Competition and trade law: Draft notice on relevant market

The Commission has published a draft Notice explaining how it applies the concept of relevant product and geographic markets for the purposes of EC competition law. It is first necessary to identify what the relevant market is in order to decide whether there is or might be a restriction of competition or the abuse of a dominant position. Both are prohibited as anti-competitive by Articles 85 and 86 of the EC Treaty respectively.

The draft Notice sets out basic principles for market definition, recognising that firms are subject to three main sources of competitive constraints:

• demand substitutability;
• supply substitutability; and
• potential competition.

In defining the relevant product market, the Commission will first analyse the product's characteristics and its intended use. As for whether two products are demand substitutes, the Commission looks at:

• evidence of substitution in the recent past;
• the views of customers and competitors;
• consumer preferences;
• barriers and costs associated with switching demand to potential substitutes; and
• the different categories of customers and price discrimination.

To define geographic markets, the Commission looks at the distribution of the parties' and their competitors' market shares and will usually conduct a preliminary analysis of pricing and price differences at national and EEA level. It also checks supply factors to ensure that companies located in distinct areas are not prevented from developing their sales in competitive terms throughout the whole geographic market. Finally, the Commission takes into account the continuing process of market integration, particularly in areas of concentrations and structural joint ventures.

For the calculation of market shares, the Commission takes into account both volume sales and value sales.