Market definition plays an essential role in competition law. It is particularly decisive in matters of abuse of a dominant position and merger control. How broad or narrow the definition of the product market and the geographic market is, will determine whether a company will be regarded as having a dominant position, and where that dominant position is characterized, its behavior will be closely monitored and its room for maneuver limited. Similarly, in the event of a restrictive definition of the markets, its market share will appear larger and it will often find it more difficult to carry out external growth operations or will have to carry them out under the constraint of substantial and costly commitments.
In its Communication on the definition of relevant markets of 9 December 1997, the European Commission underlines the “decisive influence on the assessment of a competition case” of the definition of the market on which the essential criteria for identifying competition concerns depend i.e. operators’ market share, effective competition, etc.
The Commission has launched an evaluation of its Communication and invited stakeholders to present their comments on its roadmap, in which it sets out the five criteria on which it intends to base its evaluation: effectiveness, efficiency, relevance, coherence, and added value of its Communication.
Please find attached the observations sent by Vogel & Vogel to the Commission as part of the consultation on improving the process of defining relevant markets and limiting the numerous perverse effects resulting from an overly restrictive definition of markets in term of both product and geographic markets.
Overall our view is that that the definition of markets is too often highly restrictive and out of step with reality and economic developments.
– a technical approach favoring substitutability on the demand side, while substitutability at the of supply and potential competition level should be taken into account at the market definition stage;
– the assessment of demand-side substitutability too centered around price elasticity of demand;
– insufficient consideration of the global dimension of certain markets and the globalization of the world economy;
– overly rigid analysis based on previous decision-making practice which is often obsolete but is always referred to in the decisions; in France, the abolition of the distinction between physical and online retail channels only dates back to 2016. Similarly, the French Competition Authority maintained in 2017 its analysis on the existence of a one and the same market encompassing broadband and very high-speed internet. Likewise, in the field of advertising, the maintaining of an isolated market for television advertising is obsolete in the light of the exponential development of internet advertising, in particular on video platforms;
– a habit developed by the decision-making practice both at European and French level, which consists in the Authority discussing a new definition of the market while “leaving the question open” and making reference, for the purposes of analysis, to the previous definition in such a way that operators are unable to determine which definition is applicable;
– insufficient timeframe considered in the context of the market analysis for merger operations. The Commission’s Alstom / Siemens decision illustrates the difficulties linked to this issue and the analysis of potential international competitors was quickly revealed to be inaccurate.
Restrictive decision-making practice in terms of market definition can lead to over-regulation and excessive interventionism by the supervisory authorities, which is detrimental to economic efficiency and development. It is also likely to place European industry at a disadvantage against competing industries, notably the US and China which have been able to acquire global positions of strength on their large national markets, with which European companies struggle to compete. The definition of markets that are too small and possibly obsolete thus leads to a loss of competitiveness compared to these global giants.
It is therefore important that the procedure for reviewing the Communication takes account of the observations of businesses and provides an opportunity for the European Commission to lay the foundations of a new more integrated competition policy based on economic reality, in support of other European policies, in particular industrial policy, since the Communication is centered on the existing link between the concept of relevant market and competition policy.
Find below our reply to the consultation
The European Commission has launched an evaluation of its Communication of 9 December 1997 on the definition of the relevant market for the purposes of Community competition law (hereinafter the “Communication”), and has invited stakeholders to present their comments on its roadmap, in which it sets out the five criteria on which it intends to base its evaluation: effectiveness, efficiency, relevance, coherence, and added value of its Communication.
In our view this evaluation initiative is certainly comes at a timely juncture.
We are effectively reminded of the central role of defining the relevant market in competitive analysis, given that it determines the context of that analysis. In the Communication the Commission itself underlines the “decisive influence on the assessment of a competition case” of the definition of the market (Commission Notice on the definition of relevant market for the purposes of Community competition law, recital 4.) on which the essential criteria for the identification of competition difficulties depend: operators’ market share, effective competition, etc. However, as this concept is subject to limited review only by the EU judicature (Case T-370/17 KPN BV, para 59.), it is essential that the Commission’s analysis be as comprehensive as possible.
Beyond possible methodological improvements to the detailed analysis in the Notice (1), we regard it as important to call on the Commission, in the context of its evaluation, to go beyond the Notice, in particular as regards the practical methods of analysis and competition policy (2).