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On February 8, 2024, the European Commission (EC) adopted a revised Market Definition Notification (Revised Notification). The revised Notification confirms the existing approaches of the EC and EU courts to understand dynamic and innovative markets, addressing in particular multifaceted platforms and digital ecosystems.
This is the first revision of this notice since its enactment 27 years ago. These reflect new market realities. While they check the importance of factors other than price, such as innovation, quality, reliable supply, and sustainability, in defining competitive boundaries; There remain many factors that can be evaluated on a case-specific basis.
background
Market definition helps clarify the competitive environment in which market players operate. This definition is an important tool in merger reviews and in many antitrust cases. The EC Notification, first adopted in 1997, provides guidance on the EC’s approach to defining markets. In market definition, the EC needs to identify his two aspects of the relevant market. The relevant product market consists of all products/services that are sufficiently substitutable. Also, from a geographic perspective, all substitutable products in a region belong to the same market if the competitive conditions in the region are sufficiently homogeneous. The EC uses market definitions to assess a company’s market power.
Traditionally, the main question considered by EU regulators is whether a virtual monopolist of a product can make and sustain a profit at prices slightly but significantly above competitive levels (so-called virtual monopolists, or SSNIPs). (Small but significant non-temporary price increase). , test). After a small price increase, customers may switch some of their purchases to other products, in which case the products belong to the same product market (demand-side substitutability). Similarly, if prices rise, a firm that does not currently supply a product may be able to do so without incurring substantial sunk costs (supply-side substitutability).
Key updates to the EC’s guidance on market definition
Non-price aspects of competition
The revised notification emphasizes the importance of competitive parameters other than product characteristics, price and intended use, and refers to parameters such as degree of innovation and quality. Differences in resource efficiency, durability, value and variety of applications, the possibility of integrating the product with other products, the image conveyed, or the security and privacy protection provided may also be relevant. The revised notification also addresses the relevance of behavioral biases in customer choices, such as the tendency to choose the default option offered (a reference to customer inertia identified in a recent document published by the EC). ) Booking.com/eTraveli merger decision).
Forward-looking evaluation
The revised notification provides that the EC may take into account “anticipated changes in market structure” when assessing future prospects.
- The EC can look at short- and medium-term changes in market structure, with “a good chance that new types of products will emerge.”
- The revised notification indicates that in its forward-looking assessment, the EC will take into account internal documents of market participants that are particularly relevant to support considerations regarding changes in market structure.
The revised notification also addresses the peculiarities of highly innovative industries.
- The EC may consider a pipeline product to belong to an existing market or identify a new product market consisting solely of the pipeline product and its substitutes (for example., several companies are developing similar pipeline products).
- The EC may also assess companies’ innovation efforts to identify the boundaries within which innovation competition takes place.
multifaceted platform
When analyzing a multifaceted platform, the EC may define the product market in relation to the products offered by the platform in a way that encompasses all (or more) user groups (for examplewhere both job seekers and recruiters use the same platform), or you can define separate product markets related to the products offered on each side of the platform.
The EC defines distinct markets with significant differences in the possibility of substitution on different sides of the platform. Decisions are based on differences in products for different user groups, differences in alternative patterns, or factors such as the degree of multihoming and the nature of the platform. If a multi-sided platform can offer its products or services for free to a group of users while monetizing the same products or services on the other side of the platform, the revised notice states: EC focuses on parameters other than price, such as product functionality, intended use, interoperability with other products, and data portability.among others.
digital ecosystem
The revised notice states that in certain scenarios, a digital ecosystem can be conceptualized as consisting of a primary product and several related secondary products linked to the primary product through technological links or interoperability. is emphasized. In the revised Notification, the market definition of an ecosystem remains flexible, with the EC defining an ecosystem as either a single “system” market for primary and secondary products, or involving multiple separate and distinct markets. He points out that it can be defined as something that The revised notification also distinguishes between the concept of “dual market”, which includes the market for primary products and the market for secondary products.
Role and calculation of market share
The revised notification also notes that market share is not the only indicator of a company’s position in the market or the competitive pressure it faces from other players. Market share calculations can be based on a company’s share of sales or production capacity, or based on usage metrics such as the number of active users. or a visit to the website. The revised notice states that in markets undergoing structural changes, such as regulatory or technological changes, or where forward-looking assessments may be appropriate to understand market dynamics, We also clarify that future market shares may be estimated to reflect changes.
conclusion
The revised Notification confirms the EC and EU Courts’ approach to market definition, as reflected in recent judgments and case law, but where complex issues such as digital ecosystems and two-sided platforms have arisen. In this case, many important factors are subject to evaluation on a case-by-case basis. is involved. The updated guidance identifies the potential for system or dual markets. distinguish between different sides of the same platform. The revised notification also confirms the EC’s approach to assessing innovation competition in the absence of directly competing pipeline projects.
Caroline Janssens, Competition/Antitrust Knowledge Strategy Leader, contributed to this article.
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