The European Commission Releases New Guidance on Market Definition

The European Commission has recently finalised studies that have been ongoing since 2020 and has published a new European Commission Notice on Market Definition (“Market Definition Notice” or the “Notice”). The Notice, revised for the first time since entering into force in 1997, establishes the main legislation on which the Turkish Competition Authority’s Guidelines on the Definition of the Relevant Market (“Guidelines”) is modelled. A comparative analysis of the revisions introduced by the new Notice and the current position in both the European Union (“EU”) and Türkiye following these revisions has been compiled for you.

Why did the European Commission revise the Notice?

Market definition represents the initial step in evaluations concerning mergers and acquisitions and competition investigations. It determines the limits of competition between undertakings and provides an assessment of the market power of undertakings. The Commission’s Notice intends to clarify its methodology for determining market definition under EU competition law.

What Revisions Does the Notice Introduce?

The content of the innovations introduced by the new Notice regarding market definition and the additional arrangements regarding existing practices are as follows:

• Non-price parameters of competition, such as innovation and the quality of products and services as well as environmental sustainability, have been given greater consideration when defining the relevant market.
• Principles on digital markets and their specific characteristics have been introduced.
• The issues to be taken into account in market definition have been addressed, especially in markets that are expected to undergo structural transitions or where innovation is intensive.
• The role of the SSNIP (small but significant and non-transitory increase in price) test for market definition has been clarified.
• More comprehensive and expanded guidance has been provided on the possible sources of evidence (such as the internal communications/documents of market players) and how these will be examined by the Commission.

Reflecting the increasingly interconnected and globalised nature of commercial exchanges in specific markets, the Notice also introduce regulations on global competition. Accordingly:

• The question of when a market can be defined on a global scale has been addressed. A global market exists when customers around the world “have access to the same suppliers on similar terms regardless of the customers’ location,” provided that the geographical market has sufficiently homogenous competitive conditions. Moreover, if actual or future global trade flows do not suffice to give rise to global markets, import restrictions must also be taken into account in the market assessment.
• Additionally, global markets may also be defined by excluding certain areas if there are high entry barriers for certain countries or if there are obstacles to customers’ access to global resources.

What Differences Have Occurred with the Guidelines?

The Guidelines are based on demand and supply substitution assessments within the scope of the abovementioned SSNIP test. In this respect, the SSNIP test will be primarily used to determine demand substitution, and in cases where it has an effect equivalent to demand substitution, to determine supply substitution, explained through examples from commercial life. Nevertheless, the Guidelines do not provide information on the empirical application of this test and its use in digital markets. However, the Notice indicates that it may not be possible to apply this test, especially for “zero-price” products, such as media products financed by advertising revenues or platform services, and in sectors where innovation is the main parameter. Therefore, empirical use of this test may not be mandatory for every examination. Given that quantitative tests such as elasticity of demand, cross-price elasticity, and similarity of price movements over time are used in practice for market definition, the European Commission appears to find the SSNIP test useful only for providing a theoretical framework.

A further point of divergence between the Guidelines and the Notice is the approach of the prospective assessment. According to the Notice, structural market transitions, such as the emergence of new product types in the market or possible changes in legal regulations, may affect the market definition.  While this approach was not mentioned in the Guidelines, the European Commission emphasises the need for strong evidence regarding expected short or medium term structural market transitions in order to take this into account for market definition.

The Notice presents the elements of market definition for R&D intensive industries with multi-sided platforms and digital ecosystems under a separate chapter. It is also stated that products in the R&D phase will be considered in the market definition, especially in cases where a substitution relationship can be demonstrated for products in the development phase or where competition may be restricted due to a concentration or anti-competitive behaviour that may occur in the early stages of R&D, before the product is fully developed.

For multi-sided platforms enabling different parties of a trade relationship to interact, a relevant product market covering all of the user groups for the products offered by the platform may be defined or a separate relevant product market may be defined for the products offered by each side of the platform. Such an approach plays a key role in determining the dominant position, especially for platforms whose performance is evaluated in terms of traffic and number of users.

Finally, when defining the market for digital ecosystems, some elements such as context (the combination of digital products offered in predecessor and successor markets), network effects, and switching costs (other factors that may cause a customer to be locked in with a provider) may also be taken into account. While the Guidelines state that the transitivity between the predecessor and successor markets will be taken into account when defining the market, especially in examinations where a dominant position is assessed, they do not contain any guidance in terms of multi-sided platforms and ecosystems.

Despite the absence of a draft amendment to the Guidelines, we note that the European Commission’s Notice hints at possible amendments to the Guidelines and certain aspects of the Notice may play a key role, especially in abuse of dominant position examinations.