The European Commission is contemplating changes to its 23-year-old Market Definition Notice. To this end, on 26 June 2020, the Commission launched a public consultation on the relevance of the Notice. Competition Commissioner Margrethe Vestager has said that the purpose of the consultation is to “adapt the Notice in the era of trade globalization and the digitalization of the economy”.
Revising the Notice could entail significant changes to antitrust enforcement, and shift our understanding of how markets are assessed.
Through the consultation, stakeholders have the opportunity to submit their views on the proposed changes until 9 October 2020.
What is the Market Definition Notice?
The determination of the relevant market, as defined by the Notice in 1997, is one of the most important tools available to competition authorities. The delimitation of the relevant market provides an indication of the boundaries within which competition between undertakings takes place, making it possible, for instance, to calculate market share, which can be used when assessing market dominance or mergers. A relevant market comprises both a product and geographic scope. A relevant product market comprises all products and/or services that are regarded by consumers as interchangeable or substitutable due to their characteristics, prices and intended uses. 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, and can be worldwide, regional, national or even local.
The delimitation of the relevant market directly influences competition authorities’ decisions when assessing whether business practices or mergers comply with competition law.
Why change now?
The method for defining the relevant market has not changed in 23 years. However, the digital age confronts authorities with new challenges, including when faced with new consumer behaviour, multi-channel market players and ‘Big Tech’ companies whose market power does not meet current competition thresholds despite their market dominance. Commentators therefore agree that the current approach, as set out in the Notice, may no longer be fit for purpose in dealing with these challenges.
For example, digital platforms are often double-sided, offering services for free in one market in order to maximise the data gathered from users so that this can then be monetised in the advertising market. The current market definition approach is ill-suited to deal with the challenges of such two-sided markets, often leading to a definition of relevant markets that is too narrow, making it difficult to grasp the bigger picture. The Commission itself has, in the context of internet mergers, acknowledged that focusing on either side of a two-sided market in isolation of the other leads to an overly narrow definition of the market.
In addition, more recently, commentators have also questioned whether the market definition method, as currently applied, sufficiently takes into account the globalised nature of today’s world when defining the relevant geographic market.
Our client alert ‘An approach to market definition fit for the twenty-first century’ examines these issues in more detail.
What will the EU Commission assess?
The evaluation will be conducted based on the assessment criteria described below:
- Effectiveness: How effective is the Notice in providing guidance and transparency to all stakeholders?
- Efficiency: Is the Notice definition of relevant markets sufficiently clear?
- Relevance: Is the Notice still relevant in the light of market developments since 1997 and the evolution of technology?
- Coherence: To what extent do the different elements set out in the Notice work together, in the light of the rulings of the EU courts, developments in the legal framework for competition and EU competition policy and practice?
- EU added value: How has the Notice ensured that the Commission and national competition authorities within the EU have maintained a consistent and coherent approach to market definition?
If you would like to participate, the consultation is open until 9 October 2020. For further assistance, please get in touch with your usual Reed Smith contact or the authors of this article.