European Commission invites comments on Market Definition Notice

11 November 2022

The European Commission has published an invitation for comment on an updated draft of its Market Definition Notice. Competition agencies and courts routinely define product and geographic markets, both to identify the competitive constraints that businesses face when offering their products and services, and to assess their relative strength. This will be the first time the Notice has been updated since its initial publication in 1997, after the Commission’s evaluation process concluded the current Notice “does not fully reflect developments in best practices in market definition”.

While the basic principles of the Notice “remain sound”, the Commission has proposed several significant revisions to the Notice to “bring it in line with developments in the Commission's practice, the EU courts’ case law as well as new market realities.” In general terms, the update therefore seeks to codify existing Commission practice and recent Court judgments, rather than to bring about a profound change in the way that the Commission will assess future cases. Nevertheless, it is a very significant development that will attract a robust debate amongst the competition law bar in Brussels and beyond.

The updated Notice includes a litany of proposed developments, but the most significant categories relate to digital markets and global trade, and have featured prominently in a large number of important cases in recent years.

First, as regards digital markets, in the 25 years since the Notice was first published, the proliferation of e-commerce has led to significant challenges for purposes of product market definition, notably as regards zero-monetary price services and “multi-sided” platforms. The updated Notice reflects how the Commission has developed its practice in these respects, most importantly in the following ways:

  • The Notice emphasises the importance of two issues that have been particularly important in this area: (1) forward-looking assessments and the role of potential competition, which frequently attract debate in fast-moving markets; and (2) non-price competition, in particular as regards innovation and product quality.
  • The Notice acknowledges the difficulty of using the “SSNIP” test (which assesses the propensity of customers to switch between businesses in response to a Small but Significant and Non-transitory Increase in Price) for zero-monetary price services. It notes the Commission may use a broader range of evidence, including a novel “SSNDQ” test (which assesses customer behaviour in response to a Small but Significant and Non-transitory Decrease in Quality), which was affirmed by the European General Court in its recent Android judgment. (Google v Commission, Case T‑604/18, paragraphs 174-181.)
  • The Notice sets out the Commission’s approach to market definition as regards multi-sided platforms. This seeks, where appropriate, to take account of indirect interactions between the various sides of the platform, enabling the assessment of each side of the platform in isolation or a holistic assessment of the products offered by the platform as a whole.

Second as regards global trade, an increasing number of competition cases have turned on the extent to which importers constrain EU businesses. Despite the protestations of many merging firms in Europe, the Commission has been resilient in distinguishing between EU and ex-EU players for purposes of defining geographic markets in many industries. The updated Notice continues this trend: “the mere existence or possibility of imports in a given geographic area does not necessarily lead to widening the scope of the geographic market to the area where imports originate”. This does not mean the Commission will disregard the presence of the relevant imports, but it does routinely distinguish between the nature of the constraint imposed as between EU and ex-EU producers.

As noted, many of these proposals in the draft Notice reflect existing Commission practice. Nevertheless, the update is a significant moment in the development of EU competition law, and we anticipate a lively debate in the coming months. Businesses that wish to comment on the Commission’s proposals can do so by clicking here; and we are more than happy to discuss any aspect of the Notice that is of interest.

The deadline for feedback from the public is 13 January 2023. We will continue to monitor developments with great interest and provide further updates.