Introduction: Symposium on market definition

July 12, 2021
merged chess pawns

The European Commission is currently considering a possible revision of its 1997 market definition notice. The notice was adopted at a time when economic analysis was starting to become more central in the application of European competition law. Without a doubt, the Commission has accumulated an important body of legal and economic practice defining markets in the nearly 25 years since the adoption of the notice – after all, DG Competition did not even have a Chief Economist Team at the time the market definition notice was adopted. If the goal of the notice update is to provide predictive value as to the Commission’s current approach to market definition, then there is ample room to reflect the learnings of recent years. In addition, there may be room for improving the notice to better reflect the refinements in economic analysis that took place over the last two decades and expand on methods for situations in which current tools may not be well-suited. Notably, the increased importance of the digital sector raises many questions as to how market definition should be applied in the digital economy, which are unanswered by the current notice.

The various articles in this symposium, published in in July 2021, show that there is ample scope for such an update, and also as some of the articles point out, for underlining the limitations and considering the proper weight to attribute to the market definition exercise in competition cases in light of recent experience.

Moresi addresses the implications of dynamic demand and penetration pricing for market definition, and shows how the SSNIP test should be modified in such a dynamic setting. In young and growing industries where consumer demand is dynamic and firms engage in penetration pricing, each firm has an incentive to price low to stimulate future demand from existing and future potential customers. The hypothetical monopolist internalizes the effect of low current prices on future demand, and more so than the individual firms do. Failing to account for this effect tends to introduce a bias towards defining relevant markets that are too narrow. Importantly, Moresi provides an original and formal contribution to the debate by establishing modified hypothetical monopolist test formulas that properly capture this dynamic effect.

Taken together, the articles included in this symposium provide powerful insights on the direction of travel for market definition. The market definition notice was adopted at a time where the dominance test was applicable to EU merger review, and market shares were central to many competition analyses. In light of recent economic learning and the evolutions in the economy, now more than ever is a time to reflect on the role of market definition in competition cases.