European market: efforts to adapt to new realities

Views: 20

The European “social market economy” concept is being subject to significant alterations under modern global challenges during last decade, in particular the through the increased digitalisation, new ways of producing and offering goods and services, as well as through the interconnected nature of commercial exchanges. Market definition provides guidance on the principles of the EU-wide competition law’s enforcement.   

The European Union is facing an unparalleled economic and societal challenge: delivering on the twin green and digital transitions and, at the same time, recovering from the coronavirus pandemic by building a more inclusive and resilient economy.
The Commission wants to reinforce important principles of “competition enforcement and address new market realities, such as digitalisation and increasingly interconnected and globalised commercial activity”, said Margrethe Vestager, Executive Vice-President in charge of competition policy. She added that the markets were changing fast and that the EU has to ensure “fit-for-purpose guidance” being effective in response to technological advances, enhancing transparency and legal certainty for the benefit of all.
Citation from: https://ec.europa.eu/commission/presscorner/detail/en/IP_23_6001

The “revised market” offers expanded and up-to-date guidance to the EU-wide market concept, which tries to adapt to modern challenges and corporate circumstances, while elaborating new principles and methodology to be applied to such market aspects as antitrust and mergers.
The new approaches to market’s development are, actually, only some “intermediate step in the overall competitive assessment”, as Commission underlined, providing for the relevant constraints on the undertaking(s) involved in production in “geographic markets”, which may include an assessment of barriers to entry or expansion, the impact of scale economies (including those drawn from out-of-market activities) or network effects, access to specific assets and inputs, as well as product differentiation, etc.
Reference to: https://ec.europa.eu/commission/presscorner/detail/en/IP_23_6001

Importance of the market definition
Actually, market definition is a tool to identify the boundaries of competition among companies. The objective of defining the relevant product and geographic market is to identify the actual and potential competitors that constrain the commercial decisions of companies, such as their supply conditions. It is from this perspective that market definition makes it possible, among other things, to calculate market shares that may convey meaningful information for the purposes of assessing market power.
Market definition helps to understand the competitive environment in which firms operate, both at a given time and more dynamically. Since markets are not static, this analysis needs to be repeated for each case, to take account of changes in production processes, consumer preferences, and other market characteristics, such as innovation cycles, supply chains, the specifics of digital markets and related business models, and ease of access to new suppliers, or in response to regulatory changes.
Similarly, the geographical scope of a market is also subject to a fresh assessment in every case, which can lead to markets being defined from local to global, depending on how they work in practice, in particular from the perspective of consumers and customers.
Hence, the market definition provides guidance on the principles and best practices of how the Commission applies the concepts of relevant product and geographic market in its enforcement of the EU-wide competition law.

Market review process
In April 2020, the Commission launched an evaluation of the current “market definition”, which dates back to 1997; in July 2021, the Commission published the results of its evaluation, which showed that while the 1997 Notice remained highly relevant and was generally fit for purpose, certain updates and clarifications were necessary to bring it in line with developments in the Commission’s practice, the EU courts’ case law as well as new market realities. More than 100 stakeholders made their views known during the evaluation phase, which were considered and incorporated in a draft revised Notice.
In the communication on the “competition policy in the new challenges”, it was underlined that a comprehensive and fundamental review of existing competition policy was needed, covering a wide range of policy tools and enforcement practices, coped with the assessment of whether the tools fit for present challenges, with the necessary adaptation.
Source: https://ec.europa.eu/transparency/documents-register/detail?ref=COM(2021)713&lang=en

In November 2021, the Commission adopted a Communication summarizing key elements of the review and highlighting how it contributes towards: a) promoting the EU’s post pandemic recovery and creating a more resilient Single Market; b) fostering the implementation of the European Green Deal; and c) accelerating the digital transition.
More in: https://competition-policy.ec.europa.eu/about/competition-policy-fit-new-challenges_en

Since November 2022, the suggestions have received feedback from about 70 stakeholders, which submitted comments in response to the public consultation; they have been taken into account in the final text adopted in February 2024. Additionally, the European National Competition Authorities have actively participated in the review, providing feedback and sharing their expertise.

New market’s elements under revision
Commission notice on “revised markets” includes the following key elements:
= More accessible guidance thanks to a detailed structure and concrete examples, illustrating the practical application of market definition concepts.
= A description of the general principles of market definition.
= A recognition of the importance of non-price parameters for market definition, including innovation, quality, reliable supply and sustainability.
= Specific guidance on the application of market definition in specific circumstances, including: digital markets and systems, such as products of the mobile operating systems, as well as innovative industries, where companies compete in developing new products.
= Clarifications on dynamic and forward-looking assessments especially in markets undergoing structural transitions, such as regulatory or technological changes.
= Expanded guidance on geographic market definition focusing on the factors that can justify defining markets as global, EU-wide, national and/or local, and on the role of imports when defining the relevant geographic market.
= Clarifications on various quantitative techniques used when defining markets, such as the small but significant and non-transitory increase in price test, so-called SSNIP.
= Guidance on alternative metrics relevant for the calculation of market shares, based on sales or capacity; or shares based on usage metrics like the number of users or website visits.
= Extensive overview of the various sources of evidence and their value for market definition analyses.

Conclusion
The revised market notice aims at providing a comprehensive overview of the principles applied when defining markets, regardless of the specific industry or markets concerned. Where it provides specific guidance, for instance on innovation, multi-sided markets or aftermarkets, the principles laid out can be applied across industries, even if the relevant considerations may be more relevant to some specific industries (such as the digital sector).
Market definition is a first and important step in the assessment of a competition case, whose outcome however depends on other factors (e.g., the existence of market power, the effects of a given conduct, the impact of a concentration). Following a sound methodology in defining the relevant markets, it makes those assessments easier by helping to structure the competition assessment and to focus the investigation only on those aspects that really matter.
Bottom line: a) the adopted notice provides general principles and acknowledges that markets evolve over time; b) it covers the EU-wide approach to specific issues in digital and innovation-intensive markets, and c) it offers more guidance on geographic markets and the role of imports.

More in: https://ec.europa.eu/commission/presscorner/detail/en/QANDA_23_6002; as well as a dedicated website at: https://competition-policy.ec.europa.eu/public-consultations/2020-market-definition-notice_en#evaluation-results; and in the Commissioner M. Vestager’s remarks at: https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_24_710.

 

 

 

Leave a Reply

Your email address will not be published. Required fields are marked *

19 − five =