Market Power and Market Definition
EU and UK competition law adopt a two-stage procedure when determining whether a firm
would have market power:
o The relevant market is defined in relation to which relevant market power may exist:
this requires a definition of both the relevant product and the relevant geographical
market.
o Determine whether the firm has market power in the relevant markets.
Market DEFINITION:
i. ICN’s Recommended Practices for Merger Analysis stresses that defining a market precisely is
rarely possible, since the boundaries of markets may not be precise.
Just because a product falls within the relevant market does not mean they are a perfect
substitute for one another and products that lie outside of the market can still provide a
competitive constraint, and shouldn’t be excluded from competition analysis simply
because of the market definition (see, Servier, Commission decision July 2014 para 2417)
ii. In practice firms face series of competitive constraints both from within and outside of the
relevant market
European Commission’s Notice on the Definition of the relevant market for the purposes
of (EU) competition Law (Notice)
Adopts the ‘hypothetical monopolist’ test (aka ‘SNNIP test’) for defining
markets.
Notice provides a conceptual framework within which to think of market
definition. Attempts to capture the Commission’s experience of market
definition and adopts similar approach to US antitrust law in the analysis of
horizontal mergers.
Notice Para 2:
‘Main purpose of market definition (MD) is to identify in a systematic way the
competitive constraints that the undertakings involved face. Objective of defining
a market in both its product and geographic dimension is to identify those actual
competitors of the undertakings involved that are capable of constraining those
undertakings' behaviour and of preventing them from behaving independently of
effective competitive pressure’
o MD is an analytical tool that assists in determining the competitive
constraints upon undertakings: it provides a framework from within
which to assess the crucial question of whether a firm possesses market
power
o Both product and geographic dimensions of markets must be analysed.
o MD enables competitive constraints only from actual competitors to be
identified: nothing about potential competitors.
Notice para 7 and 8
“A relevant product market comprises all those products which are regarded as
interchangeable or substitutable by the consumer, by reason of the products’
characteristics, their prices and their intended use.
The relevant geographic market comprises the area which the undertakings
concerned are involved in the supply and demand of products or services, in
which the conditions of competition or sufficiently homogeneous and which can
be distinguished from neighbouring areas because the conditions of competition
are appreciably different in those areas”
Notice Para 13: 3 main sources of competitive constraint:
Demand Substitutability (the essence of MD)
Supply Substitutability
, Market Power and Market Definition
Potential Substitutability – potential entry and buyer power are relevant e.g. an
undertaking with 100% of widget market may not have market power if there
are numerous potential competitors and no barriers to entry/ exit.
Circumstances in which it is necessary to define the relevant market
i. EU competition Law
Under article 101(1), when considering whether an agreement has the appreciable
effect of restricting competition
Case -234/84 Delimitis v Henniger Brau 1991 para 16
Commission’s Guidelines on the application of the Article 101(3) OJ (2004) C
101/97
Article 101(1) when considering whether an agreement has an appreciable effect on
trade between member states
ART 101(3), when considering whether an agreement would substantially eliminate
competition
Under numerous block exemptions containing market share tests, for example reg
330/2010 on vertical agreements, Reg 1218/2010 on specialisation agreements
Art 102, when considering whether an undertaking has a dominant position
Under EUMR when determining whether a merger would significantly impede effective
competition
ii. UK competition Law
Under chapter 1 prohibition, when considering whether an agreement has the
appreciable effect of restricting competition
Under chapter 2 prohibition, when considering whether an undertaking has a dominant
position
When determining level of penalty under Comp Act 1998
When scrutinising mergers under Part 3 Enterprise Act 2002
The relevant Product Market
(i) Europemballage Corpn and Continental Can Co Inc v Commission (1973) CJEU 1st appeal hearing
on application of Article 102 – held that identifying a dominant position the delimitation of the
relevant product market was of crucial importance
The Comm held that Continental Can and its subsidiary SLW had a dominant position in
three different product markets – cans for meat, cans for fish ad metal tops – without
giving a satisfactory explanation of why these markets were separate from one another
or from the market for cans and containers generally.
In the case it was the Commission’s failure to define the relevant product market that
cause CJ to quash its decision
(i) The legal test
Judgement of CJ shows that the def of the market is essentially a matter of
interchangeability (Notice Para 7)
The extent to which one product is substitutable with any other product
o Identifying all those substitutes that are sufficiently interchangeable
such that they exercise competitive constraint on one another
We generally find this through the eyes of the consumer (Tetra
Pak GC)
Para 2 and 13 of the Comm’s market def notice, makes clear that market
definition is seeking to identify competitive constraint (this is the first step)
United Brands v Commission applicant arguing that bananas were in the same market as
other fresh fruit – CJ looked at whether bananas could be singled out by a special
feature distinguishing them from other fruits.
EU and UK competition law adopt a two-stage procedure when determining whether a firm
would have market power:
o The relevant market is defined in relation to which relevant market power may exist:
this requires a definition of both the relevant product and the relevant geographical
market.
o Determine whether the firm has market power in the relevant markets.
Market DEFINITION:
i. ICN’s Recommended Practices for Merger Analysis stresses that defining a market precisely is
rarely possible, since the boundaries of markets may not be precise.
Just because a product falls within the relevant market does not mean they are a perfect
substitute for one another and products that lie outside of the market can still provide a
competitive constraint, and shouldn’t be excluded from competition analysis simply
because of the market definition (see, Servier, Commission decision July 2014 para 2417)
ii. In practice firms face series of competitive constraints both from within and outside of the
relevant market
European Commission’s Notice on the Definition of the relevant market for the purposes
of (EU) competition Law (Notice)
Adopts the ‘hypothetical monopolist’ test (aka ‘SNNIP test’) for defining
markets.
Notice provides a conceptual framework within which to think of market
definition. Attempts to capture the Commission’s experience of market
definition and adopts similar approach to US antitrust law in the analysis of
horizontal mergers.
Notice Para 2:
‘Main purpose of market definition (MD) is to identify in a systematic way the
competitive constraints that the undertakings involved face. Objective of defining
a market in both its product and geographic dimension is to identify those actual
competitors of the undertakings involved that are capable of constraining those
undertakings' behaviour and of preventing them from behaving independently of
effective competitive pressure’
o MD is an analytical tool that assists in determining the competitive
constraints upon undertakings: it provides a framework from within
which to assess the crucial question of whether a firm possesses market
power
o Both product and geographic dimensions of markets must be analysed.
o MD enables competitive constraints only from actual competitors to be
identified: nothing about potential competitors.
Notice para 7 and 8
“A relevant product market comprises all those products which are regarded as
interchangeable or substitutable by the consumer, by reason of the products’
characteristics, their prices and their intended use.
The relevant geographic market comprises the area which the undertakings
concerned are involved in the supply and demand of products or services, in
which the conditions of competition or sufficiently homogeneous and which can
be distinguished from neighbouring areas because the conditions of competition
are appreciably different in those areas”
Notice Para 13: 3 main sources of competitive constraint:
Demand Substitutability (the essence of MD)
Supply Substitutability
, Market Power and Market Definition
Potential Substitutability – potential entry and buyer power are relevant e.g. an
undertaking with 100% of widget market may not have market power if there
are numerous potential competitors and no barriers to entry/ exit.
Circumstances in which it is necessary to define the relevant market
i. EU competition Law
Under article 101(1), when considering whether an agreement has the appreciable
effect of restricting competition
Case -234/84 Delimitis v Henniger Brau 1991 para 16
Commission’s Guidelines on the application of the Article 101(3) OJ (2004) C
101/97
Article 101(1) when considering whether an agreement has an appreciable effect on
trade between member states
ART 101(3), when considering whether an agreement would substantially eliminate
competition
Under numerous block exemptions containing market share tests, for example reg
330/2010 on vertical agreements, Reg 1218/2010 on specialisation agreements
Art 102, when considering whether an undertaking has a dominant position
Under EUMR when determining whether a merger would significantly impede effective
competition
ii. UK competition Law
Under chapter 1 prohibition, when considering whether an agreement has the
appreciable effect of restricting competition
Under chapter 2 prohibition, when considering whether an undertaking has a dominant
position
When determining level of penalty under Comp Act 1998
When scrutinising mergers under Part 3 Enterprise Act 2002
The relevant Product Market
(i) Europemballage Corpn and Continental Can Co Inc v Commission (1973) CJEU 1st appeal hearing
on application of Article 102 – held that identifying a dominant position the delimitation of the
relevant product market was of crucial importance
The Comm held that Continental Can and its subsidiary SLW had a dominant position in
three different product markets – cans for meat, cans for fish ad metal tops – without
giving a satisfactory explanation of why these markets were separate from one another
or from the market for cans and containers generally.
In the case it was the Commission’s failure to define the relevant product market that
cause CJ to quash its decision
(i) The legal test
Judgement of CJ shows that the def of the market is essentially a matter of
interchangeability (Notice Para 7)
The extent to which one product is substitutable with any other product
o Identifying all those substitutes that are sufficiently interchangeable
such that they exercise competitive constraint on one another
We generally find this through the eyes of the consumer (Tetra
Pak GC)
Para 2 and 13 of the Comm’s market def notice, makes clear that market
definition is seeking to identify competitive constraint (this is the first step)
United Brands v Commission applicant arguing that bananas were in the same market as
other fresh fruit – CJ looked at whether bananas could be singled out by a special
feature distinguishing them from other fruits.
