Market definition in competition law: New guidance from the EU Commission


​​​​​​​​​​​​​​published on 14 May 2024 | reading time approx. 4 minutes​

The European Commission has extensively updated and expanded its guidance on market definition under competition law. This is significant for companies and their advisors, as a correct market definition is crucial in competition law, especially when it comes to determining a company’s market shares or competitors. Inaccurate market definition can lead to an incorrect legal assessment and thus result in behaviour that violates competition law​.

The European Commission's revised guidance can be found in the "Commission Notice on the definition of the relevant market for the purposes of Union competition law" (C/2024/1645). The previous version had been in force for more than 25 years, which is why the revision has been eagerly awaited by competition law practition­ers. The new version is significantly more comprehensive and reflects the developments of the last decades​​.

What is the significance of market definition?​

Market definition is the process of identifying the products or services ("product market") and the area ("geographic market") in which companies compete. This enables the market shares of companies to be determined as a subsequent step.
The market definition and market shares of companies play a pivotal role in the assessment of competition law in the context of everyday business operations. This includes antitrust compliance and the identification of competitors, merger control, the assessment of a dominant market position and often also in various agree­ments between companies (e.g., distribution agreements, research and development cooperations, licen­sing agreements) as well as in purchasing and other cooperations with competitors.
It is therefore crucial for companies and their advisors to accurately define the markets in which a company operates and to correctly determine their market shares​.

What is the main content of the Notice?

The European Commission's Notice sets out its approach to market definition in merger control and cartel proceedings. Compared to the previous version, the instructions have not only been updated, but also signifi­cantly expanded. Two fundamental aspects should be emphasised: firstly, the new version outlines the legal developments in market definition over the past decades. It contains many references to decisions of the European Courts and the European Commission. Secondly, the updated version reflects the fact that the market environment in which companies operate has changed. In this respect, it provides useful information on complex market definitions in the context of developing areas like digitalisation, sustainability and new forms of offering goods and services. 
The methodology of market definition remains essentially unchanged in the new version. In accordance with his, the European Commission describes the already well-known general principles of market definition from a product and geographic perspective.
In defining product markets, the European Commission continues to prioritise the substitutability of products or services. It asks which alternative products customers would switch to in the event of a "small but significant non-transitory increase in price". Such products are then allocated to the same market as the analysed pro​­duct. The European Commission not only specifies the various quantitative techniques it uses to define mar­kets. It also explicitly recognises that non-price parameters such as innovation, quality, security of supply and sustainability (can) be important for market definition. For example, in some cases the European Com­mission examines whether customers would switch to a different product in the event of a "small but significant non-transitory decrease of quality". It is also helpful that the Notice specifies which alternative parameters can be used to calculate market shares, e.g., sales, capacities, or data, such as the number of (active) users or website visits.
In defining geographic markets, the European Commission continues to examine whether the conditions of competition are sufficiently homogeneous within an analysed area. In doing so, the Commission uses various indicators. For instance, the suppliers operating in the analysed area serve as an indicator. In a given geogra­phic market, there is a tendency for suppliers to be consistently present, with comparable market shares observed across the area. Additionally, prices and customer purchasing behaviour tend to be homogeneous. This approach was previously outlined in the Notice from 1997, but the current version provides more detailed information.
Finally, the European Commission takes a closer look at market definition in special circumstances, some of which have only become particularly relevant in recent years and in which market definition has proved difficult in practice. These include, for example, the market definition in the presence of multi-sided platforms or digital ecosystems. A separate section is dedicated to market definition in the context of competition in innovation and significant research and development (R&D).

What are the practical consequences of the Notice?

The new version requires immediate action, especially for companies

  • that have digital business models or are active in digital and platform markets,
  • that have strong R&D activities or are active in innovation-driven markets or
  • that have business activities for which the consideration is not a traditional cash payment.

In these constellations, it would be prudent to review any existing market definitions in light of the European Commission's new and much more substantiated guidance. 
For other companies active in more "traditional" markets and which have already defined the markets in which they operate in accordance with competition law, the new version does not in itself require immediate action. The privileges resulting from low market shares (e.g., in the Vertical Block Exemption Regulation) or the obliga­tions resulting from higher market shares (e.g., prohibition of abuse of market power) remain the same.  Never​­theless, it may also be beneficial for such companies to utilise the new version as an opportunity to review previous competition law assessments of their business activities in order to ensure that they are up to date. Market conditions relevant to the assessment may have changed since the last review.
Although the Notice is not legally binding for courts and national competition authorities, it will be an impor­tant tool for competition law practitioners in the years to come. In fact, it will become more important than the previous version due to its greater level of detail.
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