New boundaries for digital markets? European Commission updates guidance on market definition

On 8 February 2024, the European Commission unveiled updated guidance on its approach to defining markets when enforcing EU competition rules. According to the Commission, the revisions are intended to reflect new market realities, “in particular the increased digitalisation” of the economy and new ways of offering goods and services.

What do the updates tell us about the Commission’s approach in respect of digital markets? 

Background

Market definition is an important tool to identify and define the boundaries of competition between firms. It serves to establish a framework for competition authorities to assess a company’s market power and market shares. Defining the “relevant market” is a crucial step in merger reviews. It is also important in the process of establishing whether or not particular agreements or conduct fall within the scope of competition rules.

In 1997, the European Commission published its first market definition notice (the Notice) to provide guidance on its application of the concept of “relevant market” for EU competition law enforcement. The recent updates to the Notice, which were adopted by the Commission on 8 February 2024, represent the first revisions to the Notice in over 25 years. 

While the revised Notice applies to all sectors, it now provides additional guidance for digital markets and other highly innovative markets. In this blog post, we focus on the digital aspects of the Notice and the implications for online platforms and other firms active in the sector. The broader revisions to the Notice will be covered in more detail in next week’s edition of our Competition & Regulatory newsletter.

Key points of interest 

In its efforts to modernise the Notice, the Commission has given greater consideration to the specific characteristics of digital markets. Companies active in the digital space should be aware of the following key updates and clarifications: 

1. Non-price factors of competition: the revised Notice expands the traditional parameters of competition to reflect the emergence of “zero-price” markets where products and services are technically supplied to users for free (such as certain online platforms and marketplaces). The Commission notes that “the fact that a product is supplied at a zero monetary price does not imply that there is no relevant market for that product”. In such cases, the Commission considers that non-price parameters of competition (such as interoperability and data portability for users) are particularly relevant to determine whether firms are subject to competitive constraints. 
    
2. Increased focus on innovation competition: the revised Notice clarifies the Commission’s approach to assessing markets where companies compete on innovation, including through pipeline products. The Commission suggests that this assessment will be particularly relevant in the context of “zero monetary price” products and highly innovative industries, such as the tech industry. 
    
3. Market share calculation in zero-price markets: the revised Notice provides more detailed guidance on the Commission's approach to calculating market shares, including alternative methods to determine market shares that the Commission may use in a digital context where appropriate (as opposed to calculations based on ‘classic’ sales volumes). These may include, for example, looking at the number of active users of a platform, the number of website visits, time spent on a platform, the number of downloads, updates and user interactions on a platform, or the volume or value of transactions concluded over a platform. 
    
4. Multi-sided platforms and digital ecosystems: for the first time, the revised Notice provides dedicated guidance on the Commission’s approach to multi-sided platforms and digital ‘ecosystems’. 
   • Multi-sided platforms include, for example, digital platforms that act as intermediaries to facilitate interactions and transactions between different groups of users (such as sellers and buyers). For those platforms, the Commission clarifies that it may define a relevant market for the products offered by a platform as a whole, in a way that encompasses all (or multiple) user groups, or it may define separate, interrelated relevant markets for the products offered on each side of the platform.
   • As for digital ecosystems, the Commission considers that they can “be thought of as consisting of a primary core product and several secondary (digital) products whose consumption is connected to the core product”, for instance, by technological links or interoperability – similar to an ‘after-market’. When the secondary digital products are offered as a bundle, the Commission may also assess the possibility of that bundle constituting a relevant market on its own. Although not all digital ecosystems fit an “after-market” or “bundle” market approach, the Commission states that it will assess a range of factors including network effects, switching costs (including factors capable of leading to customer lock-in) and (single- or multi-) homing decisions for the purpose of defining the relevant product market.

It is worth noting that the revised Notice is not expected to be directly relevant for enforcement under the EU Digital Markets Act (DMA). The Commission has stated that that it does not expect to carry out market definition assessments under the DMA as the regulatory approach of the DMA does not, strictly speaking, rest on establishing market power in the sense of general EU competition law. Instead, the DMA contains a standalone framework for the Commission to designate large digital platforms as “gatekeepers” where specified criteria are met.[1] 

Comment 

The revised Notice restates many of the principles from the original Notice, but reflects over 25 years of Commission decisional practice in the digital age as well as case law from the EU courts. While the revisions largely codify the Commission’s current approach, the updates and clarifications are likely to increase the confidence and appetite of EU national competition authorities when tackling digital markets cases. The French Competition Authority has already heralded the revised Notice as providing “greater transparency and predictability for undertakings [while taking] better account of changes in the economy, at the forefront of which is the development of digital markets”. 

It is clear from the revised Notice that the Commission intends to retain significant flexibility in how it defines the boundaries of digital markets. Even so, the update still provides welcome clarity for digital firms as to the market definition framework that EU competition authorities are likely to apply in merger reviews or antitrust enforcement. It remains to be seen how the Commission and EU national authorities will deploy this tool in practice, given the current trend of intense regulatory scrutiny impacting the M&A plans of technology and online platform companies.

[1] ^{For more information about the DMA, please refer to our Competition Law in the Digital Age newsletter.}