European Competition Law provides a wide-ranging review of the European rules relating to competition: restrictive agreements, abuse of a dominant position, impact of intellectual property rights, procedure, merger control, State aid.

European Competition Law

The concept of relevant market implies that effective competition can exist between the products that are part of it and this presupposes a sufficient degree of interchangeability in terms of use for all the products included in same market. According to Commission Notice No C-2024/1645 on the definition of relevant market , a product market “comprises all those products that customers  regard as  …

Market definition and elasticity of demand

SILHAN, The Concept of Relevant Market: Some Critical Remarks, ECLR, 2012, Vol. 33, Issue 12, 589; VAN GERVEN and CROSSLEY, Market Definition: Where Do We Stand in Europe?, International Antitrust Law & Policy, 2012, 215; SOUSA FERRO, Judicial review: do European courts care about market definition?, JECLAP 2015, 400.

The concept of relevant market implies that effective competition can exist between the products that are part of it and this presupposes a sufficient degree of interchangeability in terms of use for all the products included in same market. According to Commission Notice No C-2024/1645 on the definition of relevant market , a product market “comprises all those products that customers  regard as interchangeable or substitutable to the product(s) of the  undertaking(s) involved, based on the products’ characteristics, their  prices and their intended use, taking into consideration the conditions  of competition and the structure of supply and demand on the market” . The degree of interchangeability and substitutability is assessed according to the characteristics of the products concerned (performance, price...) as perceived by users . The General Court specifies that this assessment must be made on the basis of the type of products that the undertakings in question are selling at the time, and not in relation to hypothetical future products, the characteristics, price and use of which consumers do not yet know .

While the Commission notice does not require the Commission to follow a rigid hierarchy of different sources of information or types of evidence ,  it provides details on the possible sources of such elements and how it mat evaluate them. Internal documents requested from undertakings are thus considered particularly relevant when they have been drawn up in the normal course of their business, as opposed to documents drawn up for or during the Commission's investigation, as they may better reflect the way in which those undertakings view the market or markets . 

This descriptive approach is sometimes supplemented by an econometric analysis. Of the methods available, the cross-elasticity of demand test is the most frequently used, despite the fact that the notice acknowledges that it is unsuitable for markets where undertakings compete not on price, but on product quality or innovation . This test consists in measuring the relationship between price fluctuations of one product against the sales of another. Two products may be considered as substitutes when a rise in price of one product results in the rise in sales of the other product. The Notice on the definition of relevant market therefore indicates that the assessment of demand-side substitution entails first an analysis of the characteristics of products or services and their intended use, and the study of the substitution effect on the market in a recent past that can exist in particular in the event of a small price variation of approximately 5% to 10% (test referred to as SSNIP - small but significant and non transitory increase in price) . If SSNIP is profitable, this means that the demand is inelastic and that a distinct product market has been identified. If not, the product market must be widened. SSNIP  is in fact barely applied as the supervisory authorities would rather use the traditional descriptive method . According to the General Court, the SSNIP is not the only method available to the Commission, which may also take into account other tools for defining the relevant market, such as market studies or an assessment of the views of consumers and competitors . In any case, SSNIP is not suitable when there is no market price. Furthermore, if the undertakings in question have a certain monopoly power, they will apply prices greater than the competition price, which will lead competition authorities to include in the market definition products that are in fact non- substitutable (theory referred to as “Cellophane Fallacy” after the name of a famous case that the Supreme Court of the United States ruled in 1956). The European Court of Justice thus explained that the gradual or inert nature of the increase in sales of a new product which is being substituted for an existing product is only important for the purposes of the definition of the market if it may indicate that the existing product exercises a significant competitive constraint over the new product .

Commission Notice No C-2024/1645 of 8 February 2024, which repeals and replaces Notice 97-C 372-03 of 9 December 1997. The new communication on the definition of the relevant market, adopted against the backdrop of the digitalization of the economy and the increasingly interconnected and globalized nature of trade, provides new guidance on digital markets and their specific characteristics, advocating an approach that takes account of the evolution of consumer values towards parameters of competition other than the price of the product or service, such as innovation, reliability of supply and environmental sustainability.

Commission Notice No C-2024/1645 of 8 February 2024 on the definition of relevant market, pt 12 (a).

Case T-671/19 Qualcomm, Judgment of 18 September 2024, LawLex202400006537JBJ; Case T-334/19 Google and Alphabet, Judgment of 18 September 2024, LawLex202400006536JBJ: the Commission is not obliged to systematically carry out a SSNIP ("Small but Significant Non-transitory Increase in Prices") test when defining the market in a decision applying competition law rules, even though this test is a recognized tool for this purpose in the market definition notice.

Case C-457/10 P AstraZeneca AB [2012], LawLex201200002414JBJ.

Case C-176/19 P Servier, Judgment of 27 June 2024, LawLex202400004779JBJ: economic substitutability reflects all the characteristics of the products in question, including those relating to their promotional costs, as well as their intrinsic or perceived quality, so that the General Court erred in law in holding that the relative inelasticity of demand for perindopril in relation to price was of little relevance for the purposes of determining the relevant market because it could be explained or justified by the quality of this medicine and the extent of its manufacturer's promotional efforts ; adding that in holding that the Commission had wrongly restricted the definition of the relevant market to that of perindopril, and that it had failed to demonstrate that the undertaking in question held a dominant position on the market for technology relating to the active ingredient of this medicine, so that the contested decision had to be annulled in its finding of an infringement of Article 102 TFEU, the General Court had erred in law by failing to rule on the alleged irregularities in the Commission's econometric analysis, or to examine independently the definition of the market for technology relating to the active ingredient of perindopril and the existence of a dominant position of that undertaking on that market, so that the case must be referred back to the General Court with a different composition.

Case T-671/19 Qualcomm, Judgment of 18 September 2024, LawLex202400006537JBJ: the applicant cannot therefore complain that the Commission carried out two examinations of “classic” substitutability between two products, and not the examination of a possible chain substitutability between two products which are not directly substitutable, but which would become so indirectly, through their common substitutability with a third product.

Case T-699-14 Topps Europe Ltd, Judgment of 11 January 2017, LawLex201700000067JBJ; Case T-334/19 Google and Alphabet, Judgment of 18 September 2024, LawLex202400006536JBJ; Case T-671/19 Qualcomm, Judgment of 18 September 2024, LawLex202400006537JBJ, recalling that it follows both from case law and from point 25 of the Notice on the definition of the relevant market that there is no rigid hierarchical order between the various elements of assessment available to the Commission, which is granted a certain margin of discretion concerning the definition of the relevant market insofar as the latter involves complex economic assessments.

According to the notice, points 52 to 56, these documents can be: - market studies commissioned by undertakings in the past to inform their decisions concerning, for example, the pricing of their products or marketing actions; customer surveys on usage patterns and attitudes; in views expressed by suppliers and market research submitted by the undertaking(s) involved and their competitors.

For zero price products and highly innovative industries, the notice refers to the SSNQD - Small but significant and non-transitory decrease of quality - test, applicable as a conceptual framework for a qualitative assessment of demand substitution (pts. 30 and 98). 

See Commission Notice No 97-C 372-03 of 9 December 1997. See case C-457-10 P AstraZeneca AB, Judgment of 10 December 2012, LawLex201200002414JBJ; Case T-336-07 Telefónica SA, Judgment of 29 March 2012, LawLex201200001965JBJ: national and regional wholesale products and local loop unbundling belong to distinct markets, since it is unlikely that an alternative operator would substitute national or regional wholesale products for local loop unbundling in the event of a slight but significant rise in the price of the local loop.

Case T-699/14 Topps Europe Ltd, Judgment of 11 January 2017, LawLex201700000067JBJ, recalling that recourse to the SSNIP test which consists in a mental exercise presupposing a small (5 to 10%) but permanent variation in the relative prices of a given product compared with those of readily accessible substitutes, designed to evaluate the probable reactions of customers in the light of such a price change, is not mandatory when defining the relevant market. 

Case T-334/19 Google and Alphabet, Judgment of 18 September 2024, LawLex202400006536JBJ: since the responses from advertisers, media agencies and publishers to the question on prices did not indicate that the mere increase in the price of online search-related advertising by 5 to 10% for advertisers and media agencies or the mere decrease for publishers of 5 to 10% in revenues from such advertising would probably lead these operators to replace online search-related advertising, either in whole or even in part, with non-online search-related advertising, the Commission could legitimately deduce that such a change in price or revenue would not in itself be a determining factor in these operators' choice between the two types of advertising in question, and that other factors than price were therefore considered by undertakings to be as, if not more, important in choosing which advertising to use, such as click-through rate, conversion rate, overall return on investment from advertising campaigns or the relevance of the advertising to the user.

European Competition Law

139. Market definition and elasticity of demand(1)

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Les notions juridiques connexes

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