In competition law, the relevant market acts as afilter that delineates that part of commerce within which competition law assesses companies’ market behaviour. This contribution considers how competition law can reconcile the legal concept of the relevant market with its economic roots.Author:Viktoria H.S.E. Robertson, Viktoria H.S.E. RobertsonPublish Year:2019
Can competition law reconcile the legal concept of the relevant market?
This contribution considers how competition law can reconcile the legal concept of the relevant market with its economic roots. It argues that for market definition—like for many an economic concept—a spectrum opens up between law and economics.
What is the relevant product market in competition law?
Applying this reasoning to the concept of the relevant product market in competition law, one can argue that the concept of the market originates from economics but was subsequently heavily modified in the shape of the relevant market in order to fulfil certain analytical functions within the antitrust provisions.
What is a “relevant market?
The economic concept of “market” used in competition law analysis represents a technical antitrust term. It is different from the concept used in a trade sector as a commercial term. Indeed, the Guidelines take this difference into account and use the term “relevant market” to delineate the market concept used for competition law purposes.
What is the Delimitation of the relevant market?
The delimitation of the relevant market provides an indication of the boundaries within which competition between undertakings takes place, making it possible, for instance, to calculate market share, which can be used when assessing market dominance or mergers. A relevant market comprises both a product and geographic scope.
What are antitrust laws?
At their inception, the US antitrust statutes —which date from the late 19th and early 20th centuries—did not rely on the economic concept of a relevant market, and did not explicitly use the relevant market terminology. Today, however, this concept is generally read into these provisions. 68 As such, section 1 Sherman Act prohibits anti-competitive agreements in restraint of trade or commerce, section 2 Sherman Act is concerned with monopolization of any part of the trade or commerce, and section 7 Clayton Act deals with a merger’s anti-competitive effects in any line of commerce. Similarly, the concept of the relevant market is today understood to form an integral part of the EU competition law provisions, 69 which date from the 1950s. Article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits anti-competitive agreements in the internal market, whereas Article 102 TFEU forbids the abuse of a dominant position. And the EU Merger Regulation prohibits mergers that would have anti-competitive effects, particularly through the creation or strengthening of a dominant position on the relevant market. 70
What is soft law guidance?
Soft law guidance is a major gateway for concepts from economics to enter the sphere of competition law. 98 The relevant market is a prime example in this respect. The Merger Guidelines, which the US antitrust agencies have regularly updated since the 1960s, 99 can be seen as a constant push towards a more economics-based delineation of relevant markets. In 1982, the DoJ first introduced the hypothetical monopolist test in a footnote to its Merger Guidelines. 100 Since then, this test has been continuously refined by the agencies, most recently in 2010. 101 The hypothetical monopolist test frames the question of the relevant market in economic terms, asking whether a 5–10 per cent price increase for a certain product would be profitable or whether customers would turn to substitutable products and thus make it unprofitable. In the 1980s, this test was perceived as ‘a major advance in the economic theory of markets’, 102 and it continues to dominate the discussion about the economic conceptualization of the relevant market. In fact, some economists have argued that there can be no alternative for delineating a relevant antitrust market. 103 At the same time, the US antitrust agencies try to de-emphasize the importance of market definition, particularly in the realm of merger cases. 104
What is the role of the European Commission in competition?
As the European Commission decides competition cases in first instance, the Court of Justice of the European Union (CJEU) has deferred a lot of interpretive power over economics-based questions pertaining to competition law to this competition authority. In one case, the General Court highlighted that it could not conduct its own market analysis, but could only verify whether the European Commission’s decision was correct.78This makes the European Commission an important actor in shaping EU competition law, also in respect to its relationship with economics. In EU courts, neoclassical economics has traditionally not been equally influential in competition law as in the USA.79Over the years, the EU courts developed a legal test for delineating markets based on demand elasticity and sufficient product interchangeability, terms they sometimes borrowed from economics and sometimes developed themselves.80A recent example from a different area of antitrust provides valuable insight into the CJEU’s struggle to find its position along the spectrum of law and economics: in the Intelsaga, the Commission based its substantive analysis of rebates on a dual approach. The first was the CJEU’s formalistic case law which presumes that fidelity rebates are anti-competitive, and the second was the economics-based as-efficient-competitor test as elaborated in the 2009 Guidance Paper on exclusionary abuses.81Thereby, the Commission tried to cover the entire spectrum between law and economics. As Advocate General Wahl remarked, the fundamental question in the case was which constituted the legaltest for rebates.82The CJEU was not prepared to decide where on the spectrum between law and economics it positioned itself, instead finding that as the Commission heavily relied on its economic analysis to conclude that Intel’s rebates were anti-competitive, the General Court should review Intel’s counter-arguments in that respect.83It appears that the Court prefers to decide its particular position along the spectrum on a case-by-case basis.84This may also be true for market definition. It is questionable, however, whether this case-by-case approach is backed by a coherent theoretical framework when the EU courts try to reconcile law and economics.
What is the relevant market in competition law?
It has taken on its own, specifically legal conception. For this reason, the relevant market has been referred to as merely a partial transplant : courts admit the legal relevance of certain economic facts (eg cross-elasticity of demand) when delineating markets, but at the same time do not adhere to economists’ reasons for delineating markets in the first place.38Another example is the clear market boundaries that competition law often requires, and which do not resonate with economics as the latter regards the market as more of a continuum. For purposes of legal certainty and predictability, however, competition law—at least outside of merger control—usually insists on these stark demarcation lines.39A further dimension is the fact that economics proposes a number of economic models to delineate relevant markets, while the law with its focus on predictability cannot cope with such uncertainty and prefers to stick to tried and tested ways for delineating markets that have been adopted in the case law. This view occupies a place very close to the law end of the spectrum.
What is relevant product market?
The relevant product market is a concept employed in competition law. It delineates that part of commercial life within which competition law assesses companies’ market behaviour, fulfilling the function of a filter. Contrary to the substantive competitive assessment, which asks whether a certain type of commercial behaviour raises competition concerns, market definition delineates the area to which the substantive provisions apply. It has a decisive function as it allows antitrust enforcers to focus their attention on a particular relevant market, which is said to include all relevant competitive constraints.8Some have described the relevant market as a ‘legal construct’,9others as a ‘shorthand for a legal requirement’.10In Europe, the relevant market has also been called ‘the last legalistic bulwark of a competition law that only gradually, and often reluctantly, evolves towards economic analysis’.11This makes the relevant market a good contender for exploring the spectrum between law and economics, as it appears that it is still negotiating its particular position on this spectrum.
What are the differences between the legal and the economic concept of the relevant market?
Noticeable differences between the legal and the economic concept of the relevant market can continue to exist where established economic insights are markedly different from the legal conceptualization . This can be explained by the ‘specific legal and doctrinal exigencies’52that the legal concept of the relevant market is subjected to, which may not be able to accommodate particular economic conceptions of a (relevant) market. For instance, economics has developed great insights into multisided markets and how to delineate them for the purposes of competition law, while competition law practice has been rather slow in taking up these new developments.53One might also argue, however, that the multisided market insights might not yet be established enough in economics to be readily transferable into the law.54Another example is aftermarkets, where the legal delineation of the market rests on whether or not competition on the primary market restrains anti-competitive behaviour on the aftermarket. Here, a reliance on behavioural economics can be a game changer: if the mere possibility of switching to another primary product is sufficient, then the aftermarket will form part of the primary market. If consumers’ actual behaviour is considered, the aftermarket will often be considered a stand-alone relevant market.55Interestingly, in this respect, the European Court of Justice and its US counterpart appear to follow different strands of economics.56
Why is economics important?
Even when the relevant market is understood to be a rigorously legal concept, economics continues to play an important role in helping to interpret that concept, ie in answering factual questions.57While the law asks the questions from a normative perspective, economics may help in answering them.58For instance, economics are frequently relied upon in order to conduct the hypothetical monopolist test, calculate critical loss or compute concentration ratios. Where lawyers regard such insights as relevant facts,59they may well require an economic expert to provide them. But economics also allows competition lawyers a more fundamental insight into how a particular market works, which can considerably shape our understanding of how the legal rules need to be applied in a given case or adapted to new circumstances. This interpretive function will continue to play an important role, but it is an ongoing challenge to differentiate between the interpretive role of economics and its influence on the normative question of what constitutes a relevant market for the purposes of the law.
What is relevant market?
What is a relevant market? There are currently two sources for the ascertainment of a definition of ‘relevant market’ that are valid under European law. The first is the 1997 Commission Notice on Market Definition and the second is the ratio decidendi of case law.
What is the case of Michelin vs. Commission?
v Commission in which the Commission argued in favour of a different market for the differing needs serviced by each subsidiary as opposed to the global market, however it was not adequately argued that consumers could look outside a area like the Netherlands thereby yielding a higher elasticity.
What happens if one market is identified that results in inelasticity?
It seems that, if any one market is identified that results in inelasticity, the court will proceed to ascertaining dominance.
What is SSNIP in a monopolist test?
This test is an American import called the ‘Small, but Significant, Non-transitory Increase in Price ’ (SSNIP) and is a hypothetical monopolist test that ascertains levels of demand substitution, which are the instances when consumers will transfer allegiance to another product as a result of price increases. If this occurs where there is a price increase of 5-10% it is concluded that the product and the substitution are part of the same market.
What are the factors that form strong criticisms of the definitions of relevant market?
The first is the ridiculous presence of two sources, namely case law and the non-binding yet persuasive Commission Notice of 1997 , which is really only a mere summary of the flawed conclusions of case law.
What is the second aspect of the relevant market?
This second aspect of the relevant market examines its geographic extent. This is important from the point of view that the Commission is then able to identify the potential competitors of an undertaking and ascertain whether there is dominance within a ‘substantial part of the community.’ The boundaries of the geographic area can be very straightforward. In United Brands Co v Commission it was stated that for Article 82 of the EU Treaty to apply, it must:
Which article of the EC Treaty defines the relevant market?
EU competition law is governed by Articles 81 and 82 of the EC Treaty, and it is Article 82 that possesses the greatest affiliation to the definition of ‘relevant market.’. The initial part of the Article reads as follows:
What is relevant market?
A relevant product market comprises all products and/or services that are regarded by consumers as interchangeable or substitutable due to their characteristics, prices and intended uses.
What would a revision of the Notice of Antitrust Enforcement mean?
Revising the Notice could entail significant changes to antitrust enforcement, and shift our understanding of how markets are assessed.
Why are digital platforms double sided?
For example, digital platforms are often double-sided, offering services for free in one market in order to maximise the data gathered from users so that this can then be monetised in the advertising market. The current market definition approach is ill-suited to deal with the challenges of such two-sided markets, often leading to a definition of relevant markets that is too narrow, making it difficult to grasp the bigger picture. The Commission itself has, in the context of internet mergers, acknowledged that focusing on either side of a two-sided market in isolation of the other leads to an overly narrow definition of the market.
What is the determination of the relevant market?
The determination of the relevant market, as defined by the Notice in 1997, is one of the most important tools available to competition authorities.
What is the scope of a geographic market?
The scope of the geographic market is defined by how far away or close by alternative sources of supply need to be, to be acceptable to customers seeking to switch from one producer or service provider to another, and can be worldwide, regional, national or even local .
When will the European Commission change its market definition?
The European Commission is contemplating changes to its 23-year-old Market Definition Notice. To this end, on 26 June 2020, the Commission launched a public consultation on the relevance of the Notice.
Has the method for defining the relevant market changed in 23 years?
The method for defining the relevant market has not changed in 23 years. However, the digital age confronts authorities with new challenges, including when faced with new consumer behaviour, multi-channel market players and ‘Big Tech’ companies whose market power does not meet current competition thresholds despite their market dominance. Commentators therefore agree that the current approach, as set out in the Notice, may no longer be fit for purpose in dealing with these challenges.
How significant is a price increase?
The price increase needs to be small but significant. A small price change is likely to make the purchasers identify close substitutes. A large price change is likely to make them identify more distant substitutes. For the Competition Authority, the inclusion of distant substitutes in the relevant product market may be warranted, if the increase in the price is big. Otherwise, close substitutes alone would fall into the relevant product market. Another point to be made is that the price change should be significant, so that purchasers react to the change. A very insignificant price change may cause no purchaser reaction. The expression “significant” is subjective but some countries adopt 5 % price change as significant as in United States and Canada.
What is relevant market?
Relevant market is defined by consumer or purchaser preferences and actions. For instance, if purchasers consider two goods to be close substitutes or readily interchangeable, those two goods are considered to be in the same relevant market. As an illustration, butter and margarine can be considered to be in the same relevant market.
What is the principle of geographic market?
The geographic market is defined by purchasers’ views of the substitutability or interchangeability of products made or sold at various locations. In particular, if purchasers of a product sold in one location would, in response to a small but significant and non-transitory increase in its price, switch to buying the product sold at another location, then those two locations are regarded to the in the same geographic market, with respect to that product. If not, the two locations are regarded to be in different geographic markets.
What are the dimensions of a relevant market?
A relevant market has therefore two fundamental dimensions, product and geographic. The product market describes the good or service. The geographic market describes the locations of the producers or sellers of the product or service. Relevant market is defined by consumer or purchaser preferences and actions.
How does transportation affect geographic markets?
Transportation cost therefore can indirectly affect the limits of the geographical markets. Limits of geographic markets are often determined by transportation costs, tariffs, trade barriers etc. As an illustration, if foreign producers of a product must pay a tariff (domestic producers do not) then the resulting increase in the price of the foreign product may be so large that the consumers would not switch from the domestic product for the foreign product. Similarly regulations such as for health and safety can serve as barriers to the sale of some goods and services. The relevant geographic market could be determined by the Competition Authority having regard to all or any of the following factors:
How to determine the product market?
For determining the product market, Competition Authorities may estimate the demand elasticity of some group of products in the neighborhood of prevailing prices. Demand elasticity is the percentage change in quantity demanded divided by percentage change in the price of the product. But data may not be available for computing elasticity and therefore, competition officials, who do the spade work investigation, would be advised to interview a host of economic agents to gather sufficient information to enable the Competition Authority to make reasonable inferences about the correct relevant product market. Economic agents who could provide useful information include:
What does it mean when a price increase is non-transitory?
The price increase must be non-transitory, meaning thereby that the increase is expected to continue over the foreseeable future. The reaction of the purchasers to a transitory or short-term change in price is likely to be different from their reaction to a long-term change in price.
What is a combination in India?
Combination means acquisition of control, shares, voting rights or assets, acquisition of control by a person over an enterprise where such person has direct or indirect control over another enterprise engaged in competing businesses and mergers and amalgamations between or among st enterprises when the combining parties exceed the thresholds set in the Act . The thresholds are specified in the Act in terms of the assets or turnover in India and outside India. Entering into a combination which causes or is likely to cause an appreciable adverse effect of competition within the relevant market in India is prohibited and such combinations shall be void.
What is the prescription of parameters for determining appreciable adverse effect on competition of agreement?
The prescription of parameters for determining appreciable adverse effect on competition of agreement, dominant position with relevant market are intended to bring consistency and certainty in working of the Commission which has to consider all or any of the applicable factors, as the case may be.
What is market share?
Market share, in the relevant market, of the persons ot enterprise in a combination, individually as a combination;
What is relevant geographic market?
The term ‘relevant geographic market’ is defined under Section 2 (s) of the Act as a market comprising the area in which the conditions of competition for supply of goods or provision of services or demand of goods or services are distinctly homogenous and can be distinguished from conditions prevailing in neighboring areas.
What is cartel agreement?
An agreement in the nature of cartel which limits of controls production, supply, market, technical development, investments etc., need to be looked as being anti competitive with reference to relevant market.
What is relevant market?
The term ‘relevant market’ is defined under Section 2 (r) of the Act as the market, which may be determined by the Commission with reference to ‘relevant product market’ and ‘relevant geographic market or with reference to both the markets. The term ‘relevant geographic market’ is defined under Section 2 …
What are consumer preferences?
Consumer preferences; Need for secure, regular supplies or rapid after-sales service. The Commission, while determining ‘relevant product market’ shall have due regard to all or any of the following factors: Physical characteristics or end use of goods; Price of goods of service; Consumer preferences;
What is a relevant product market?
A relevant product market covers all of the products and/or services which are deemed as interchangeable or substitutable by the consumer, for the products’ characteristics, their prices and their area of use. The definition takes us to the concept of “demand substitution”, which represents the most immediate and effective disciplinary force on the suppliers of a given product/service. The Board’s decisional practice and Guidelines also indicate “supply substitution” as another main criterion for the relevant product market definition exercise. A detailed analysis of the demand and/or supply conditions is usually required for a correct market definition.
Why is supply substitution important?
The concept of supply substitution can be an important factor in defining the relevant market, but past experiences suggest that competition authorities are usually inclined to concentrate more on demand-based analyses. Supply substitutability may, as mentioned in the Guidelines, be taken into account in those cases where its effects are equivalent or at least comparable to those of demand substitution in terms of effectiveness and immediacy.
What is geographic market?
The definition of geographic market takes account of the relevant company’s location and the nature of the relevant product. The most important element in the definition of a geographic market is the homogeneity of competition parameters across different geographical areas. The Guidelines summarize the main principles used in …
What is demand substitution?
“Demand-side substitutability” or “demand substitution” is the most important and widely-used concept in defining the relevant market, both at the Turkish and European levels.
Why is the concept of relevant market important?
The concept of relevant market is important for the purposes of dominant position and concentration analyses, because an extensive or restrictive approach concerning the relevant market would have direct effects on the finding of a dominant position. Dominance can basically be defined as the power of one or more undertakings in a particular market to determine economic parameters (such as price, supply, the amount of production and distribution) single-handedly, i.e. independently of their competitors and customers. To assess whether a company is in a dominant position, the market in which the investigated/reviewed act/transaction should therefore be defined beforehand. This is because the market (s) in which the relevant activity takes place and their inter-connections are indicative of the degree of effect on competition.
What is supply substitutability?
Supply substitutability may also be taken into account, to the extent its effects are equivalent to those of demand substitution. Supply substitutability focuses on the question of whether suppliers can switch production to the substitutable products in the short term without incurring significant costs or risks.
What is the Turkish Competition Board?
The Turkish Competition Board ( “Board”) has issued a number of guidelines to supplement and provide guidance on the enforcement of Turkish competition law rules. In particular, Relevant Market Definition Guidelines ( “Guidelines” ), issued in 2008, are closely modelled after the European Commission Notice on the Definition …