Brief Summary. (To read the full post click here)
Relevant market-defining it is very important while determining dominance. Market definition is an important step to establish dominance but it provides challenges for competition authorities. Agencies must cope with incomplete information even after carefully gathering whatever is available. The competition authorities require reasoned, even if not definitive, approach on what to include in and exclude from the relevant market – for instance, the possibility of rapid technological changes and the introduction of new products that would expand or contract the relevant market within a short duration.
Defining Relevant Market
Market definition provides a framework for competition analysis. For example, market shares can be calculated only after the market has been defined and, when considering the potential for new entry, it is necessary to identify the market that might be entered. Market definition is usually the first step in the assessment of market power. A market definition should normally contain two dimensions: a product and geographic area.
The main objective of market definition: to identify actual competitors capable of constraining behavior of other players and of preventing them from behaving independently of effective competitive pressure.
Relevant Market as assessed in a foreign jurisdiction
In European Union Relevant Market = product market + geographic market.
The relevant market combines the product market and the geographic market, defined as follows:
A relevant product market comprises all those products and/or services which are regarded as interchangeable or substitutable by the consumer by reason of the products’ characteristics, their prices, and their intended use;
A relevant geographic market comprises the area in which the firms concerned are involved in the supply of products or services and in which the conditions of competition are sufficiently homogeneous.
Criteria to define a relevant market
In recent years, the E.U Commission has identified a number of criteria, which can help it to analyze the behavior of firms in the market and the specific conditions of the relevant market. However, this methodology may give rise to different results depending on the type of competition problem involved.
In a preliminary analysis, the Commission attempts to define the product market by investigating whether product A and product B belong to the same market. It also tries to determine the geographic market by producing an overview of the breakdown of the market shares held by the parties in question and by their competitors, the prices charged and any price differentials.
Then the Commission carries out a more detailed analysis based on the concept of substitutability – demand substitution and supply substitution. Checking which products that are substituted for consumers – within a particular area – thus making it possible to define the relevant product market and geographic market with a greater degree of certainty. Only in the final stage is the relevant market analyzed to determine the degree of integration in the markets of the European
Union (EU). However, it’s also important to examine the conditions of access to the market to the Firms operating in the market. In this connection, the Commission carries out an assessment of product dimension and the geographic dimension of the relevant market, taking account of:
- Price variations the recent past
- The results of specific studies: econometric and statistic tests to assess (such as culture, language, etc.) local preferences;
- The views of customers and competitors
- Market studies before launching a product for data on Consumer preferences
- Barriers (regulatory or others) and costs associated with switching demand to other products or areas
- Different categories of customer and price discrimination: in case of a distinct group of customers
In Conclusion
Defining markets is often difficult, however, is essential. The process in which the relevant market was established, is a precursor. The greater the uncertainty in defining the relevant antitrust market, the less likely it is that the relevant market is a proper reflection of existing competitive constraints and the less weight should be given to market share as an indicator of market power relative to other factors.