Competition Law

What is the importance in competition law of the "relevant product market"? How has this term been defined in European law?

How has 'relevant product market' been defined in European law?

The 'Commission notice on the definition of relevant market for the purposes of Community competition law' [Official Journal C 372 of 09.12.1997], provides firms with guidance on the Commission's approach to the definition of relevant markets.
In the notice a sectoral approach is identified, with the Commission clarifying that a different approach will be taken to different types of competition enquiries. The relevant market is defined in terms of the product market and geographical market. In determining the market share of a company both of these factors are to be considered, however this paper will focus on the product market, which is defined as
'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.'


'Importance of 'relevant product market in competition law'
One of the main goals of the European Union is the creation of a 'single market'. The regulation of competition within the community is one of the tools used towards this end. The primary goal of competition law is to ensure that competition within this single market is not distorted. Monopolies, oligopolies and the formation of pricing cartels are all features that competition law aims to eradicate. Art 82 EC prohibits abuses by a commercial undertaking of its dominant position in a market. The legislation is willing to allow firms to grow in their own strength to a position of dominance, but when it comes to collaboration or concentration it takes a different approach.1 The EC merger control regulation 4064/89 is based in part on the case law under Art 82. 4064/89 allows the prior investigation and prevention of mergers that would give rise to an abuse of a dominant position within the community.

The concept of relevant product market is important as it underpins the analysis and scope of competition law within the E.U. Determining the relevant market is the first step that the Court takes when it assesses the position of a firm with regards to competition. This is seen clearly in the PTT Post case2 where the commission considered a merger under regulation 4064. The first step was to identify the relevant product market, which in this case was international express delivery, and international express freight and this formed the basis of all other assessment.

The importance of the 'relevant market' is further illustrated in the Nestlé/Perrier merger case 3. There was a dispute between the Mergers Tax Force and Nestlé over the relevant product market. The Commission claimed there were two product markets in highly mineralised still water and low mineralised still water. Nestlé thought the relevant market included all soft drinks, including water and carbonated drinks. However, an analysis of the product market showed that the sale of still and sparkling water were closely linked, whilst there was little or no relation between the sale of water and the sale of soft drinks and colas. Both sides were proved wrong and it was shown that the relevant product market was bottled water (both sparkling and still). Had it been determined that the product market included soft drinks the market size would have been much larger and it would have be difficult of establish the possibility of distortion. And slicing the market thinly into a different market for still and sparkling water would have meant that dominance could be established fairly easily.

The Airtours case4 goes into details on how the relevant product market is assessed. It also shows how the concepts of substitutability, pricing, etc are applied. Long haul and short haul international flights are carved into two separate markets because of the difference in operating costs and the fact that the airlines can not switch easily between the provision of long haul to short haul flights. For the sake of brevity, this paper will not explore this in great detail

Another interesting angle on the importance of the relevant product market is its application to potential competition. This is illustrated in the Continental Can case 5The effect of Continental's the proposed acquisitions on the structure of the market was one of the main concerns of the court, and a two part procedure was introduced. The first part was the definition of the relevant market, followed by a second part which was the assessment of the firm's dominance within that market. It was acknowledged that the substitutability of a product might be influenced by the ability of the producers to adapt their production resources to produce a substitute thereby creating competition. In this case the Commission had not included the possibility of the other can producers catering for the market if Continental Can's actions or other external factors made room for them. The court regarded this exclusion as a flaw in the market analysis of the Commission, and quashed its claim. This is significant as the scope of the relevant product market is not restricted to the products which are already in existence but is extended to the capacity of other producers in the market to compete in the future by branching out into the production of Continental Can's product. The issue of potential competition has been debated in depth in the market in the USA, for further discussion see American cases and articles on 'contestability' or 'Anti-trust' cases , for brevity's sake these will not be discussed in this paper. Other UK cases in which potential competition is an issue include the Michelin case6 , United Brands7 , and De Havilland8.

In conclusion the concept of relevant product market is a very important tool in competition law. It allows the Commission to treat the competition issues on a case to case basis with the market analysis allowing them to take the reality of the market into consideration, as done in the Nestle/ Perrier case. The flexibility of this 'product market' tool in legal terms is also very important and we see the courts bending and shaping its application to stretch to contestability / potential competition. The Draft Commission Notice in 1997 9provides an insight into the jurisprudence of this development. The Commission gives some explanation of its shift away from the trend in the 1970's and 80's where substitutability alone was used in the definition of product market with potential competition only being considered when it came to the assessment of dominance within the defined market.

  1. See Goyder, 'Competition Law' (1998) pg 389[^ Return]
  2. PTT POST/TNT - GD NET, Case No IV/M.787, 22/07/1996[^ Return]
  3. IV.M/190 - Nestlé/Perrier[^ Return]
  4. Airtours plc v Commission of the European Communities. Case T-342/99[^ Return]
  5. Europemballage Corp and Continental Can Co Inc V. Commission (Case 6/72) [1973] ECR 215[^ Return]
  6. [1982] 1 CMLR 643[^ Return]
  7. Case 27/76, United Brands Company and United Brands Continental v. Commission [1978] ECR 207[^ Return]
  8. Case IV/M53, Aerospatiale- Alenia/de Havilland, [1992] CMLR M2[^ Return]
  9. available at http://europa.eu.int/en/comm/dg04/entente/en/market1./htm[^ Return]

BIBLIOGRAPHY

- Craig & de Burca, 'EU Law, Text Cases and Materials', 2nd Ed (1998, OUP)

- Goyder, 'EC Competition Law', 3rd Ed (1998, Clarendon)

- European Competition Law -- Application to Scots Contract Law JOURNAL OF THE LAW SOCIETY OF SCOTLAND August 1992 Vol 37 No 8 p 309

- Leo Sleuwaegen , 'Competitive distortions and state aid to firms. How to define the relevant market?' Europa.com, May 1999

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