COMPETITION • EUROPEAN AND FRENCH LAW • MARKET
Alongside the elasticity of demand, the elasticity of supply, which measures the ability of other suppliers to satisfy the demand addressed to the purportedly dominant undertaking, has always been considered by the supervisory authorities as a complementary factor in the definition of the relevant market. According to the Commission Notice on the definition of relevant market, substitutability may be analyzed from the supply-side when its effects are equivalent to demand-side substitutability in terms of immediacy and effectiveness. The analysis of supply-side substitutability in defining the market, often relevant when the undertakings present a whole range of qualities and types for the same product, may give rise to the interpretation that the market includes all demand and supply-side substitutable products, even if for a final consumer or a specific group of final consumers, their differences in quality do not render the products substitutable. As it is an indication for the measure of potential competition, supply elasticity is particularly relevant with regard to emerging markets.
Two products will be considered as substitutable from the supply side where suppliers are able to redirect their production from one type of product to another without incurring risk or unsustainable costs. When passing from one type of production to another necessitates heavy investments or an adjustment of strategy or there are barriers to entry, such as legal or technological requirements, or when it cannot be achieved in a relatively short period of time, the products in question belong to distinct markets and substitutability is ruled out.
The switch must moreover also be possible within a reasonable time frame. There is no supply-side substitutability between products where they are manufactured from wholly different raw materials, or where their manufacture requires the use of distinct manufacturing technologies and equipment, different production processes, specific facilities or they require marketing efforts to re-position the products or the acquisition of specific experience and know-how. By contrast, where it is sufficient to resort to simple conversion processes, supply is substitutable.
