The European Commission modernises its market definition guidance

11 min read

The EC has published the long-awaited revised Market Definition Notice (the "Notice"), marking the first update since its initial adoption in 1997. The Notice clarifies the methodology for defining product and geographic markets under EU competition law and reflects the EC's decisional practice and EU case law developments over the last 26 years. The Notice serves as a key tool for delineating the boundaries of competition between companies in areas such as merger control and antitrust.


The EC initiated a review of the Notice on Market Definition  (the "1997 Notice") in March 2020, gathering insights from EU national competition authorities, experts and various stakeholders. The EC's review included the commission of an external study to support its evaluation, which focussed on digitalisation and innovation, geographic market definition and quantitative techniques. In November 2022, the EC published a draft notice for public consultation which was completed in January 2023.

In the Notice, market definition continues to involve the definition of both product and geographic markets on the basis of demand-side, and to a certain degree supply-side substitutability. However, it includes adjustments to reflect developments on how businesses compete and consumers behave in today's markets.

Below we set out an overview of key changes brought about by the revised Notice.

Framework for defining a relevant market

The EC is more detailed on the principles of defining markets than it was in its 1997 Notice and provides a helpful checklist of principles that parties should consider when defining markets across various sectors. 

  • Market definition may change from case to case. The EC reiterates that it is not bound to apply definitions of a relevant market from its past decisions.1  
  • Non-price elements can be important when defining a relevant market. In contrast to the 1997 Notice which treated price as the key competitive parameter for market definition, the revised Notice codifies the EC's more recent thinking around key competitive parameters, which now also include the product's "degree of innovation and its quality in various aspects - such as its sustainability, resource efficiency, durability, the value and variety of uses offered by the product, the possibility to integrate the product with other products, 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",2 as well as customers' purchasing behaviour, including behavioural biases.3 The EC notes that the application of the SSNIP test4 is difficult when competition takes place on parameters other than price.5
  • Market definition is only concerned with immediate competitive constraints. As the 1997 Notice, the Notice is primarily focused on immediate competitive constraints from within the market when defining a relevant market.  However, in line with its practice, the EC acknowledges that competitive constraints from outside the market, including potential competition, should be taken into account at the stage of the competitive assessment.6
  • Market definition can be left open. It has become common practice for the EC to leave the market definition open where this does not affect the outcome of the case. The revised Notice explicitly reserves that possibility also in situations where competition concerns arise regardless of the market definition applied.7
  • Forward-looking application of market definition. The EC may consider expected short-term or medium-term structural market transitions where they would lead to effective changes in the general dynamics of supply and demand within the period that is relevant for the EC's assessment. Furthermore, the projected structural changes must be "sufficiently likely" to occur. The evidence of this must be reliable, going beyond mere assumptions.8 

Product market definition

As mentioned above, the EC's product market definition continues to be based on demand-side substitution and, to a lesser extent, supply-side substitution. On the demand-side, the SSNIP test9 remains of relevance for the EC's market definition in appropriate cases. However, the tone indicates that the SSNIP test is no longer a cornerstone. Indeed, the EC states that there is no obligation to apply it "empirically" and that "other types of evidence are equally valid to inform the market definition".10 In addition, the EC acknowledges that the application of the SSNIP test is difficult when competition takes place on parameters other than price (such as innovation and/or quality).11 The Notice clarifies that it is important to take into account how consumers actually look at products, and at how they are looking more and more at non-price dimensions like innovation and sustainability, e.g., low-carbon production or zero-waste production will be increasingly important factors in defining markets in the production of metals and their recycling.

The Notice also clarifies the circumstances in which supply-side substitution may be relevant. This is the case where (i) most (if not all) suppliers are able to switch production; (ii) suppliers incur only insignificant additional sunk costs or risk when switching; (iii) suppliers have the incentive and would switch in response to changes in price or demand; and (iv) suppliers can offer all products in the range effectively in the short-term.12

Geographic market definition

The Notice more explicitly recognises that geographic markets can range from a local dimension to a global dimension depending on conditions of competition.13 If customers around the world have access to the same suppliers on similar terms regardless of the customers' location, the relevant geographic market is likely to be global.14

The Notice also clarifies the EC's position regarding competitive pressure from imports. In line with the EC's consistent practice, the Notice explains that the mere existence of imports or the possibility of switching to imports in a given geographic area does not necessarily lead to a widening of the geographic market to include the area from which the goods were or could be exported. The test remains whether customers face "sufficiently homogenous conditions of competition". 

The Notice more explicitly recognises that geographic markets can range from a local dimension to a global dimension depending on conditions of competition.  If customers around the world have access to the same suppliers on similar terms regardless of the customers' location, the relevant geographic market is likely to be global.

Market definition in specific circumstances

To factor in the dynamics of the current marketplace, the EC provides guidance to navigate market definition complexities when it comes to innovation-intensive sectors and digital markets. 

Innovation-driven markets

The EC offers guidance on how markets should be defined when parties compete on innovation.

  • The EC acknowledges inherent uncertainties when it comes to industries characterised by significant R&D efforts.
  • Pipeline products can be taken into account when defining a relevant market, if the R&D process is sufficiently visible to establish the pipeline product's intended use and projected substitutability with other products.
  • The EC can conclude that pipeline products are part of an existing product and geographic market, or that they are part of a new market limited to the pipeline products and substitutes.
  • The geographic dimension of a relevant market containing pipeline products may need to reflect the geographic dimension of the underlying R&D effort and may therefore be broader than the geographic market of the commercialised products.
  • Where an R&D process is at early stages, this may still be relevant to identify "boundaries within which undertakings compete in such earlier innovation efforts" (so called innovation spaces).15   

Multi-sided platforms

  • The EC may define a relevant product market for the products offered by a platform as a whole or separate relevant product markets for the products offered on each side of the platform.
  • The EC takes into account, where relevant, the indirect network effects between user groups on different sides of the platform when defining the relevant markets or in the competitive assessment.
  • Non-price elements are relevant for the assessment of substitution as multi-sided platforms often supply a product at a zero monetary price. These include product functionalities, intended use, evidence on hypothetical substitution and on competitive constraints based on industry views, and barriers or costs of switching, such as interoperability with other products, data portability and licensing features.
  • The EC may also consider an alternative to the SSNIP test – the SSNDQ test, which is assessing the switching behaviour of customers in response to a small but significant non-transitory decrease of quality.16 

After-markets, bundles and digital ecosystems

  • After-markets are markets where the consumption of a durable product (the primary product) leads to the consumption of another connected product (the secondary product).
  • There are generally three possible ways to define markets in the case of primary and secondary products: (i) as a system market comprising both the primary and the secondary product; (ii) as multiple markets, namely, a market for the primary product and separate markets for the secondary products associated with each brand of the primary product; and (iii) as dual markets, namely, the market for the primary product on the one hand and the market for the secondary product on the other hand.
  • The EC explains which of these approaches it would take depending on relevant circumstances. The definition of a system market may be more appropriate if certain circumstances are present: (i) the more likely it is that customers take the whole-life costs into account when purchasing the primary product, (ii) the higher the expenditure on or the value of the secondary product compared to the expenditure of or the value of the primary product, (iii) the higher the degree of substitutability between primary products and the lower the switching costs between primary products, and (iv) when there are no or few suppliers specialised only in the secondary products. Otherwise, it may be more appropriate to define markets as dual or multiple, depending primarily on the degree of substitutability between the secondary products of the various suppliers.
  • The EC explains that digital ecosystems in certain cases consist of a primary core product and several secondary products that are connected to the consumption of the core product, e.g., by technological links or interoperability.
  • When considering digital ecosystems, the EC may therefore apply similar principles to those applied to after-markets to define the relevant product market. When the secondary (digital) products are offered as a bundle, the EC may assess the possibility of that bundle constituting a relevant market of its own.
  • The EC acknowledges that not all digital ecosystems fit an after-market or bundle market approach. In any event, it may take into account elements such as network effects, switching costs and single or multi-homing decisions for the purpose of market definition.17

The Notice also addresses market definition in the presence of significant differentiation and price discrimination.18 

Market shares

At the core of market definition is companies' market shares. The Notice provides a useful overview on how the EC deals with methods for calculating market share other than value and volume of sales, depending on specific products or industry in question.19  

Market features Relevant metrics for calculating market shares
Markets characterised by the strategic importance of capacity •    Capacity
•    Production
Bidding or innovative markets •    The number of suppliers
•    The number of contracts awarded
Digital markets •    The number of active users
•    The number of website visits or streams
•    Time spent or audience numbers
•    The number of downloads and updates
•    The number of interactions or volume or value of transactions concluded over a platform 
Transport markets •    Units of fleet, seat capacity, number of trips or access rights such as slots at specific airports
Frequent and significant investments in R&D •    The level of R&D expenditure
•    The number of patents or patent citations

Other practical points worth noting include:

  • Explicit acknowledgment that estimates may be enough. Market share information may be provided in the form of estimates if precise market shares are not available.
  • The relevant period. The EC usually relies on annual market shares over a three-year period, although this may differ depending on the characteristics of the relevant market. In the context of antitrust enforcement, relevant periods should correspond to the duration of the investigated conduct.

Practical impact

The Notice is unlikely to result in significant changes to the current EC's approach. However, national competition authorities within the EU are likely to pay close attention to the Notice. The EC consulted with national authorities during the review process, and the EC comments that the feedback received during this process "will foster international alignment in market definition approaches".

The Notice and its underlying aim of providing transparency and predictability is welcome. However, businesses should be aware that the EC has retained considerable leeway and flexibility over how to conduct market definition analysis, and that in certain cases business will not be able to find precise guidance and legal certainty from the Notice.

1 Para 14.
2 Para 15.
3 Para 60.
4 Small but significant and non-transitory increase in price – see para 29 for more details.
5 Para 30.
6 Para 17.  See also para 23 (c) with respect to potential competition. 
7 Para 20. 
8 Para 21.
9 Small but significant and non-transitory increase in price – see para 29 for more details.
10 Para 31.
11 Para 30.
12 Para 33.
13 Para 38.
14 Para 69. 
15 See section 4.3.
16 See sections 4.4.
17 Section 4.5.
18 See sections 4.1 and 4.2.
19 Paras 107-108. 

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