New Commission Notice on relevant market likely to be more focussed on digital markets

With a Commission Notice on the definition of relevant market for the purposes of EC competition law (the Notice) that stems from 1997 – the year the movie Titanic was released – the European Commission’s question whether the Notice is still up to date seems like a rhetorical one. However, that is exactly what the Commission was asking stakeholders in the consultation it ran last year. Meanwhile, the Commission published the results of the consultation – together with a summary of the contributions. This article will shine a light on the main outcomes of the consultation and the most likely way forward for the Commission.

Article summary:

  • Last year, the European Commission launched a consultation regarding their 1997 Notice on the definition of relevant markets for the purpose of competition law.

  • The consultation has closed. It gathered responses from 96 stakeholders, and all national Competition Authorities.

  • The stakeholders and NCAs almost unanimously agree that there is still need for a notice and that the core concepts in the current notice are still relevant, but that the Notice does need an update.

  • Digitalisation and how digital transformation influences market definition are the main reasons for an update.

  • Digitalisation has brought new concepts, which have not yet been addressed in the Notice, such as multi-sided markets, ecosystems and zero-price services.
What does the Notice entail?

The Notice provides guidance on the Commission’s application of the concept of relevant product and geographical markets for the purpose of competition law. National Competition Authorities (NCAs) also rely on the Notice in their application of EU and (often) national competition law. By providing guidance, the Commission aims to increase the predictability of the outcomes of proceedings and to help companies in self-assessments. Obviously, to really provide ‘guidance’, it is necessary for the Notice to be relevant and up to date.

What are the main outcomes of the consultation?

The consultation received responses from 96 stakeholders and all (27) NCAs of the European Union. A big majority of the respondents is of the opinion that there still is a need for a Notice and that the core concepts in the current notice are still relevant, but that the Notice does need an update – mainly due to the impact of digitalisation on the way markets work and the increasing presence of two-sided or multi-sided markets. Most stakeholders argue that as a result of digitalisation:

  • There is need for guidance with respect to multi-sided platforms, some of them offer a variety of products and services, thus creating whole ‘ecosystem’;

  • The competitive constraints of online services on traditional services should be taken into account;

  • The notion of ‘price’ as the main parameter of competition is obsolete, and more guidance is needed on how to assess demand-side substitution in digital services;

  • The role of ‘data’ has gained importance and should be considered; and

  • The ‘Small but significant non-transitory increase in price’-test or ‘hypothetical monopolist’ test (SSNIP-test) needs rethinking as it is of little purpose in markets where no monetary price is paid for the goods or services provided.

These changes translate to several passages in the Notice in need of rethinking according to most respondents. This article will hereafter discuss the most ‘popular’ responses by stakeholders and NCAs.

Regarding the definition of the relevant product market and the relevant geographical market (paragraphs 7-12 of the Notice) new phenomena such as two- or multi-sided platforms and ecosystems should be taken into account as well as the fact that digitised markets may have a global geographical scope. Furthermore, respondents comment that the Notice should be aligned with the Merger Regulation 139/2004 by inserting a reference to the SSNIP-test. Notably, more than half of the NCAs would like the Notice to stress the fact that merger control and antitrust investigations can lead to different outcomes regarding the definition of the relevant markets due to their different nature. This ‘purpose-related’ market definition approach has proven its value in the regulation of the electronic communications sector, where the Commission has given guidance on the market definition for the purpose of regulatory intervention in four subsequent Recommendations on relevant product and service markets within the electronic communications sector susceptible to ex-ante regulation, the latest dating back to December 2020.[1]

Concerning the basic principles for market definition (paragraphs 13-24), stakeholders were most critical on the demand-side substitutability, particularly related to the applicability of the SSNIP-test in digital markets, suggesting further guidance or the discussion of other models such as the ‘small but significant non-transitory decrease in quality’-test (SSNDQ) or the ‘small but significant non-transitory increase in cost’-test (SSNIC). Most NCAs acknowledge the shortcomings of the SSNIP-test as a general applicable tool but further stress the importance of more guidance on supply-side substitutability, including the difference with potential competition.

With respect to the process of defining the relevant market in practice (paragraphs 25-35) stakeholders claim that the product dimension should also take into account the competitive pressure from complementary products and imperfect substitutes. On the geographical market and market integration the stakeholders request to insert the possibility of global markets, while some of the NCAs request more guidance to assess the geographical market. On the process of gathering evidence – the stakeholders are not in favour of many information requests since they create an administrative burden.

On the evidence required to define relevant product markets (paragraphs 36-43) many stakeholders argue that the Commission should also focus on other factors than price, such as quality, data and consumer preferences. Digitalisation also should result in an increased consideration of the supply-side of the market, more focus on other sources of barriers to entry, on switching costs like data and privacy and on personalised pricing. The NCAs’ responses consistently include a request for more guidance, for instance in the applicability of existing case law.

On the evidence for defining the geographical dimension of markets (paragraphs 44-52) stakeholders mainly point to globalisation trends and their influence on trade flows. Also, the focus on transport costs and tariffs should be updated due to the growing importance of online purchases and digital services. The NCAs are, once again, asking for more guidance, especially regarding the type of test that should be applied in digital markets.

Regarding market share calculations (paragraphs 53-55) most respondents are looking for more guidance on calculation methods in digital markets, especially those with zero-price services and multi-sided platforms. The stakeholders also note that digital markets are dynamic markets in which static market shares can be misleading.

Under additional considerations (paragraphs 56-58) most respondents repeat their call for more guidance on digital markets.

Finally, respondents stress the importance of coherence between a general notice on relevant market definition with the antitrust and merger practice of the Commission as well as with the CJEU’s case law and other EU policies like the forthcoming Digital Services Act and Digital Market Acts and the recently adopted European Electronic Communications Code.

The way forward

The Commission will now decide what to do with the Notice. Considering the consultation feedback it is highly likely that the Notice will be given a much-needed update. This update will be mainly driven by the impact of digitalisation that took place during the last two and a half decades. We expect at least the following topics to be addressed in the updated Notice:

  • More guidance on ‘new’ types of markets as a result of digitalisation, such as two- or multi-sided platforms and ecosystems. This should result in an increased focus on the relevance of factors other than price and more focus on the supply-side of the market, barriers to entry and switching costs.

  • The possibility for global markets might be introduced in the part on geographical market definitions.

  • More guidance on alternatives for the SSNIP-test in digital markets, focussing less on price and more on other factors such as quality and cost. Also, with respect to market shares guidance is likely to be provided regarding zero-price services.
    It is now up to the Commission to decide the way forward. When it will have done so and if a new Notice should be published, Bird & Bird will keep you informed.

[1] Commission, 18 December 2020, Recommendation on relevant markets, C(2020) 8750 final; Commission, 9 October 2014, Recommendation on relevant markets, C(2014) 7174 final; Commission, 17 December 2007, Recommendation on relevant markets C(2007) 5406, Commission, 11 February 2003, Recommendation on relevant markets C(2003) 497.

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