Understanding
Relevant Markets(RM)
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Defining Relevant Markets
SSNIP Test, etc
Determining Market Power-Concentration
Indices
Consumer Welfare-Criteria
Case study
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Defining the Relevant Market is a central and
often critical role in the application of
competition law
Crucial for assessing market power
Provides a context within which competitive
effects can be analyzed.
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Identifies those products and services which
are close substitutes to the products or
services offered by the parties under
investigation and therefore provide an
effective competitive constraint.
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Identifies the competitors of the
undertakings involved that are capable of
constraining their behavior in the market.
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Key Benefits
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Focuses attention of the regulator and
interested parties on the main
competitive constraints which exists
between products and regions
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Enables calculation of market shares
and market concentration
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Relevant market has two dimensions: the
product market and the geographic market.
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The product market dimension considers those
products that provide an effective competitive
constraint on those products produced by the
parties under investigation.
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The geographic market dimension considers the
competitive constraints that sources located in
one region pose for those firms located in the
same region as
the enterprises under investigation.
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In a nutshell, the relevant market consists of
products which are considered to be
substitutes by consumers within a geographic
area.
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The Hypothetical Monopolist Test is the
standard approach to defining the relevant
market
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First officially recognized in the 1982 US
horizontal merger guidelines issued jointly by
the Department of Justice and Federal Trade
Commission
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The test is also known as the Small but
Significant Non-transitory Increase in Price
(SSNIP) Test
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The test first assumes a small (5-10%) rise in
the price of the product under investigation
(focal product) e.g.shoes
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Thereafter the question is whether the price
increase would cause the consumers of the
focal product (shoes) to shift to another
product (eg. Sandals) or buy the focal product
from another area, to such an extend that the
price rise is unprofitable.
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If the consumers of shoes, start buying
sandals for a 5-10% rise in the price of shoes,
shoes and sandals form part of the same
relevant market.
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Similarly, if the consumers start buying shoes
from another geographic area for a 5-10%
rise in the price of shoes in one geographic
area, then both the geographic areas form
part of the same relevant market
 The SSNIP test represents only “one possible”
approach to defining the relevant market.
 Differences in physical characteristics imply
separate relevant.
 Differences in price levels imply separate
relevant markets.
 Definition of the relevant market is
independent of the particular competition
concern.
 Cellophane Fallacy”-
If the product in question
is already priced supra-competitively, a 5-10%
rise in the price of the product would cause
consumers to shift to another product.
However, it does not imply that the relevant
product market would constitute both
products.
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Price Correlation Analysis: Works on the
principle that if products are in the same
market, their prices should move together.
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Shock Analysis: This analysis is based on
looking at evidence relating to past events in
the market that offer actual examples of
substitution between two products.
(Example: How the launch of a new product
affected the demand for another product)
Essential to assess market power of an
enterprise and thus the anti-competitive effects
caused by a combination.
 Several techniques used to assess market power.
 The Herfindahl-Hirschmann Index (HHI)- Based
on the total number and size of firms in an
industry.- Computed as sum of all firms in
industry.
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Unconcentrated- HHI < 1000
Moderately Concentrated- HHI between 1000
& 1800
Concentrated- HHI >1800
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Post-merger the HHI is again calculated- and
HHI is taken.
∆ HHI < 100 – Unlikely to have adverse
competitive effects
∆ HHI between 100 and points= More likely to
raise competition concerns
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Concentration Ratio (CR)- Combined Market
share of a given number of large firms.
Higher the CR- Greater the potential for
market power.
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In the Lombard Club judgement (T-259/02)General Court noted- In Article 101 cases,
relevant market definition serves to determine
effect on competition while in Article 102 cases,
it serves to determine dominant position.
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“Definition of relevant market of essential
significance to determine product
substitutability”- Europemballage corp and
Continental Can Co Inc v. Commission [1973] ECR
215, Para. 32
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The concept of the relevant market in fact
implies that there can be effective
competition between all the products
forming part of the same market insofar as a
specific use of such products is concernedHoffman-La Roche & Co AG v. EC Commission
[1979] ECR 461, para 28
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For the purposes of investigating the
dominant position, it is essential that the
product market should be defined comprising
the totality of the products with respect to
their characteristics.....- Nederlandsche
Banden- Industrie Michelin v. Commission
[1983] ECR 3461, para.37, Birtish Airways v.
Commission [2003] ECR II-5917, para 91
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