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RATIONALE OF REVISIONS
On 8 February 2024, the European Commission (the “EC”)
released a revised version of the Market Definition Notice
(“Revised Notice”), following a review process that
started in 2020 and involved feedback from various stakeholders.
The Revised Notice stands as the first update to the Market
Definition Notice since its introduction in 1997.
The revision was intended to align the Market Definition Notice
with new market realities and developments in case practice and EU
case law, particularly in response to notable shifts in digital
markets, the impacts of globalisation, and the EU’s emphasis on
innovation and sustainability. The Revised Notice deploys a range
of competition parameters beyond price (such as sustainability,
innovation and quality) and offers guidance on assessing
competitive dynamics in an evolving digital landscape. It
specifically addresses challenges associated with multisided
platforms, digital ecosystems, and the pivotal role of innovation
in this context.
CHANGES INTRODUCED BY THE REVISED NOTICE
The Revised Notice entails the following main implications:
Expanded Scope of Competition Analysis
The Revised Notice emphasises the significance of considering
competitive factors beyond product characteristics, price and
intended use. It highlights parameters such as the level of
innovation and quality. For instance, it explains how innovation
can be a relevant factor in defining markets for R&D intensive
industries, such as biotechnology or digital services. Factors like
resource efficiency, value, durability, product integration
possibilities, versatility in uses, conveyed image, and security
and privacy protection may also be pertinent distinctions.
The Revised Notice provides more accessible guidance with a
detailed structure and specific examples, such as the definition of
the relevant market for online search advertising or for
pharmaceutical products.
The Revised Notice also clarifies the use of quantitative
techniques for market definition, such as the SSNIP (small but
significant and non-transitory increase in price) test, and
their limitations and complementarity with qualitative evidence.
For example, it discusses how to apply the SSNIP test in zero-price
markets or in markets with significant differentiation.
Geographical Market Definition
The Revised Notice expands the guidance on defining the
geographic market, including the factors for defining markets as
global, European Economic Area-wide, national, or local, and how to
treat actual or future imports in market assessments. For example,
it outlines how to define geographic markets for online retailing
or for cement products.
Instructions for Digital Markets
The inclusion of specific guidance on digital markets tackles
the challenges and opportunities arising from digital platforms and
digital ecosystems. Businesses in these sectors can use customised
advice to navigate regulatory assessments more effectively,
particularly in understanding intricate matters such as multisided
platforms, innovation competition, and market share calculation in
zero-price markets. For instance, the Revised Notice explains how
to assess demand and supply substitution in multi-sided markets,
such as online marketplaces or social networks, and how to use
alternative metrics for calculating market shares, such as the
number of active users or website visits.
The Revised Notice emphasises that, in specific scenarios,
digital ecosystems can be conceptualised as consisting of a core
product and several interconnected secondary products. These
secondary products are linked to the primary product through
technological links or interoperability. The Revised Notice
maintains flexibility in the market definition of ecosystems,
highlighting that the European Commission (EC) has the option to
define them either as a unified “system market”, which
includes both primary and secondary products, or as multiple
separate and distinct markets.
Prioritisation of “Innovation” and “Research
& Development”
The EC offers valuable advice on evaluating markets
characterised by competition through innovation. It emphasises
that, even though initial innovation endeavours might not yield
immediately marketable products, they remain significant in
delineating the competitive landscape for companies. The EC aims to
prevent any detriment to innovation competition, as reflected in
its decision-making approach across diverse sectors, including
basic industries, chemicals, pharmaceuticals, and shipbuilding.
The EC’s ongoing practice involves a thorough examination of
whether merging entities closely compete in terms of their research
and development activities, which is evident in the EC’s
enforcement actions and public communications. However, it is
noteworthy that the Revised Notice does not inherently suggest an
escalating inclination for the Commission to intervene more
frequently in this particular area. It only aims at providing more
guidance and transparency to companies that are involved in such
innovation-intensive markets, by clarifying the principles applied
to defining markets in R&D intensive industries.
Forward-Looking Market Definitions
The Revised Notice states that the EC is empowered to consider
“expected transitions in the structure of a
market” when conducting a forward-looking assessment.
The guidance concerning forward-looking market definitions
underscores the value of anticipating changes in the market, such
as the green and digital transitions. For example, it discusses how
to define markets for electric vehicles or for cloud computing
services. This enables companies to adapt their strategies
proactively in light of evolving market conditions and regulatory
shifts. The EC is authorised to scrutinise short-term and
medium-term shifts in market structure, particularly when there is
“sufficient probability that new types of products are
about to emerge.” In its forward-looking assessment, the
Revised Notice specifies that the EC will take into account the
internal documents of market participants that are especially
pertinent in supporting considerations regarding changes in market
structure.
Impact and Calculation of Market Shares
The Revised Notice highlights the significance of market shares
in evaluating market power while acknowledging that they are not
the sole indicator. Additional metrics, including capacity or
production, number of suppliers, number of contracts awarded, usage
metrics and reserves, can offer valuable insights into market
dynamics. The relevance of these metrics varies based on the
industry and the specific products being examined. The Revised
Notice further elucidates that in markets experiencing structural
shifts, such as technological or regulatory changes, or when a
forward-looking evaluation is necessary to grasp evolving market
dynamics, estimating future market shares may be warranted to
account for anticipated changes.
CONCLUSION
Given that the EC collaborated closely with the EU Member
States’ national competition authorities and other significant
jurisdictions during the review process, it is anticipated that
this collaboration will contribute to fostering international
alignment in approaches to market definition. As regards
Türkiye, given that the current Guidelines on the Definition
of Relevant Market of the Turkish Competition Authority is fairly
similar to the Market Definition Notice of the EC, we would expect
that the Turkish Competition Authority will be updating such
guidelines by integrating the revisions introduced in the Revised
Notice in the near future, with a view to improving its market
definition practice in parallel with the EC.
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.
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