COMPETITION • FRENCH LAW • RESTRICTIVE AGREEMENTS
The concept of substitutability is the cornerstone of the definition of the product market in competition law. The Competition Authority regards as “substitutable and as being in the same market those products or services that applicants may reasonably be expected to regard as alternative means between which they can choose in order to satisfy the same demand” (Activity Report for 2001). As a guide for analysis, the French authorities generally rely on the provisions of Commission Notice No 97/C 372/03 of 9 December 1997 on the definition of relevant market for the purposes of Community competition law. The Commission differentiates between demand-side and supply-side substitutability. For the purposes of assessing demand-side substitutability (elasticity of demand), the Competition Authority uses a range of criteria such as the technical characteristics or functions of the products or services, price, conditions of manufacture, use, marketing etc. This descriptive approach is sometimes supplemented by econometric analysis. Among the available methods, the hypothetical monopolist or SSNIP – “small but significant and non-transitory increase in price” test is most often used. It consists of measuring the relationship between the fluctuation of the price of one product and the sales of another. In practice, the Competition Authority considers that “the method of asking the interested parties … whether, in the event that the price of A increases by 5 to 10%, they would transfer part or all of their demand to the supplier of product B, is likely to provide useful indications” on the definition of the relevant market. Products belong to different markets if, in the event of a price increase, the vast majority of customers stop purchasing the product in question.
Substitutability can also be analyzed from the supply side (elasticity of supply ) when its effects are equivalent to demand-side substitutability in terms of immediacy and effectiveness. Products are considered substitutable from the supply side when suppliers are able to redirect their production towards the products or services of the suppliers concerned, without incurring unsustainable costs or risks. If heavy investments or strategic revisions are required to achieve this, substitutability is ruled out. The switch must, moreover, be able to be carried out within a reasonable period of time.
