Emeritus Professor Richard Whish,

QC (Hon)

Market Definition
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 STRUCTURE OF PRESENTATION
 THE CENTRAL IMPORTANCE OF MARKET POWER
IN COMPETITION LAW ANALYSIS
 DEFINITION OF MARKET POWER
 MARKET DEFINITION: THE SSNIP TEST
 LIMITATIONS OF THE SSNIP TEST
 REVISION OF THE EUROPEAN COMMISSION’S
NOTICE ON MARKET DEFINITION
 ASSESSING MARKET POWER
 CONCLUSION

Market Definition
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 THE CENTRAL IMPORTANCE OF MARKET
POWER IN COMPETITION LAW ANALYSIS
 IN A PERFECTLY COMPETITIVE MARKET NO FIRM
CAN AFFECT PRICE BY CHANGING ITS LEVEL OF
OUTPUT
 IN CONDITIONS OF MONOPOLY THE
MONOPOLIST’S OUTPUT DETERMINES PRICE
 IT IS HELPFUL TO THINK OF A CONTINUUM,
FROM PERFECT COMPETITION TO MONOPOLY
 THE MORE MARKET POWER A FIRM HAS, THE
GREATER THE THREAT TO ECONOMIC EFFICIENCY
Market Definition
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 THE CENTRAL IMPORTANCE OF MARKET
POWER IN COMPETITION LAW ANALYSIS
 IT FOLLOWS THAT COMPETITION LAW ANALYSIS
USUALLY REQUIRES DETERMINATION OF A FIRM
OR FIRMS’ MARKET POWER
 THIS WILL BE THE CASE WHEN DECIDING IF AN
AGREEMENT CAN HAVE THE EFFECT OF
SUBSTANTIALLY RESTRICTING COMPETITION
 OR WHETHER THE CONDUCT OF A DOMINANT
FIRM IS ABUSIVE
 OR WHETHER A MERGER WILL SUBSTANTIALLY
LESSEN COMPETITION
Market Definition
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 THE CENTRAL IMPORTANCE OF MARKET
POWER IN COMPETITION LAW ANALYSIS
 IN THE CASE OF HORIZONTAL HARD-CORE
CARTELS (FOR EXAMPLE SECRET PRICE FIXING)
MANY COMPETITION LAWS DISPENSE WITH THE
NEED FOR MARKET DEFINITION AND AN
ASSESSMENT OF MARKET POWER
 FOR EXAMPLE IN EU LAW THERE IS NO NEED TO
CONDUCT A MARKET POWER ANALYSIS IN
RELATION TO AGREEMENTS THAT RESTRICT
COMPETITION BY OBJECT: EXPEDIA
 AND IN US LAW HARD-CORE CARTELS ARE PER SE
UNLAWFUL
Market Definition
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 DEFINITION OF MARKET POWER
 MARKET POWER CAN BE DEFINED AS THE ABILITY
TO RAISE PRICES PROFITABLY OVER A PERIOD OF
TIME
 THE EXPRESSION ‘RAISE PRICES’ INCLUDES MANY
WAYS OF PRODUCING HARMFUL EFFECTS; APART
FROM RAISING PRICE A FIRM MAY:
 OFFER WORSE TERMS AND CONDITIONS OR STANDARDS
OF SERVICE
 OFFER WORSE PRODUCTS
 INNOVATE LESS
 SUPPRESS OUTPUT
Market Definition
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 MARKET DEFINITION: THE SSNIP TEST
 IN EU COMPETITION MARKET DEFINITION IS AN
ESSENTIAL STARTING POINT IN ALMOST ALL
COMPETITION LAW CASES: SEE THE COURT OF
JUSTICE IN CONTINENTAL CAN V COMMISSION
(1973) AND REPEATED MANY TIMES
 MARKET DEFINITION IS A USEFUL PREPARATORY
STEP WHEN DETERMINING MARKET POWER
 HOWEVER IT IS VERY IMPORTANT TO
UNDERSTAND THAT MARKET DEFINITION IS A
MEANS TO AN END, IT IS NOT AN END IN ITSELF
 ULTIMATELY THE IMPORTANT QUESTION IS
WHETHER A FIRM OR FIRMS HAVE OR WILL HAVE
MARKET POWER
Market Definition
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 MARKET DEFINITION: THE SSNIP TEST
 THE ‘SSNIP TEST’ IS SET OUT IN THE EUROPEAN
COMMISSION’S NOTICE ON MARKET DEFINITION
OF 1997
 IT BORROWS FROM THE US GUIDELINES ON
HORIZONTAL MERGERS OF 1992
 THE SSNIP TEST IS USED BY COMPETITION
AUTHORITIES THROUGHOUT THE WORLD
 THE SSNIP TEST EXPLAINS CONCEPTUALLY WHAT
IS MEANT BY ‘A RELEVANT MARKET’ AND
EXPLAINS VARIOUS METHODS FOR DETERMINING
THE SCOPE OF THE MARKET
Market Definition
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 MARKET DEFINITION: THE SSNIP TEST
THE SSNIP TEST ASKS A QUESTION: WHAT WOULD
HAPPEN IF A SUPPLIER OF WIDGETS WERE TO
INCREASE THEIR PRICE BY A SMALL BUT
SIGNIFICANT AMOUNT FOR A NON-TRANSITORY
PERIOD?
 A SMALL BUT SIGNIFICANT NON-TRANSITORY INCREASE
IN PRICE - A SSNIP
 IF A SIGNIFICANT NUMBER OF PURCHASERS
WOULD SWITCH TO BLODGETS, THE MARKET IS
AT LEAST AS WIDE AS WIDGETS AND BLODGETS

Market Definition
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 MARKET DEFINITION: THE SSNIP TEST
 THE QUESTION IS WHETHER A SUFFICIENT
NUMBER OF PURCHASERS WOULD SWITCH TO
MAKE THE PRICE RISE UNPROFITABLE
 THE SEARCH IS FOR THE MARKET THAT WOULD
BE WORTH MONOPOLISING – ONE WHERE A PRICE
RISE WOULD NOT BE PUNISHED BY THE LOSS OF
BUSINESS
 FOR THIS REASON WE CAN THINK OF THIS ALSO
AS THE ‘HYPOTHETICAL MONOPOLIST TEST’ –
THE SEARCH FOR A MARKET WORTH
MONOPOLISING
Market Definition
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 MARKET DEFINITION: THE SSNIP TEST
 THE SSNIP TEST CAN ALSO ASK THE SAME
QUESTION TO DETERMINE THE BREADTH OF THE
GEOGRAPHIC MARKET
 IF A SUPPLIER WERE TO IMPOSE A SSNIP FOR ITS
PRODUCTS IN HONG KONG, WOULD PURCHASERS
SWITCH TO PRODUCTS FROM THE PHILIPPINES?
 IF SO THE GEOGRAPHIC MARKET IS AT LEAST AS
WIDE AS HONG KONG AND THE PHILIPPINES
 THE GEOGRAPHICAL MARKET COULD BE AS WIDE
AS THE WORLD AND AS NARROW AS A BUS
STATION AT AN AIRPORT
Market Definition
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 MARKET DEFINITION: THE SSNIP TEST
 NOTE THAT ESSENTIALLY MARKET DEFINITION IS A
MATTER OF DETERMINING DEMAND-SIDE
SUBSTITUTABILITY: WOULD A PURCHASER
SWITCH FROM WIDGETS TO BLODGETS
 HOWEVER THERE MAY BE CIRCUMSTANCES IN
WHICH SUPPLY-SIDE FACTORS CAN ALSO BE
TAKEN INTO ACCOUNT
 FOR EXAMPLE GRADES OF PAPER – A4, A5, A6
 THE FLAVOUR OF SOFT DRINKS – ORANGES, LEMON,
LIME

Market Definition
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 MARKET DEFINITION: THE SSNIP TEST
 THE NOTICE ON MARKET DEFINITION EXPLAINS
NUMEROUS METHODOLOGIES THAT MAY BE USED
TO APPLY THE SSNIP TEST, FOR EXAMPLE:
 EVIDENCE OF SUBSTITUTION IN THE RECENT PAST
 QUANTITATIVE TESTS
 THE VIEWS OF CUSTOMERS AND COMPETITORS
 MARKETING STUDIES AND CONSUMER SURVEYS
 ASSESSING BARRIERS TO SWITCHING
 MANY OF THESE METHODOLOGIES ARE VERY
SOPHISTICATED
 MANY CASES REQUIRE EXPERT EVIDENCE FROM
(AND CROSS-EXAMINATION OF) EXPERT
ECONOMISTS
Market Definition
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 LIMITATIONS OF THE SSNIP TEST
 THE SSNIP TEST IS A HELPFUL WAY OF THINKING
OF HOW TO DEFINE MARKETS
 HOWEVER IT HAS ITS LIMITATIONS
 OFTEN THERE WILL NOT BE EVIDENCE AVAILABLE
OF PRICE INCREASES
 WHERE THERE IS NO EVIDENCE AVAILABLE
SUBSTITUTABILITY WILL HAVE TO BE ASSESSED IN
OTHER WAYS
 WHAT ARE THE PHYSICAL CHARACTERISTICS OF THE
PRODUCT? WHAT WILL IT BE USED FOR?

Market Definition
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 LIMITATIONS OF THE SSNIP TEST
 IT IS NOT POSSIBLE TO APPLY THE SSNIP TEST TO
SOMETHING THAT IS ‘FREE’
 FACEBOOK, GOOGLE SEARCH
 A ‘FREE’ NEWSPAPER
 MANY MARKETS ARE TWO-SIDED OR MULTI-SIDED
– HOW TO WE APPLY THE SSNIP TEST THEN?
 NB THE ‘PROBLEM’ OF THE ‘CELLOPHANE
FALLACY’ IN ABUSE OF DOMINANCE CASES:
MISAPPLICATION OF THE SSNIP TEST MAY
BROADEN THE MARKET, LEADING TO FALSE
NEGATIVES
Market Definition and Market
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REVISION OF THE EUROPEAN COMMISSION’S
NOTICE ON MARKET DEFINITION
 THE NOTICE ON MARKET DEFINITION WAS
ADOPTED IN 1997
 THE EUROPEAN COMMISSION RECOGNISES THAT
IT REQUIRES RECONSIDERATION
 A PUBLIC CONSULTATION TO REVIEW IT WAS
LAUNCHED IN JUNE 2020. THE RESULTS ARE
EXPECTED TO BE PUBLISHED IN 2021

Market Definition
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 ASSESSING MARKET POWER
 ULTIMATELY THE IMPORTANT ISSUE IN ANY CASE
IS MARKET POWER RATHER THAN MARKET
DEFINITION
 THIS REQUIRES CONSIDERATION OF
 EXISTING COMPETITION WITHIN THE RELEVANT MARKET
 POTENTIAL COMPETITION FROM OUTSIDE THE
RELEVANT MARKET
 BUYER POWER
 MARKET SHARE FIGURES CAN BE USED TO
DETERMINE EXISTING COMPETITION BUT TELL US
NOTHING ABOUT THE LAST TWO OF THESE
Market Definition
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 ASSESSING MARKET POWER:
EXISTING COMPETITION
 NOTE THE SIGNIFICANCE – AND THE
INSIGNIFICANCE! - OF MARKET SHARE FIGURES
 MARKET SHARE FIGURES CANNOT IN THEMSELVES
PROVE THAT THERE IS MARKET POWER
 BUT THEY CAN BE A PROXY FOR MARKET POWER
 HENCE THE USE OF PRESUMPTIONS: FOR
EXAMPLE IN EU LAW THERE IS A PRESUMPTION OF
DOMINANCE AT 50%
 THIS REVERSES THE BURDEN OF PROOF
Market Definition
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 ASSESSING MARKET POWER:
POTENTIAL COMPETITION
 HAVING DETERMINED A FIRM’S MARKET SHARE,
WE ASK IF THERE IS ANY POTENTIAL
COMPETITION: HOW HIGH ARE THE BARRIERS TO
ENTRY?
 GOVERNMENTAL RESTRICTIONS, LICENSING,
PLANNING
 INTELLECTUAL PROPERTY RIGHTS
 ACCESS TO ESSENTIAL INPUTS
 ACCESS TO CUSTOMERS
 ECONOMIES OF SCALE, NETWORK EFFECTS, TIPPING
Market Definition
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 ASSESSING MARKET POWER:
BUYER POWER
 A FIRM MAY HAVE A LARGE MARKET SHARE IN A
MARKET WITH HIGH BARRIERS TO ENTRY: BUT
DOES IT FACE LARGE BUYERS WHO CAN EXERCISE
BUYER POWER?
 FOR EXAMPLE A POWERFUL MONOPSONIST MAY
BE ABLE TO INDUCE COMPETITION BETWEEN
TWO FIRMS EACH WITH 50% OF THE MARKET; OR
BE ABLE TO SPONSOR ENTRY BY A THIRD FORCE
INTO THE MARKET

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 CONCLUSIONS
 MARKET POWER IS A KEY CONCEPT IN
COMPETITION LAW ANALYSIS
 MARKET DEFINITION IS A KEY STAGE IN
DETERMINING WHETHER THERE IS MARKET
POWER
 BUT MARKET DEFINITION IS NEVER SUFFICIENT IN
ITSELF TO DETERMINE THE EXISTENCE OF
MARKET POWER
 MARKET DEFINITION CANNOT TELL US ABOUT
POTENTIAL COMPETITION OR BUYER POWER

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THANK YOU FOR YOUR ATTENTION!

Market Definition
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