Reed Smith Client Alerts

  • On 26 June 2020, the European Commission launched a public consultation on its Market Definition Notice. The way markets are defined has a significant impact for businesses whose agreements, mergers or acquisitions, or market behaviour is under competition law scrutiny.
  • In its current form, the Market Definition Notice, which dates back to 1997, is no longer fit for purpose.
  • In particular, the established market definition approach is ill-suited to deal with the particular characteristics of the digital world, especially digital platforms where products and services are made available for free and competition takes place on the ecosystem level.
  • It is also questionable whether the European Commission’s approach is well suited to take into account all competitive pressures in a globalised environment, from both existing players and potential entrants.
  • This is an opportunity for all stakeholders, from both the private and the public sector, to influence and shape the Commission’s approach to market definition going forward.
  • The deadline for comments is 9 October 2020 and the results of the consultation will be published in 2021 with a view to an amended notice being published in 2022. 

Authors: Geert Goeteyn Christian Filippitsch Ross Mackenzie Isabelle Rahman Max Seuster

Background

On 26 June 2020, the European Commission (the Commission) launched a public consultation on its Market Definition Notice. This is the second step in the review process of the notice.

At the launch of the public consultation, which runs until 9 October 2020, Executive Vice President Vestager stated that: “EU competition rules must remain fit for a world that is changing fast and is increasingly digital. The Market Definition Notice provides key information to companies and other stakeholders, helping them to understand the Commission’s approach on how the market works. It is important that the guidance the Commission gives is up to date and that it sets out a clear and consistent approach to market definition in a way that is easily accessible.”

The review of the notice fits into a larger review the Commission is conducting to ensure that its antitrust tools and policies are adequate to grapple with the challenges of a much-changed digitalised and globalised world.

The Market Definition Notice no longer reflects the challenges of today’s world

Market definition is the first step in any competition law assessment, irrespective of whether it relates to a cooperative arrangement, a merger or acquisition, or a matter of alleged abuse of a dominant position. As competition law focuses on the impact of such actions on competition in the ‘market’, the obvious first question is: which market? Any market definition has two aspects: a product and a geographic one.

As the current notice makes clear, the Commission typically approaches this question from a demand side perspective: who can customers turn to if prices go up, quality deteriorates and/or innovation stops? From a product perspective, this means that the relevant market will include, in addition to the product under investigation, all other products the customer regards as suitable alternatives. The scope of the geographic market is defined by how far away or close by alternative sources of supply need to be, to be acceptable to customers seeking to switch from one producer or service provider to another. At its largest, the relevant geographic market can be worldwide; or it can be more limited in scope, such as regional, national or even local.

The way markets are defined has a significant impact for businesses whose agreements, acquisitions or market behaviour is under scrutiny. Indeed, the market definition will determine the market shares attributed to the parties subject to an investigation, and, while not necessarily determinative, it will significantly influence, inter alia, a possible finding of dominance, the Commission’s assessment of the effects and/or economic impact of the agreement, transaction or behaviour on the market, and the competitive constraints that apply to the parties under investigation.

It is, therefore, crucial that the method applied to determine the relevant market is appropriate for today’s globalised and digitalised world. However, the standard market definition approach, as it currently stands, is no longer fit for purpose, as explained below.