Key Takeaways

• After over 25 years, the European Commission (the “Commission”) has revised the guidance on market definition in antitrust and merger control investigations. The new guidance, most notably, reflects developments relating to digitalisation.
• The key insertions relating to the technology and other innovative industries are the following:
  • Guidance on market definition for multi-sided platforms (e.g. social networking platforms or online marketplaces) and digital ecosystems (e.g. a mobile operating system and the products built around it, including hardware, an app store and apps);
  • Confirmation that markets can be defined around, or otherwise include, pipeline products, i.e. those are not relevant solely for the assessment of competitive dynamics;
  • Guidance on the assessment of future “structural market changes” (e.g. industry changing new technologies or medicines, or national regulatory developments);
  • Examples of evidence, other than the SSNIP-test (small but significant non-transitory increase in price), for assessing market shares for products sold at “zero monetary price” or “innovative” products.
• If parties to an investigation fail to convince the Commission of their market definition, they should ensure that the competitive constraints identified in the market definition are taken into account in the Commission’s competitive assessment.

The Commission’s revised guidance on defining the “relevant markets” in antitrust and merger control investigations (the “guidance”)¹ aims at increasing “certainty” and “predictability” for businesses and their advisors given the degree of commercial and legal developments since the first guidance in 1997. Below we set out the key points from the perspective of the technology and other innovative sectors.

Defining relevant markets in “innovative industries”

The guidance recognises that there are “innovative industries” characterised by “frequent and significant research and development” and notes that this is not only relevant to the assessment of competitive dynamics, but also to defining the relevant market.

The guidance focusses on pipeline products as an example. In particular, while pipeline products (by definition) are not available to customers, the Commission considers that “there may be sufficient visibility on their R&D process to establish with which other product(s) the pipeline product is likely to be substitutable, if the development of the pipeline product is completed successfully and the product is brought to market.”² Specifically, the Commission considers that pipeline products belong in a market with “existing products” where the pipeline product has the same intended use as products already being marketed, or to a “new market” comprising of the pipeline product and its substitutes where competitors develop the same or comparable pipeline products.³

The geographic market, the Commission notes, reflects the “geographic dimension of the underlying R&D effort.”⁴ This is illustrated by the Commission’s approach in the pharmaceutical industry where it considers R&D typically to be global. Accordingly, it has defined geographic markets for pipeline products as global or at least EEA-wide in scope.⁵

Multi-sided platforms

The guidance contains a new section dedicated to “multi-sided platforms,” i.e. platforms that bring together two or more separate groups (e.g. consumers and advertisers on social networking platforms, or buyers and sellers on online marketplaces) and facilitate interactions between these groups. Examples of platforms include app stores, hotel booking platforms, social networking services, food delivery platforms and payment card systems.

The multi-sided nature of platforms means that product substitution on the demand side could be assessed for more than one customer group and that demand from one group of users can influence demand from another (“indirect network effects”). Some of the challenges for market definition include assessing the strength of indirect network effects and analysing the effect of pricing on demand.

According to the guidance, the Commission focuses on differences in the “substitution possibilities” on the different sides of the platform.⁶ Factors influencing the Commission’s assessment include product differentiation on each side, the nature of the platform and behavioural factors such as the homing decisions of user groups (i.e. the choices made by users about which platform to use or ‘home’ in). Depending on the facts of the case, the Commission may define a single product market that includes multiple user groups, or separate but interconnected product markets for each side of the platform.⁷

Digital ecosystems

According to the guidance, digital ecosystems “can, in certain circumstances, 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.”⁸ The guidance provides the example of a mobile operating system and the products built around it, including hardware, an app store and apps.

The Commission may apply the analytical framework of aftermarkets to market definition, i.e. the purchase or use of a product (primary product) leads to the purchase or use of another (secondary product). In particular:

1. When defining the markets for primary and secondary products, the Commission takes into account the competitive constraints from further connected markets;
2. Markets can be defined as either:
   • a “system market” comprising of primary and secondary products;
   • a market for the primary product with separate markets for the secondary products associated with each brand of the primary product;
   • “dual” or separate markets for the primary and secondary products.

Defining a “system market” is more appropriate when there are no or few suppliers specialising in the secondary product(s).⁹ The relevance of dual or multiple markets turn primarily on the degree of substitutability between the secondary products of the various suppliers, e.g. if secondary products from different suppliers are compatible with all or most of the primary products, the definition of dual markets may be appropriate.¹⁰ The Commission may also assess if bundles of products in digital ecosystems constitute relevant markets.¹¹

Noting that not all ecosystems fit the aftermarket or “bundle market” approach, the Commission also considers the following when defining markets for digital ecosystems: network effects, switching costs (including factors capable of leading to customer lock-in) and (single- or multi-) homing decisions.

Calculation of “zero price” market shares

The guidance acknowledges that the SSNIP-test traditionally used to define markets may not be appropriate for products supplied at a “zero monetary price” or innovative products. In such circumstances, “other types of evidence” are considered to be “equally valid.”¹² The Commission confirms that metrics other than sales or purchases can be used to determine market shares such as the number of active users, website visits, streams, time spent, audience numbers, downloads and updates, interactions, or the volume or value of transactions executed over a platform.¹³

Relevance of future developments

The guidance also tackles the impact on market definition of future developments, i.e. structural market developments that affect the general dynamics of supply and demand in the market. Such transitions can be linked to the likely appearance of new types of products – new technologies that will change the business model of an industry, or new drugs that will change the way a disease is treated – or (national) regulatory developments that will impact, for instance, the geographic scope of the market.

The Commission acknowledges that these “structural changes” could be considered in antitrust cases under very specific circumstances, but emphasises that these factors primarily influence merger investigations (which involve a degree of “crystal ball gazing”) if there is “sufficient probability” that the changes will materialise in a “reasonable” timeframe.¹⁴ On the other hand, “mere assumptions” that a given trend will continue or that market players will change their behaviours is not enough for the Commission to take these developments into account.¹⁵

The Commission relies on the parties’ internal documents to assess the likeliness of the alleged future developments. Developments that are viewed as probable in internal documents prepared independently of the transaction carry more weight than changes presented in an advocacy context and, conversely, new technologies or business models that are deemed unrealistic in internal documents are unlikely to be considered by the Commission.

¹ OJ C, C/2024/1645, 22.2.2024, ELI: http://data.europa.eu/eli/C/2024/1645/oj.

² See para. 91 of the guidance.

³ See para. 91 of the guidance. For example, in case M.7275 Novartis/GlaxoSmithKline Oncology Business, paras. 23-31, the Commission included pipeline products in its analysis of a market for existing targeted therapies for the treatment of advanced melanoma, and in case M.9461 AbbVie/Allergan, paras. 48-54, the Commission identified a market limited to IL-23 inhibitors for the treatment of ulcerative colitis and Crohn’s disease (which were in development at the time) even though they were not yet on the market.

⁴ See para. 91 of the guidance.

⁵ See e.g. case M.7275 Novartis/GSK Oncology Business, para. 32.

⁶ See para. 95 of the guidance.

⁷ For instance, in case M.8124 Microsoft/LinkedIn, paras. 126 et seq., the Commission defined a single market for online recruitment services, encompassing both job seekers on the one side and recruiters on the other. This was based on the providers of online recruitment solutions maintaining databases of profiles and CVs for the use of both groups (job seekers and recruiters), thereby creating a system where the groups can be matched according to mutually defined criteria. Conversely, in case AT.34579 MasterCard Internat./Europay, paras. 283 et seq, the Commission defined the issuing and acquiring sides of the payment card systems market as distinct product markets given that the acquiring services being offered to merchants wishing to accept payment cards are fundamentally different from the issuing services offered to card users in terms of characteristics, the pricing structure and competitive dynamics.

⁸ See para. 104 of the guidance.

⁹ See para. 101 of the guidance.

¹⁰ See para. 102 of the guidance.

¹¹ See para. 104 of the guidance.

¹² See para. 31 of the guidance.

¹³ See e.g. cases AT.39740 Google Search (Shopping), para. 159, M.4731 Google/DoubleClick, para. 46 and M.7217 Facebook/WhatsApp, para. 77.

¹⁴ For example, in judgment of 30 January 2020, Generics (UK) and Others, C-307/18, EU:C:2020:52, the European Court of Justice confirmed that the future entry of generics affected market definition because generics manufacturers had taken the necessary regulatory and commercial steps to enter the market upon expiry of the patents protecting the originator drug. In case M.7724 ASL/Arianespace, the Commission gave weight to the market transition resulting from reusable space launchers, considering that customers were optimistic about it even though the concept had not yet been successfully tested.

¹⁵ See para. 21 of the guidance.