Updating the 27-year-old guidance should better equip the EC to assess competitive dynamics in the digital economy
The guidance has been updated to reflect current market realities
On 8 February 2024, the EC adopted a revised market definition notice, expanding and modernising guidance on its approach to market definition in antitrust and merger cases, especially in how it identifies the boundaries and degree of competition between companies. Market definition is an intermediate step in the overall competitive assessment that looks at the constraints on the firm(s) involved in a given product or geographic market, for instance barriers to entry or the impact of scale economies. This is the first revision of the notice since it was adopted in 1997, accounting for how markets have evolved over the intervening years (e.g. due to increased digitisation and the emergence of new business models) and reflecting the EC’s push for a competition policy fit for today’s challenges, such as post-pandemic recovery and climate change. It is the culmination of an almost four-year process, which has seen the EC conduct an in-house evaluation and also seek input from external parties. While the EC determined that the original notice was broadly fit for purpose, it considers that the updated version brings its guidance in line with the EC’s case practice and EU case law, as employed in high-profile decisions, including the Google Android judgment and the Amazon/iRobot investigation.
A greater emphasis placed on non-price factors
The EC hopes the revised notice will help enhance transparency and legal certainty for businesses, facilitate compliance and contribute to a more efficient enforcement of competition rules. Key elements of it include:
More accessible guidance (with a detailed structure and concrete examples) and a description of the general principles of market definition;
A recognition of the importance of non-price parameters for market definition, including innovation, quality, reliable supply and sustainability;
Clarifications on dynamic and forward-looking assessments, especially in markets undergoing structural transitions, e.g. regulatory or technological changes;
Clarifications on various quantitative techniques used when defining markets, such as the small but significant and non-transitory increase in price (‘SSNIP') test; and
Guidance on alternative metrics relevant for the calculation of market shares, such as sales, capacity, number of (active) users or website visits.
Accounting for multi-sided markets and digital ecosystems
A new addition, the updated notice also provides specific guidance on market definition in digital markets, for example multi-sided markets and digital ecosystems (e.g. products built around a mobile operating system such as hardware and an app store). According to Margrethe Vestager (Executive Vice President, EC), go-to platforms created by tech giants present unique challenges for competition authorities, requiring them to change their approach to manage the complex interplay of products across the digital economy. Given the indirect network effects of multi-sided markets, the EC may define a relevant product market for the products offered by a platform as a whole, or separate product markets for the products offered on each side of the platform. Here, non-price parameters will be important to the assessment of substitution as platforms often offer services at no charge to the end user. Regarding digital ecosystems, the EC may leverage similar principles currently applied to after-markets and bundles, defining them as: i) a single “system market” of primary and secondary products; ii) multiple separate markets; or iii) “dual markets” of primary products in one camp and secondary products in another. While recognising that not all digital ecosystems fit with an after-market or bundle market approach, the EC will again look to consider the presence of network effects, as well as factors such as switching costs (especially if they can cause customer lock-in) and single- or multi-homing decisions in reaching a market definition decision.
