Market definition is a core analytical tool that helps in the assessment of anti-competitive agreements, unilateral conduct and mergers. However, the difficulty of delineating a relevant market with the required predictability in digital markets has led some to question whether market definition can continue to fulfil its traditional functions in these dynamic market environments.

The present contribution, available here, first surveys the general approach to market delineation in the EU, the US and Brazil. Against this background, it then embarks on a discussion of market definition in digital markets in each of these jurisdictions, with a particular focus on multi-sided markets, zero-price services and the concept of digital ecosystems.

Section 2 surveys the general approach to market delineation in the EU, US and Brazil.

The main parameters of market definition are strikingly similar in the EU, the US and Brazil. All these competition laws heavily rely on the relevant market as an analytical tool. However, while market definition is mainly developed through court judgments and by the competition authorities in the EU and US, the situation is different in Brazil where the 2011 Competition Act itself contains numerous references to market definition. The specificities of market definition, and the way in which the competition authorities intend to rely on this analytical tool, are published in soft law instruments in all three jurisdictions. Substantively, the substitutability patterns that market definition strives to use as a benchmark for a relevant market converge in the three jurisdictions, which rely on near-identical qualitative criteria (product characteristics, price and intended use) as well as quantitative measurements (hypothetical monopolist or SSNIP test).

There is some divergence among these jurisdictions, however, particularly regarding the question of whether there is ‘one’ market definition as opposed to different market definitions for different aspects of competition law. In the US, the hypothetical monopolist test is limited to merger review. In the EU and Brazil, on the other hand, this theoretical framework for market definition is adopted in all three areas of competition law: anti-competitive agreements, unilateral conduct and merger control. Further, both the US and the Brazilian competition authorities have stressed in their respective Horizontal Merger Guidelines that, under certain circumstances, merger control need not start with market definition. The European Commission has not yet voiced this view, but has developed alternative ways of defining the relevant market – e.g. in its innovation spaces approach – to take into account developments that have not yet led to the emergence of a proper relevant market.

Section 3 embarks on a discussion of market definition in digital markets in the EU, US and Brazil, starting with multisided markets.

Platforms enable different groups to benefit from the presence of the other user groups in a way they could not have achieved (to the same extent) on their own. The existence of two or more distinct customer groups on a multi-sided platform creates a particular conundrum for an authority engaging in market definition: does the platform operate on two markets; or does each group (each ‘side’ of the platform) represent its own, distinct relevant market? Both approaches can be criticised. The definition of two separate markets would overlook the link between the groups, unless an additional step is taken to reintegrate their relationship into the analysis. The definition of a single market combining multiple user groups, on the other hand, would likely obscure the particular characteristics of each group and the (potentially different) competitive conditions within which their wants are satisfied.

Decisional practice and jurisprudence have not yet fully resolved the challenges of multi-sided platform market definition. In all three jurisdictions, the most developed multi-sided platform cases pertain to payment card systems. The European Commission engaged in market definition for multi-sided payment card systems in Cartes Bancaires and MasterCard. In these cases, the European Commission (and the EU Courts) considered both that the different sides of the payment platform could be distinct markets and that the payment system itself could form a market. The Brazilian authority repeatedly defined distinct but related markets for issuance and acquiring services. Both the EU and Brazilian authorities have focused on the relevant market for the assessment of the conduct in the particular case, without engaging in an overall analysis of market definition for multi-sided platforms. In the US, the Supreme Court’s majority in American Express decision defined a single market for the whole (transaction) platform, just beating the minority who had wanted to narrow the market to a specific side, reflecting differing approaches by the lower courts.

Additional cases concerning digital platforms in both the EU and the US seem to favour single-sided markets. In Brazil, CADE has recognised the existence of two-sided platforms, and the importance of the link between the two sides in considering the business model and the market in which services are offered. While the decisional practice on digital services is still developing, it teaches us something about the potential onwards trajectory for multi-sided market definition, in particular when contrasted with the payment card cases. It seems that a distinction is emerging between transaction platforms – for which a single ‘collapsed’ market could be defined – and non-transaction platforms, which are more likely to be seen as gathering several distinct relevant markets.

Section 3 also looks at zero-price markets.

Many digital services are offered for ‘free’, at least in the sense that they are not offered against payment of a monetary price. The lack of a monetary exchange initially had far-reaching consequences for market definition, with some authorities and courts concluding that the undertakings offering these services could not be subjected to the provisions of competition law. Gradually, authorities and courts have come to accept that ‘free’ does not mean that no commercial relationship exists between the users of a service and the undertaking providing it. These users are customers, offering access to their personal information or to their attention, and enabling the undertaking to monetise their presence on the platform.

Although explicit recognition that a market can exist is an important first step, market definition for zero-price systems still comes with considerable challenges. Where no monetary price exists, it is difficult if not impossible to engage in a price-based quantitative test. Thus, either quantitative tools need to be adapted to fit this ‘zero-price’ reality, or enforcers will have to resort to qualitative analysis, with all the downsides this entails.

In the three jurisdictions, there have been attempts to adapt the SSNIP test to services for which no monetary price is charged. In the Streamcast case, a US court evoked the possibility of defining a market by imagining a price where none existed. The European Commission has indicated some willingness to move away from price-based tests and towards quality-based (quantitative) tests. While the European Commission has clearly opened the door to SSNDQ tests, it is yet to establish a clear and robust process for performing such tests or to provide guidance on how to identify and weigh quality parameters. When quantitative tests are lacking, it remains possible to identify substitutes through a qualitative analysis of the wants of consumers and the characteristics of the products available to them. The European Commission has insisted that, when the SSNIP/SSNDQ test is not suited to a particular case, it ‘appears more appropriate’ to ‘identif[y] product characteristics for which conditions of competition are homogeneous.’ In the Brazilian Google Shopping case, the Superintendent and several commissioners described the distinction between general sponsored search and thematic (or ‘vertical’) search, such as comparison shopping, by reference to the functions of these services (as described by the companies and as understood by the Superintendent) and the number of times a user gets redirected.

Finally, section 3 also considers digital ecosystems.

Platforms may be attractive to consumers because they offer multiple products in the same place. These products may be complementary or may merely connected by the underlying technology or business model of the company. This concept of ecosystems bears a striking resemblance to the questions of integration which arose in new technology tying cases in the 2000s, and to one-stop-shop or ‘cluster market’ arguments of the 1960s. Cluster markets exist when companies compete, not on individual products, but on a group of products taken jointly. Thus, the relevant market can be defined for the cluster as a whole, which likely only competes with other clusters. Unfortunately, no consensus ever emerged as to the criteria and methods for defining cluster markets: neither for the establishment of a cluster as a focal product, nor for the subsequent identification of substitutes.

This approach – and that related to ecosystems – might ring a bell for avid readers of new technology cases. In tying cases, companies have repeatedly raised the argument that the linking together of several products through technology may create a completely new product, and thus a new relevant market, distinct from products which have not been integrated in this manner. This argument has slowly gained traction in the lower courts in the US. Though this reasoning is related to the existence of distinct products for the purpose of an unlawful tie, the underlying question is similar to that in market definition: does the combination of products satisfy a demand which cannot be satisfied (as efficiently) by the individual products on their own? In the Brazilian Google Shopping case, the Superintendent referred to the integration arguments developed in tying cases when analysing the product market. In Google Android, the European Commission was faced with a similar argument by the company.

The logic of cluster markets and integration could provide guidance for the definition of ‘ecosystem’ markets: they share a common logic of demand for a given group of goods or services. The next step would be to determine whether the group as a whole is the sole market, or whether individual components might also form relevant markets pertinent to a case. Here, case law on market definition for aftermarkets might provide some valuable guidance. However, as is the case for the issues of multi-sided platforms and zero-price services, the case law has not yet provided a satisfactory methodology for the definition of relevant markets for ecosystems.

Comment:

I have high expectations of any paper by these two authors, and this one did not disappoint. The paper provides, as it sets out to, a sketch of three key challenges of digital market definition and of the current state of the decisional practice. In addition, the paper carries a message in favour of international convergence that can only warm the heart of someone in my line of work.

At the same time, I feel the authors could have stretched themselves a bit more. In particular, I would have liked to know the authors’ views on two (more analytical) topics. First, what role does market definition plays in practice in each jurisdiction – i.e. what is its impact on case outcomes? After all, market definition is ultimately merely a tool to identify market power and to assist in the competitive assessment of business practices. Given this, the influence of market definition in these substantive assessments in practice will not only colour how much attention each jurisdiction will devote to the topic, but will also be important for any effort to achieve international convergence. Second, and relatedly, the authors mention repeatedly how a market can be defined by reference to the conduct / transaction under investigation. This is evidently true, and it relates to the just mentioned fact that market definition is just a means to an end. However, it would be good to get a sense of whether there are any governing principles as to how such a choice of relevant market should be made, and whether those principles need to be adjusted in the digital sphere. This, of course, relates to the truly complex question of what ‘anticompetitive effects’ we are concerned about in the first place – a substantive question on which legal orders often differ, despite their superficial adherence to ‘formal requirements’ concerning market definition.

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