included, emphasising the importance of non-price parameters, such as innovation, quality, reliable supply, and sustainability.
- Specific circumstances. Specific guidance is provided for various circumstances, including digital markets, innovation-intensive industries, and dynamic assessments in markets undergoing structural transitions.
- Geographic market definition. The guidance expands on geographic market definition, focusing on factors justifying global, EEA-wide, national, or local definitions, with insights on the role of imports in defining the relevant geographic market.
- Quantitative techniques. Clarifications on quantitative techniques used in defining markets, including the small but significant and non-transitory increase in price (SSNIP) test, are outlined.
- Alternative metrics. Guidance is provided on alternative metrics relevant for calculating market shares, such as shares based on sales, capacity, or usage metrics like the number of (active) users or website visits.
- Evidence and probative value. An extensive overview of various sources of evidence and their probative value for market definition analyses is presented.
The Notice emphasises that market definition is an intermediate step in the overall competitive assessment, considering all relevant constraints on the involved undertaking(s) in product and geographic markets.
Conclusion
The revised Notice seeks to formalise the evolving approaches to market definition, which have been shaped by both the Commission's decisional practice and case law, in response to the dynamic landscape of digital markets. By consolidating these updated approaches in a single document, the intention is to offer clear guidance to businesses moving forward.
The Notice places increased emphasis on non-price factors, such as innovation and the quality of goods and services, recognising their relevance in market definition and demand substitution assessments. This broader understanding of competition parameters is seen as a positive step by the Commission, bringing the Notice in line with contemporary considerations and will embolden competition authorities to tackle less traditional merger and antitrust cases.
With the expanded understanding of market definition, companies in Cyprus can navigate competitive assessments more effectively, especially in terms of non-price factors like innovation, quality, and sustainability. This clarity can empower businesses to make informed decisions, ensuring compliance with EU competition law and enhancing their competitiveness in both local and international markets. Overall, the Notice will enhance transparency and legal certainty for businesses, facilitate compliance and contribute to a more efficient competition enforcement.
By Jomana Nayed
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