Approximately a month ago the Commission published its draft notice on the definition of the relevant market. The new notice is supposed to replace the old one that dates back to 1997 and thereby bring the entire process up to date with today’s new challenges, particularly in the context of digital markets. A first read of this long awaited document leaves quite some room for improvement following the consultation round. While the draft touches upon some areas which require updating such as multisided (digital) platforms, it does not truly go beyond what has already been known for a while. This post offers some initial commentary on the new section of the market definition notice concerning multisided (digital) platforms.
The approach to the market definition – how many markets need to defined in each case?
The section on multisided (digital) platforms in the draft notice on market definition addresses the main difficulty with the definition of the relevant market, namely how many markets need or can be defined in each case. For quite a while now both academia and practice have shown that, to a large extent, this issue boils down to making a choice between defining separate markets for each of the respective platform customer groups or defining one relevant market encompassing all (or multiple) platform customer groups (see here for an extensive discussion on this choice). In previous instances it was suggested that making the choice between these two options depends on the type of multisided platform in a given case. In this regard differences we drawn between transaction and non-transaction platforms as well as matching and audience providing platforms. The first of these typologies even made its way into practice in the case of Ohio v. Amex. Nevertheless, both approaches, while valuable, have the disadvantage of being challenged by the reality of multisided digital platforms which often entail hybrid forms of platforms that cannot be easily categorized based on these categories alone (for an explanation see here). This may explain to some extent the approach of the Commission to this matter so far, which was to basically test substitutability on each side of the platform and then evaluate the number and scope of the relevant market(s) as an ex-post act rather than having a set approach to be used from the get go.
Against this background the draft of the notice on market definition does not add much beyond what is said above. The notice acknowledges the above mentioned approaches and indicates that either are possible routes to be taken in practice. Unfortunately there is not much there that would indicate when the market definition would call for one or rather multiple relevant markets – which is exactly where guidance is needed! In this respect the Bundeskartellamt provided much more guidance in its working paper. To make things a bit more confusing, it is not clear whether the practice of the Commission itself in its investigation against Apple (concerning the App Store) is fully aligned with what is indicated in the notice. In this investigation the Commission is attempting to establish a position of dominance (and abuse) with respect to online music streaming apps (such as Spotify). In this regard the market definition would not cover a platform customer group (app developers as such) but rather a sub-set or sub-segment of such a group. Such an approach is not foreseen by the draft notice and would entail significant consequences for platforms that serve large heterogenous customer groups which can then be sliced and diced in various ways for the purpose of the market definition. This similar approach has also been seen recently in the Netherlands in the case of the Dutch competition authority (ACM) against Apple, where the market definition and abuse focused on dating app providers (see earlier post). Regardless of whether one agrees with such approaches, the fact that they are used in practice should be reason enough to include them in the notice at least as an option.
The SSNIP test and its conversion to zero priced products and services
In addition to the approach to the market definition the draft notice touches upon a second key difficulty involving multisided (digital) platforms, namely the application on the SSNIP test. This difficulty has in essence two dimensions. The first once is concerned with how to apply the SSNIP test in multisided markets in light of the network effects at play. In other words, there is no consensus on whether the SSNIP test should be applied to the platform as a whole or rather to each side of the platform separately. If the latter option is chosen one must also choose whether the application should be simultaneous or sequential. On this matter the draft notice is silent – meaning that in practice this exercise will likely be tested in various forms in order to see whether some of the outcomes of application are also supported by other types of evidence in each case.
The second aspect concerns the application of the SSNIP text in zero priced market conditions which typically arise in the context of multisided digital platforms. When this challenge was first addressed, academic research suggested that the solution could be found in the conversion of the SSNIP into a SSNDQ – a quality centered test that theorizes a decrease in quality instead of an increase in price. From an economic perspective both options would be rather similar as getting less quality for the same price is equal to paying more for the same quality. This approach is also logical from a commercial / practical perspective since companies that do not or cannot compete of price will do so based on quality.
In practice this aspect of the challenge was first seen (explicitly) in the case of Google Shopping where the Commission refused to apply the SSNIP test in the absence of positive prices (para. 242-245). Later on the Commission choose to opt for the SSNDQ conversion which was applied Google Android (e.g. para. 267) and in the Google/Fitbit acquisition review (e.g. para 124). Although the shift to this conversion is in principle welcome as it allows practice to evolve and adapt to new realities, it is not clear however how the SSNDQ was operationalized in practice by the Commission. Specifically, it is not clear what procedure(s) the Commission followed to select the qualities that were tested for this purpose nor the degree of quality degradation that was applied. This is quite a significant shortcoming as it limits the predictability of the outcome for the undertakings concerned. Accordingly, as argued before, an adequate implementation of this conversion would require also providing some kind of corresponding procedural framework that covers such matters. Unfortunately, the draft notice does not touch on this matter beyond pointing out that the SSNDQ conversion constitutes a possible tool for the Commission to use when dealing with the market definition of zero priced good or services. The procedural considerations of this conversion are not mentioned. Ideally, this is something that could be addressed when the final version of the notice is drafted. However, the recent judgment of the General Court in the case of Android where the GC seems to give the Commission significant leeway in this respect thereby potentially reducing the incentive of the Commission to provide more specific guidance on this matter (paras. 174-181).
The draft notice on the market definition is a welcome initiative that will hopefully help make the market definition process suitable for the digital age and by doing so preserve its key role in the context of EU competition law. The additions on the specific matter of multisided (digital) platforms constitute in this respect a milestone in the formal acknowledgment of the challenges posed by such actors. Nevertheless, the offered guidance does -not suffice in order to provide undertakings, national competition authorities as well as courts with a degree of clarity they all have been waiting for. Time will tell whether more guidance is offered once the final version is draft. However that of course also depends on the submissions/ comments sent in during the consultation round. Accordingly, if the above critique resonates with you, it may be worth while submitting a comment in this round!