EU market definition makeover: adapting to digital realities

Last week, the European Commission (EC) published its long-awaited revised Market Definition Notice. This is the first revision of the notice since its adoption in 1997, and in the 27 years since then we have seen rapid development of technology and the digital economy.

This Market Definition Notice marks an important adaptation to new market realities, particularly those of digital markets, and the increasing focus of competition authorities on dynamic competition and the accompanying longer time horizon for competitive analyses in such cases. 

Market definition is a key step in any competition law case, which means that the new guidance will be a point of reference for competition authorities and companies in future cases. So, what will be the impact of the new notice?

Evolution, not revolution

Rather than introducing new concepts, the revised notice closes the gap between practice and theory and can best be described as an evolution rather than a revolutionary change. It serves to align the theoretical framework with the current decision-making practices and case-law insights that have emerged over the years. The essence of the original notice remains intact; it continues to articulate market definition as an ‘intermediate’ tool to assess competitive dynamics and gauge market power. 

• Limited impact in most cases. In most cases, the EC will rely on existing market definition precedents and parties will have to continue to provide market shares based on “all plausible alternative market definitions”. In cases that involve markets for which there are no existing precedents or that are subject to rapid changes, the new notice will be a point of reference.
   
• Adaptation to digital markets. The new notice captures the characteristics of digital markets and the need for methodological adaptations. For example, it thoughtfully includes considerations for “specific circumstances” such as the complex nature of multi-sided platforms and the intricacies of aftermarkets. In digital markets, where traditional pricing models do not always apply—for instance, services offered at zero monetary cost—the revised notice embraces alternative analytical frameworks. It suggests the "Small but Significant Non-transitory Decrease of Quality" (SSNDQ) test and other criteria such as innovation, sustainability, and the functional use of products to better define market boundaries.
   
• Innovation as a key parameter of competition. The new notice considers the unique features of highly innovative industries characterized by investments in research and development (R&D). Pipeline products, which are in development but not yet on the market, serve as a key example. In these innovative industries, the EC may take into account the nature and scope of the innovation efforts, the objectives of the different lines of research, the specialization of the different teams involved or the results of the undertaking’s past innovation efforts. Innovation efforts also tend to be of a global nature and lead to larger geographic markets.
   
• Important harmonizing function. The notice is published in 24 languages, which will contribute to the accessibility and uniform application of competition law across all member states.
   
• Consistency with previous draft. There are no major deviations in this final version when compared to the draft released in November 2022. The core principles included in the draft – embracing forward-looking market assessments, the importance of price alongside non-price competition parameters, and further clarifications in multi-sided markets – remained. We are happy to see that the new notice includes most of the points that we mentioned in our 2020 position paper and 2023 consultation response.

Conclusion

The revised notice balances the need for clarity and flexibility. It conveys the EC's understanding of digital markets, without straying from its original roots. For businesses navigating the complexities of competition law, this update provides a clearer roadmap.