Brussels, 8 February 2024
The European Commission has today adopted a revised Market Definition Notice (“the Notice”). Market definition requires identifying the boundaries of competition between companies when assessing mergers and most antitrust cases. The revised Notice brings the Commission’s guidance in line with new market realities, as well as with developments in the Commission’s case practice and EU case law. It will enhance transparency and legal certainty for businesses, facilitate compliance and contribute to a more efficient competition enforcement.
Today’s revised Notice is the first revision of the Market Definition Notice since its adoption in 1997. It reflects the significant developments of the intervening years, in particular the increased digitalisation and the new ways of offering goods and services, as well as the interconnected nature of commercial exchanges. The revised guidance is the result of a thorough and inclusive review process launched in April 2020, which involved gathering feedback from stakeholders both in the evaluation phase as well as in the context of the public consultation on the draft text. It reflects the policy orientations in the Commission’s Communication “A competition policy fit for new challenges” of November 2021. The review of the notice is central to the Commission’s ambition to ensure transparency and predictability in its competition law enforcement, including through guidance, across sectors and at the sectoral level, also for strategic sectors.
Key elements of the revised Market Definition Notice
The revised Market Definition Notice offers expanded and up-to-date guidance on the Commission’s approach to market definition. It is a compilation, and adaptation to modern circumstances, of principles, methodology, case law and best practices to be applied for the definition of markets in antitrust and merger cases. In particular, the revised Notice includes the following key elements:
- More accessible guidance thanks to a detailed structure and concrete examples, illustrating the practical application of market definition concepts.
- A description of the general principles of market definition.
- A recognition of the importance of non-price parameters for market definition, including innovation, quality, reliable supply and sustainability.
- Specific guidance on the application of market definition concepts in specific circumstances, including:
- digital markets, for instance with respect to multi-sided markets and digital “ecosystems” (e.g., products built around a mobile operating system).
- innovation-intensive industries, where companies compete on innovation, including through the development of new products.
- Clarifications on dynamic and forward-looking assessments especially in markets undergoing structural transitions, such as regulatory or technological changes.
- Expanded guidance on geographic market definition focusing on the factors that can justify defining markets as global, EEA-wide, national, or local, and on the role of imports when defining the relevant geographic market.
- Clarifications on various quantitative techniques used when defining markets, such as the small but significant and non-transitory increase in price (‘SSNIP’) test.
- Guidance on alternative metrics relevant for the calculation of market shares, such as shares based on sales or capacity, or shares based on usage metrics like the number of (active) users or website visits.
- Extensive overview of the various sources of evidence and their probative value for market definition analyses.
The Notice recalls that market definition is an intermediate step in the overall competitive assessment. This looks at all relevant constraints on the undertaking(s) involved in the relevant product and geographic markets, which may include an assessment of barriers to entry or expansion, the impact of scale economies (including those drawn from out-of-market activities) or network effects, access to specific assets and inputs, as well as product differentiation.
Background on the review process
In April 2020, the Commission launched an evaluation of the current Market Definition Notice.
In July 2021, the Commission published the results of its evaluation, which showed that while the 1997 Notice remained highly relevant and was generally fit for purpose, certain updates and clarifications were necessary to bring it in line with developments in the Commission’s practice, the EU courts’ case law as well as new market realities. More than 100 stakeholders made their views known during the evaluation phase, which were considered and incorporated in a draft revised Notice.
The draft revised Notice was published for comments in November 2022, in order to gather feedback from interested stakeholders. Around 70 stakeholders submitted comments in response to the public consultation, which have been taken into account in the final text adopted today. In addition, the European National Competition Authorities have actively participated in the review, providing feedback and sharing their expertise.
Background on market definition
Market definition is a tool to identify the boundaries of competition between companies. The objective of defining the relevant product and geographic market is to identify the actual and potential competitors that constrain the commercial decisions of companies, such as their supply conditions. It is from this perspective that market definition makes it possible, among other things, to calculate market shares that may convey meaningful information for the purposes of assessing market power.
Market definition helps to understand the competitive environment in which firms operate, both at a given time and more dynamically. Since markets are not static, this analysis needs to be repeated for each case, to take account of changes in production processes, consumer preferences, and other market characteristics, such as innovation cycles, supply chains, the specificities of digital markets and related business models, and ease of access to new suppliers, or in response to regulatory changes. Similarly, the geographical scope of a market is also subject to a fresh assessment in every case, which can lead to markets being defined from local to global, depending on how they work in practice, in particular from the perspective of consumers and customers.
The Market Definition Notice provides guidance on the principles and best practices of how the Commission applies the concepts of relevant product and geographic market in its enforcement of EU competition law.
For More Information
See the dedicated webpage of DG Competition, which contains (i) the stakeholder contributions submitted in the context of the evaluation; (ii) the results of the consultation on the draft revised Notice; (iii) the evaluation Staff Working Document; and (iv) the support study prepared for the evaluation.
A Q&A is available here.
Quotes
With this thorough review of our guidance, we reinforce important principles of competition enforcement and address new market realities, such as digitalisation and increasingly interconnected and globalised commercial activity. Markets are changing fast, and we need to ensure our guidance remains fit-for-purpose and effective in response to technological advances. The revised Notice will enhance transparency and legal certainty to the benefit of all stakeholders.
The revised Market Definition Notice for competition cases
Brussels, 8 February 2024
- Why did the Commission adopt the revised Notice?
Today’s revised guidance is the first revision of the Market Definition Notice (“the Notice”) since its adoption in 1997. Since then, there have been significant societal and technological changes, especially digitalisation, as well as important developments in the Commission’s competition law enforcement practice and in the Union courts’ case law.
The Commission conducted a thorough evaluation of the Notice between 2020 and 2021, which showed that while the 1997 Notice remained relevant and was generally fit for purpose, certain updates and clarifications were necessary to bring it in line with the new market realities and abovementioned developments.The revised Notice reflects, inter alia, the policy orientations in the Commission’s Communication “A competition policy fit for new challenges” of November 2021.
- Why is market definition relevant?
Market definition is generally an important intermediate step in the Commission’s assessment of merger and most of antitrust cases. It allows the Commission to identify the boundaries of competition between companies and appraise the market power of companies. The Union courts have underlined the importance of market definition for EU competition law enforcement.
Market definition also has an impact on other substantive and procedural aspects of EU competition law. For instance, in terms of substance, defining markets is necessary to establish market shares below which certain agreements between companies may benefit from an exemption from competition rules. In terms of procedure, market shares may be used to determine whether a specific merger case benefits from a treatment under the simplified procedure.
- Does the revised Notice apply to all industry sectors?
Yes, it does. The revised Notice aims at providing a comprehensive overview of the principles applied when defining markets, regardless of the specific industry or markets concerned. Where it provides specific guidance, for instance on innovation, multi-sided markets or aftermarkets, the principles laid out can be applied across industries, even if the relevant considerations may be more relevant to some specific industries (such as the digital sector).
- What are key differences compared to the previous notice?
The revised Notice provides new or additional guidance on key market definition issues including:
- Explanations on the principles of market definition and the way market definition is used for the purpose of application of competition rules.
- Greater emphasis on non-price elements such as innovation, reliability of supply and the quality of products and services.
- Clarifications regarding the forward-looking application of market definition, especially in markets expected to undergo structural transitions, such as technological or regulatory changes.
- Guidance in relation to market definition in digital markets, for example multi-sided platforms and digital ecosystems (e.g., products built around a mobile operating system).
- Principles on innovation-intensive markets, clarifying how markets should be assessed where companies compete on innovation, including through pipeline products.
- More guidance on geographic market definition, including on the conditions to definemarkets as global, European Economic Area-wide, national or local, as well as on how to take into account imports when defining the relevant geographic market.
- Clarifications regarding quantitative techniques, such as the small but significant and non-transitory increase in price (‘SSNIP’) test, that the Commission may use when defining a market.
- Expanded guidance on possible sources of evidence and their probative value, based on the Commission’s material experience and fact-based approach to market definition.
The Notice recalls that market definition is an intermediate step in the overall competitive assessment. This looks at all relevant constraints on the undertaking(s) involved in the relevant product and geographic markets, which may include an assessment of barriers to entry or expansion, the impact of scale economies (including those drawn from out-of-market activities) or network effects, access to specific assets and inputs, as well as product differentiation.
- How does the revised Notice address global competition?
The revised Notice reflects the increasingly interconnected and globalised nature of commercial exchanges typical of certain markets.
First, the revised notice clarifies when markets can be global. Starting from the premise that the relevant geographic market comprises areas with sufficiently homogeneous conditions of competition, the revised notice clarifies that markets are likely to be global when customers around the world “have access to the same suppliers on similar terms regardless of the customers’ location” (paragraph 69). The revised guidance also clarifies the role of certain factors such as market shares, prices, customer preferences, purchasing behaviour, switching costs and other barriers to supplying customers in different areas, transport costs, as well as trade flows. Relatedly, the Notice details when constraints from imports may be considered as sufficient to establish global markets.
Second, in the revised Notice there are several references to markets being potentially global in scope, citing a number of precedents across several sectors (e.g., IT services, civil aerospace equipment), where the Commission concluded that the scope of the markets was likely global.
Third,the revised Notice includes explanations on how to treat actual or future imports in the Commission’s assessment. In particular, the revised Notice clarifies that to the extent that actual or future global trade flows are not sufficient to result in global markets, the Commission’s competitive assessment should fully factor in any constraints faced from imports.
Fourth, the revised Notice highlights that structural transitions that specific markets may undergo can be taken into account when defining the relevant market, including transitions that may be related to globalisation. For example, this means that expected changes in the regulatory framework (in Europe or abroad) may allow for a definition of broader geographic markets where relevant.
Fifth, the revised Notice indicates that markets may also be defined as global, with the exclusion of specific areas, if certain countries are excluded due to high entry barriers or other obstacles to global sourcing by customers.
These points together provide comprehensive guidance on the Commission’s approach and illustrate how the Commission can adequately capture the different market circumstances across sectors on a case-by-case basis.
- How does the revised Notice address digitalisation?
The revised Notice provides specific guidance on issues pointed out by stakeholders as particularly relevant for digital markets. These include for instance market definition in relation to multi-sided platforms, innovation competition, digital ecosystems, market share calculation in zero-price markets and offline versus online markets.
- How does the revised Notice factor in non-price competition?
The revised Notice recognizes that non-price parameters can be relevant for market definition where customers consider them in their purchasing decisions.
Such non-price parameters of competition include innovation as well as quality aspects of products and services – such as their sustainability, resource efficiency, durability, the value and variety of uses offered, the possibility to integrate the product with others, the image conveyed or the security and privacy protection afforded, as well as its availability, including in terms of lead-time, resilience of supply chains, reliability of supply and transport costs. The listed elements are meant to be indicative and not exhaustive.
The Notice also explicitly addresses the issue of zero-price markets (where products or services are offered for free or at least without monetary compensation), particularly common in the context of multi-sided platforms, which by definition cannot give rise to price competition. In this context, the Notice acknowledges that specific tools, such as the SSNIP test, may not be relevant to define such markets.
- Does the revised Notice signal more intervention in innovation-intensive markets?
Protecting innovation is essential for the EU economy and for EU citizens. This is whyinnovation is one of the factors considered by the Commission inits assessment of competition cases. For instance, in merger cases, companies are required to provide information relating to innovation and pipeline products as part of the standard notification form.
Overall, investigating potential effects on competition in innovation is a focus area for the Commission. The inclusion of a specific section in the revised notice relating to market definition in the presence of significant research & development (‘R&D’), as well as the various references to innovation as a non-price competition factor, reflect that focus. However, the updated guidance on market definition and innovation does not by itself imply that the Commission will increasingly intervene in this area. The revised Notice 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.
- What is the role of the SSNIP test under the Notice?
The SSNIP test is based on the idea of defining the boundaries of a market by identifying those products to which customers would switch in case the price for the reference product slightly increased, and to what extent they would do so. The revised Notice clarifies that, in most cases, the SSNIP test serves primarily as a conceptual framework for the interpretation of available evidence. While the Commission may rely on the principles of the SSNIP test in its assessment of the relevant market, there is no obligation on the Commission to apply the SSNIP test empirically, and other types of evidence are equally valid to inform the market definition.
The revised Notice also shows that the tools used by the Commission to define markets evolve over time. Since the SSNIP test is based on variations in prices, it cannot be used with a product that customers use for free – as is the case in many digital markets. The Commission has therefore relied on the qualitative characteristics of the relevant products or services and has applied the principles of the Small but Significant Decrease in Quality method to assess switching behaviour of customers in such cirumstances (e.g.,case AT.40099 Google Android), as explained in the revised Notice.
- Why does the revised Notice provide guidance on market shares, which relate to the competitive assessment and not to market definition as such?
Like the 1997 Notice, the revised guidance contains a section focused on the calculation of market shares. This is because one immediate consequence of market definition is that it allows to calculate the share held by each company active on the relevant market(s), which may be relevant for the competitive assessment of the case under investigation.
The Notice however clarifies that calculating market shares is only one of the several purposes of market definition and that the Commission and companiesmay(but do not have to) use market shares to assess a company’s competitive strength.
The Commission’s practice shows that market shares can provide useful information, for instance in markets with rather homogeneous products and limited changes in market dynamics over time. In other cases, the Commission rather relies on other factors to assess market power.This can be particularly relevant when assessing effects on innovation, the market power of otherwise competitively significant undertakings (such as start-ups) or future market entry.
In other words, the revised Notice describes how the Commission and companies may calculate market shares if they consider it useful for the assessment, but in no way limits the Commission’s or companies’ ability to rely on alternative ways to measure market power.
- How will competition enforcement change with the revised Notice?
The revised Market Definition Notice will support the Commission’s efforts and those of national competition authorities in the European Economic Area (‘EEA’) to define the relevant markets, which is an important step in many antitrust and merger cases.It is expected to enhance legal certainty and predictability, to lead to higher procedural efficiency for the authorities and to help companies comply with EU competition law.
Market definition is a first and important stepin the assessment of a competition case, whose outcome however depends on other factors (e.g., the existence of market power, the effects of a given conduct, the impact of a concentration). That said, following a sound methodology in defining the relevant markets makes that assessment easier, by helping to structure the competition assessment and to focus the investigation on those aspects that matter.
- How does this revised Notice ensure alignment with international counterparts?
The Commission has worked closely with the national competition authorities of the EEA in the evaluation and review of the Notice. The Commission has also consulted the national competition authorities of several non-EEA jurisdictions during its review. The feedback received during those exchanges has been beneficial to the review process and will foster international alignment in market definition approaches.
- Will the revised Notice be relevant for enforcement under the Digital Markets Act (‘DMA’)?
No, it will not. The Commission does not expect to carry out market definition assessments under the DMA as the regulatory approach of the DMA does not rest on establishing market power in the sense of EU competition law.
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For further information:
Remarks by EU Commission Executive VP Vestager on the adoption of a revised Market Definition Notice
Brussels, 8 February 2024
The developments that we have addressed in the new notice are numerous:
- digitalisation has changed the way business is done. We have had to define markets for digital services without a monetary price;
- commercial exchanges have become increasingly interconnected and globalised. We are often faced with products sold on global markets or imported from outside of Europe;
- and we handle cases where the relevant products are not yet on the market, and competition takes place on innovation.
These developments have been numerous. In reality, these trends influence all aspects of our cases. But defining the relevant markets is an important first step in most of our assessments. You need to understand who the competitors on that market are in order to assess whether market power is being exercised or whether competition may be lost due to a merger.
So what is this all market definition all about?
To state the obvious: A market is the place where companies compete. So market definition is about identifying competing products or services in a specific area. In doing so, we mainly take the customer’s perspective: if a company’s prices go up, or if quality goes down, to which other products could the customer then switch? We had to consider questions like: are chocolate tablets on the same market as chocolate bars? Are SUVs on the same market as large cars?
But there is also the question of geography: in which areas do consumers face similar competition conditions? Do companies compete worldwide, in the EU, at the level of Member States or even more locally than that?
What we want to show is whether different products, sold in different places, constrain one another in the competitive process. In the end, defining the relevant market allows us to analyse whether the company under investigation holds market power.
But we have to be careful with the term “market definition”. It can give the impression that enforcers just choose at their discretion what they think the market should be. But defining the relevant market isn’t like agreeing on a political border, it is not just drawing a line on a map. It’s much more like charting a coastline. The shape is already there – our job is just to gather the evidence, measure and map the market as accurately as we can. And nothing that we do change the shape of that coastline itself.
The market definition notice explains how we do this, how we chart the competitive landscapes. The goal is to help companies themselves to assess their own market position, to support their compliance with competition rules. The notice also helps us at the Commission because it gathers the evidence of years and years of enforcement. And it benefits national competition authorities as they can rely on the Commission’s guidance as well.
The Commission, as said, first adopted a market definition notice in 1997. With today’s review, we wanted to be sure that the notice is accurate, up to date, and accessible – and that it sets out a clear and consistent approach as to both antitrust and merger cases across different industries, and obviously includes concrete examples taken from the case practice.
We adopt this notice after a review process. So we have given everyone a chance to express their views. Overall, more than 100 stakeholders – citizens, academics, businesses, and consumer associations – they all voiced their ideas, their concerns. We also cooperated very closely with the national competition authorities. With them we have cooperated very closely and I am grateful for the valuable input we received from them.
Let me now highlight a few of the novelties. First, the notice provides general principles and obviously acknowledges that markets evolve over time. Second, it covers our approach to specific issues in digital and innovation-intensive markets. And third, it offers more guidance on geographic markets and the role of imports. Let me put more muscles on these three aspects.
First, the notice updates the general principles that guide market definition across sectors. We reaffirm several principles, such as that market definition is based on facts and evidence; and that it is only a first step towards our competitive analysis. Market definition is also dynamic and can evolve over time.
For instance, there are important evolutions in what consumers actually look for in products. The revised notice explains how we commonly consider elements other than price. We consider a product’s innovativeness or its quality in different aspects. For example, we have had cases where a product’s sustainability and durability, or the variety of uses that it offers, were important. Where customers value such qualities, it can shape how we define the relevant markets. To give you recent examples, we have found that environmental costs were an important factor in defining some relevant markets in the waste value chain. In other cases, we found that low-carbon production or zero-waste production were important factors to define markets in the production of certain metals and their recycling.
Second, the revised notice explains how markets can be defined in specific circumstances. This includes market definition for services on digital platforms. We explain how we will approach markets for services that are provided for free and monetized in other ways, for example through advertising or through collection of personal data. We also explain our approach to markets for products built around an operating system or a platform, forming what we call “digital eco-systems”.
The notice also includes new guidance on market definition in R&D-intensive markets. We explain how we define markets for products that are still under development, how we assess that. The point here is that we consider whether these products will likely compete with existing products or if they will offer entirely new solutions. This is important for assessing whether mergers or company behaviour could lead to a loss of innovation.
Third, the revised notice offers more guidance on how the Commission approaches geographic market definition. The notice explains in detail which factors the Commission considers when assessing whether a market is global, EEA-wide, national or local. The point is that when customers in a given area have access to the same suppliers on similar terms regardless of the customers’ location, the relevant geographic market will correspond to that area.
To be concrete, trends like growing cross border trade and the disappearance of barriers have led to broader geographic markets. If you look at our decisions over time, you’d see for example, the markets for telecommunications equipment were considered national in scope in the 1990s, but then were found to be at least EEA-wide and possibly global in the 2000s. The markets for mining equipment were defined as EEA-wide in the early 2000s, and then found to be worldwide today. The markets for certain components of data centres have been defined as worldwide for at least a decade. These are just examples, but the proportion of markets defined as worldwide in EU merger investigations has grown and grown over the years.
The notice also explains that the Commission considers competitive pressures that come from outside. We explain how a geographic market definition can also allow to consider competition from importers that compete for business on the market. Imports can play a very decisive role in our assessment. In markets ranging from domestic appliances, car mats, or food preservatives, we have cleared mergers despite very high market shares, because we had evidence of a significant and growing competition from imports.
We make these assessments based on evidence. This is very important because it helps us avoiding mistakes. You will remember that we were criticized five years ago, when we blocked the Siemens/Alstom merger, for not considering that Chinese trains would flood European markets. But the evidence at the time showed that this was unlikely to happen. Now, five years later, Chinese suppliers have made no progress in the EU, while European champions remain the most competitive globally.
To conclude, as I started, defining markets is a rather technical exercise. But I hope that I have also underline that it is important that we get it right. This is important for us, as enforcers, to do our jobs. But it also matters to create legal certainty, ensure equal treatment across different sectors and companies, and help businesses stay on a path of full compliance. Market definition helps us to assess the scope of consumer choice and also the risk that market power develops. To maintain our markets competitive, we need to get the framework right. Because competitive markets, they will serve consumers best.
Thank you.
Source – EU Commission
EU-Abgeordneter Schwab (CDU) zur Marktabgrenzung in Wettbewerbsverfahren
Die Kommission hat heute eineüberarbeitete Bekanntmachung über die Marktabgrenzung in Wettbewerbsverfahrenangenommen. Dazu erklärtAndreas Schwab (CDU),binnenmarktpolitischer Sprecher EVP-Fraktion:
“Mit einiger Verspätung hat die Kommission heute die (erste) Überarbeitung der Bekanntmachung über die Marktdefinition nach 27 Jahren seit ihrer Annahme veröffentlicht. Sie legt mehr Gewicht auf neue nicht preisbezogene Parameter, wie z. B. Innovation, Verfügbarkeit und Qualität von Waren und Dienstleistungen. Das hatte ich insbesondere für die neu entstehenden und schnelllebigen Märkte im digitalen Sektor auch in den letzten Wettbewerbsberichten bereits gefordert.
Rückblickend bezieht sich die Aktualisierung auf den Fall Alstom-Siemens aus dem Jahr 2019, dessen Ausgang sich jedoch auch heute nicht geändert hätte. Der Fall trägt aber zu einer umfassenderen Betrachtung des geographischen Marktes bei, indem nun auch der Wettbewerb auf globaler Ebene betrachtet wird.”