COMPETITION • EUROPEAN AND FRENCH LAW• MARKET
To define the relevant product market, the competition authorities assess the degree of interchangeability with regard to the characteristics of the products concerned (performance, price, etc.) as perceived by users. This descriptive approach is sometimes supplemented by an econometric analysis with the test for cross elasticity of demand being most often used out of the available methods which consists in measuring the relationship between price fluctuations of one product against the sales of another. Where the price increase of a product results in raising the sales of another, these two goods are substitutable, and the degree of substitutability varies according to the rate of cross-elasticity. According to the Notice on the definition of relevant market, “the question to be answered is whether the parties’ customers would switch to readily available substitutes [product market] or to suppliers located elsewhere [geographic market] in respect to a hypothetical small (in the range 5% to 10%) but permanent relative price increase in the products and areas being considered” (SSNIP – small but significant and non transitory increase in price – test). According to that method, a market may be defined as the smallest set of products and territories for which an undertaking would find it profitable to impose a 5% to 10% price increase, should it be the only undertaking to offer these products. If the substitution behavior causes enough of a drop in sales that the benefit of the price increase is cancelled out, the products and geographical territories involved are included in the delimitation of the relevant market. This operation is renewed until the price increase on the undertaking’s products becomes profitable. Products belong to different markets if, in case of price increase, a large majority of customers would stop consuming the product in question. Substitutability is, however, unlikely where the consumers’ choice depends on criteria other than price, in other words, if the SSNIP is profitable, this means that the demand is not elastic and that a separate market has been identified. Otherwise, the market needs to be expanded by adding other products.
The hypothetical monopolist test must be carried out with regard to a competitive situation i.e. a price close to the cost of an efficient operator, not to the price noted. It applies regardless of the degree of price sensitivity of buyers. The absence of a reaction on the price or quality of the offering by an operator faced with a free competing offer shows that it exerts insufficient competitive pressure to be included within the same market. However that test is not in itself decisive and must be considered as one of a set of indicators.
