Competition law: the revision of the guidelines on the definition of the relevant market

"The important thing is to evaluate the competitive parameters and identify the limitations of each of them, with a view to protecting effective competition."

The last 11 of July, FIDE held a session under the topic "Competition Law: The revision of the guidelines on the definition of the relevant market". As speakers, they intervened Rafael Allendesalazar Corcho, Managing Partner of MLAB Abogados, Enrique Canizares Pacheco, Partner at RBB Economics and Pedro Hinojo Gonzalez, Deputy Director of the Information Society at the CNMC. moderated the session Antonio Robles Martin-Laborda, Professor of Commercial Law at the Carlos III University of Madrid and Director of the Specialization Course in Competition Law at the Carlos III University of Madrid.

This session took place within the Competition Law and Economics Forum Fide. This forum is co-directed by Antonio Guerra Fernandez, Lawyer Partner of Uría Menéndez. Academic Advisor of Fide, Vera Sopena Blanco, Chief of the Presidency Cabinet of the CNMC and Elena Zoido, Executive Vice President at Compass Lexecon.

The objective of the session was analyze and discuss the scope of the new draft of the Communication from the European Commission (hereinafter, the Commission) regarding the definition of the reference market for the purposes of community regulations on competition (onwards, the communication).

The need to update the Communication has generated a broad consensus. Published in 1997, some of its concepts have been the subject of further development and do not sufficiently represent certain characteristics of some modern markets. There are many important sectors in today's economy in which there are means of competition other than price (traditional means), and the current Communication fell short when defining these markets. In this regard, the Commission has paid attention to the emergence of zero-price markets and, in general, to the rise of the digital ecosystem, whose market delimitation presents additional difficulties and whose competitive dynamics are changing. In addition, The jurisprudential development is incorporated in this review of the Courts of the European Union existing in recent years.

Although both the Commission and the CNMC may take into account the precedents relating to a given market, the Court of Justice established the need for a definition scratch in each caso, specifically analyzing the existing competition parameters in a specific place and time. The definition of the relevant market makes it possible to identify the competitors that are in it, this being the core of competition law, and to establish a framework for the application of competition policy. In particular, this definition becomes essential when it is necessary to assess the competitive pressures faced by one or several companies in the following areas:

  • En the scope of article 101 of the Treaty on the Functioning of the European Union (TFEU), which prohibits agreements between companies that restrict competition.
  • En the scope of article 102 of the TFEU, which prohibits the abuse of a dominant position.
  • En the scope of Regulation 139/2004, which establishes a control former before of certain concentrations between companies.

Subsequently, the determining factors of the reference market and the possible tools to specify the market shares were analyzed. The draft Communication continues to maintain the emphasis on the demand side and therefore define the degree of substitutability of the product from the point of view of the consumer is an essential element when analyzing the relevant market. Imported from the Horizontal Merger Guidelines US la The tool conventionally used to examine this substitutability has been the SSNIP-test (Small but Significant Non-Transitory Increase in Price) or hypothetical monopolist test. The Commission has now also included a new version of it: the SSNDQ-test (Small but Significant Non-Transitory Decrease in Quality), as a way of assessing said substitutability in markets where the price -at least for a certain group of users- is equal to zero, and where quality and innovation are important. Supply substitutability has less effect, and is only considered when it is comparable to the competitive pressure generated by the demand side.

In practice, the European Commission has not always proceeded during the latter to define the relevant market, nor, when it has done so, has it used the SSNIP-test systematically. In this sense, RBB Economics carried out an analysis with the decisions of the Commission in phase II concentrations in the last 10 years (a total of 64) and formulated the following conclusions:

  • In 28 of the 64 decisions, the SSNIP-test is not mentioned and the precedent is used to define the relevant market.
  • In 36 of the 64 decisions reference is made to the SSNIP-test, but neither the bottom of the logic is reached nor is it finally applied.

With that, It seems that the Commission considers this method, but not as a central element but as one of the possible alternatives.

Some countries, such as the United States, have used other indicators in certain concentrations, such as the UPP Index (Upward Pricing Pressure), which, regardless of the relevant market definition, aims to capture the possibility of a unilateral price rise after a merger. . However, it was mentioned in the session that these tests could have important limitations.

Among the areas in which the application of the SSNIP-test and the delimitation of the relevant market are difficult, reference was made to the following two:

  • In differentiated products: some specialists have come to suggest that the definition of the market resulting from the application of the SSNIP-test may be too narrow or broad, depending on the alternative products that have been considered, and that the analysis should focus on the proximity of the competition between companies .
  • in digital markets: double-sided markets, characterized by the presence of indirect network effects, raise problems. The use value of each one of the groups depends on the number of users of the other, and, therefore, it is necessary to analyze whether it is necessary to define a market for each side or one as a whole. In addition, the price for one of the sides can be zero, although there are still other parameters to analyze, such as quality and innovation. in such casos, el SSNDQ-test may be more suitable.

It was suggested that in these casos the hypothetical monopolist test should serve as a conceptual framework, without prejudice to the fact that it may present practical difficulties of application depending on the caso.

Among other novelties of the draft, we find the following:

  • The definition of the geographic market has not changed much, although the Commission has incorporated more guidance on it (for example, with respect to world markets) and the substitutability criteria are equally applicable to it.
  • The Commission's approach to local markets has been specified, defined by areas of influence where 80% of sales or customers are concentrated.
  • The new definition takes into account temporary conditions, such as seasonality.

Finally, the debate was opened on the need (or not) to define in all caso the relevant market.

The conclusions to highlight about the new draft are the following:

  • The relevant market definition has to be adapted to the new digital economy, but it is still indispensable as a starting point for competitive analysis.
  • The demand (i.e., customer) substitutability approach continues to prevail, and the hypothetical monopolist test (in its traditional version, SSNIP, or in its new versions, as SSNDQ) continues to be a main tool, although it is useful in certain casoIt's just as an abstract frame of reference.

In short, the fundamental thing is not to reach a general solution, since each market, geographic and product, has its particularities. The important thing is to evaluate the competitive parameters and identify the limitations of each of them, with a view to protecting effective competition.

This summary has been prepared by Cecilia Paz-Ares Garcia, Student of Law and Economics at the Carlos III University of Madrid

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