Defining the relevant market under EC competition law

Abstract

The concept of relevant market in EC competition law is certainly different from that which may be used in other contexts. For instance, for a company a market may be simply the geographic area where it sells its products or, broadly speaking, the industry or economic sector where it, as an economic entity, belongs. For an economist, "any effective arrangement for bringing buyers and sellers into contact with one another" may be defined as a market. In EC competition law the concept of relevant market has product and geographic dimensions, and in certain cases even a temporal dimension. The relevant product market in a particular case may be a single homogeneous product or a variety of substitutable goods, while the relevant geographic market may be local, regional, national or international. The main aim of identifying the relevant market in any given competition issue is usually to calculate market shares that would convey meaningful information regarding market power. Since direct measurement of the extent of market power is difficult in practice, the use of market shares, determined in the context of a defined relevant market, is characterised as an easy-to-calculate proxy for market power. In other words, market shares are calculated in order to provide a reasonable indicator of market power. · The determination of market power in turn serves to assess possible future dominance under the EC merger control rules, present dominance under Article 82 cases or even for the purpose of applying Article 81 of the EC Treaty. As has been pointed out by the Commission and by the European Court of Justice, before investigating whether the activity of an undertaking or of undertakings falls within the ambit of the prohibitive provisions of EC competition law, the extent of the market within which such activity is being performed must be delineated. Therefore, in order to calculate market shares, one must define, either implicitly or explicitly, what the market is and, given the weight often attributed to market shares in the competitive assessment, it is important that an appropriate basis for defining relevant markets is used. In its Market Definition Notice 1997, the Commission states, in a generally functional sense, what is market definition: Market definition is a tool to identify and define the boundaries of competition between firms. It serves to establish the framework within which competition policy is applied by the Commission. The objective of defining a market in both its product and geographic dimensions is to identify those actual competitors of the undertakings involved that are capable of constraining those undertakings' behaviour and of preventing them jiwn behaving independently of effective competitive pressure. The agreed worldwide standard for defining relevant (or antitrust) markets has been hailed to be that which was pioneered by the U.S. Department of Justice in 1982. In the U.S. 1992 Horizontal Merger Guidelines, we find the definition of the relevant (or antitrust) market: A market is defined as a product or group of products and a geographic area in which it is produced or sold such that a hypothetical profit-maximizing firm, not subject to price regulation, that was the only present and future producer or seller of those products in that area likely would impose at least a "small but significant and nontransitory" increase in price, assuming the terms of sale of all other products are held constant. A relevant market is a group of products and a geographic area that is no bigger than necessary to satisfy this test.