The rise of digital platforms has upended markets and the very act of market definition—the basic unit of antitrust analysis. With the review of the Market Definition Notice that the European Commission has just launched, it is attempting to adapt this central antitrust tool to the reality of multi-sided platforms and network effects. This is also a welcome opportunity for the Commission to alleviate concerns related to legal certainty and to address the difficulties posed by the existence of separate, sometimes contradictory competition regimes.
On June 26, the European Commission launched a public consultation as part of its review of its Market Definition Notice of 1997. The Notice has been central to the application of competition law in the European Union: in it, the European Commission as the leading enforcer of competition law in the EU sets out how it intends to delineate the relevant antitrust market in terms of both product and geography.
The ongoing review is both timely and necessary. As Margrethe Vestager, the European Commission’s Executive Vice-President and Commissioner for Competition, explained when first announcing the review in December 2019, this overhaul has been prompted by the particular characteristics of data-driven digital markets, which upended traditional market definitions. The consultation will provide important input from stakeholders on their experience with the 1997 Notice, and will filter into the Commission’s evaluation of this soft-law instrument.
The review of the Market Definition Notice should be seen in the broader context of the European Commission’s efforts to update its competition law toolkit for the digital age, an effort that was launched in 2019 with a well-publicized conference and the special advisers’ digital report. Commissioned by Commissioner Vestager in a bid to obtain independent input for adapting competition law to the challenges of the digital era, the report was written by three special advisers—an economist, an engineer, and a competition academic—who also highlighted the difficulty of market definition in market environments characterized by digital ecosystems.
Determining the relevant antitrust market represents the first step in virtually every competition law assessment in Europe—be it for anticompetitive agreements, abuse of dominance, or merger control—so it is commendable that the Commission starts its update of competition law with market definition. Indeed, this is also what another independent report on a new competition framework for the digital economy—the German government’s “Competition Law 4.0” report—recommended in 2019.
The European Commission’s review of its Market Definition Notice represents an important opportunity to adapt this soft-law guidance, which is central to competition law practice in Europe, to the changes that have occurred throughout many markets. This update will need to consider multi-sided platforms, network effects, the nature of digital products (including evolving functionalities and interoperability), digital ecosystems, and online/offline markets. The process will require a careful balancing of general guidance that can be applied to specific cases.
The Functions of the Relevant Market in Digital Market Contexts
As I explain in my recent book Competition Law’s Innovation Factor: The Relevant Market in Dynamic Contexts in the EU and the US (Oxford, Hart Publishing 2020), dynamic and digital markets represent an important challenge to market definition because of their fast-paced nature, their data-driven business models and the blurring of market boundaries through the integration of both technologies and markets.
For instance, a social media platform like Facebook monetizes the user data it obtains by selling targeted advertisements. At the same time, Facebook’s functionalities are constantly expanding to include instant messaging, video calling, and even a digital assistant. To remain a valuable tool in cases concerning digital platforms, market definition must adapt to these new and dynamic market realities.
At the same time, any update of market definition for the digital age must address a fundamental question: What roles can the relevant market fulfill in dynamic markets? Traditionally, the relevant market is used as an essential tool for two main purposes: to assess market power and to characterize the market. In digital markets, however, it is questionable whether market definition can still reliably provide the basis for traditional market power assessments, as these rely on market shares.
Certain dynamic markets do not lend themselves to market power assessments based on market shares that are computed on a specific relevant market. For instance, in the Microsoft/Skype merger case, both the European Commission and the EU’s General Court found that in the area of consumer communications, the fast-growing nature of this market, as well as its short innovation cycles, meant that high market shares were not a reliable indicator of market power for the purposes of merger control in this case.
In dynamic market contexts, old market orders and established market definitions are routinely overthrown, and market boundaries are blurring.
For this reason, the relevant market’s second role—that of market characterization—may become increasingly central in these dynamic market contexts.
Market characterization provides insights required to understand the competitive process in these market environments and to formulate theories of harm adapted to them. Just imagine an online search engine like Google that acts as an intermediary bringing together users, advertisers, and content providers. There is no straightforward way to capture this type of multi-sided platform, which has multiple market sides, with conventional market definition tools. A measure of market power that relies on high market shares on the relevant market would therefore not prove very useful.
A close characterization of the market, however, will enable us to understand how competition works in these markets, what types of behavior might be seen as anticompetitive, and which anticompetitive effects may materialize.
While a focus on market characterization seems inevitable, it also requires us to find new ways to assess market power, as current EU competition law strongly focuses on market shares to gauge market power. Here, some US soft-law instruments like the US IP Guidelines have already advanced different tests—such as the number of independently controlled and substitutable technologies—to decide on the application of certain safety zones. This is an option that EU competition law may wish to consider.
A Comparative Perspective on Market Definition
Many of today’s markets are increasingly integrated, interoperable, and global. While some companies expand their business through digital tools, others are “born global and digital.” For this reason, companies that are active in digital markets will often find themselves subject to several competition law regimes such as those of the United States and the European Union.
As recent digital cases have shown, antitrust authorities on both sides of the Atlantic increasingly encounter similar types of cases—and, regularly, even identical cases.
If market definition—the basic unit of antitrust analysis—diverges, companies may be faced with diverging decisions and increased costs for compliance. In the case of multi-sided markets, diverging approaches to two-sided (non-digital) markets are notable. In Ohio et al. v. American Express (2018), for example, the US Supreme Court viewed the transactional multi-sided platform at issue as one comprehensive antitrust market.
Conversely, the European Court of Justice, in the earlier case of Cartes bancaires (2014), regarded only one market side as the relevant antitrust market, albeit recognizing that it was dealing with an interrelated system in which effects on other relevant markets needed to be taken into account.
As I have argued before, if antitrust authorities want to give companies legal certainty about their antitrust liability while keeping companies’ compliance costs reasonably low, adopting a comparative perspective on market definition might prove useful.
To help the Commission develop a more comparative perspective, stakeholders can make use of the ongoing consultation on the Market Definition Notice to share with the Commission their experiences of being confronted with differing or converging market definitions in identical cases but different jurisdictions—e.g., in multi-sided platform cases.
Going forward, agency cooperation in individual cases can also advance a more harmonious approach to market definition. In order to pursue this path, the antitrust authorities that issue soft-law guidance—such as the EU Market Definition Notice or the US Horizontal Merger Guidelines—need to develop a level of mutual trust that allows them to have frank discussions not only about individual cases but also about policy instruments, with a view to carving out compatible ways forward.
Legal Certainty and Economic Evidence
The European Commission’s consultation on reviewing its Market Definition Notice is based on five evaluation criteria: effectiveness, efficiency, relevance, coherence, and EU-added value. A sixth criterion, legal certainty, would have been a useful addition. Going beyond the criteria of effectiveness and efficiency, this criterion would focus on the degree of legal certainty that the 1997 Market Definition Notice has been able to provide.
While uncertainty is increasing in the face of digital platforms that upend markets as well as market definition, reestablishing procedural legal certainty must be one of the goals of revising the EU’s Market Definition Notice. The question needs to be asked: To what extent has the 1997 Notice provided legal certainty to companies and their legal counsel, particularly in fast-moving digital markets and other dynamic market contexts? And: How could legal certainty be improved in dynamic markets?
The question of legal certainty is directly related to how competition law practice relies on economic evidence. In this context, the European Commission also wants to review the “latest economic thinking on market definition principles and practice.” While it is well-established that the concept of the relevant market has its roots in economic thought, it has acquired a distinct and autonomous legal conception through its incorporation into EU competition law.
In practice, however, the issue of market definition is frequently relegated to economic experts. As economics is not a uniform science, this can have a negative effect on legal certainty. Going forward, an economic approach to market definition may need to be balanced with the goal of improving legal certainty in this important area of competition analysis. Economic experts should remain important fact finders in the legal enterprise of delineating antitrust markets, but the legal framework for market definition must be provided by the law and interpreted by judges.
The Road Ahead
The European Commission’s ongoing consultation regarding its review of the Market Definition Notice is open until October 9, 2020, and a large number of stakeholders should be encouraged to participate in this important exercise. The consultation asks for responses to a questionnaire, but it also allows participants to submit additional comments. This will provide the Commission with the insights it needs to adapt its soft-law guidance to new economic realities, while staying faithful to the European Court of Justice’s case law on market delineation.
These remarks are based on the statement which I submitted to the European Commission’s request for feedback on the roadmap for evaluating the Market Definition Notice.