Glossary of competition terms

This Glossary was prepared by DG COMP and the OECD for non-competition specialists. Each term is enriched with references of national case laws from the e-Competitions Bulletin. (© European Union - © OECD)

Relevant market

The definition of a relevant market is a tool to identify and define the boundaries of competition between firms. It allows to establish the framework within which competition policy principles are applied by the Commission. The main purpose of market definition is to identify in a systematic way competitive constraints that the undertakings involved face. Market definition makes it possible, inter alia, to calculate market shares that convey meaningful information regarding market power for the purposes of assessing dominance ( dominant position(s)). A relevant market is defined according to both product and geographic factors. In general terms, a relevant product market comprises all those products and/or services which are regarded as interchangeable or substitutable (substitutability) by reason of product characteristics, prices and intended use. Products and/or services that could readily be put on the market by other producers without significant switching cost or by potential competitors at reasonable cost and within a limited time span also need to be taken into account. The relevant geographic market comprises the area in which the undertakings concerned are involved in the supply and demand of products or services, in which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighbouring areas, because the conditions of competition are appreciably different in those areas.See: Commission Notice on the definition of relevant market for the purposes of Community competition law (OJ C 372, 9.12.1997, p.5)

© European Commission

The starting point in any type of competition analysis is the definition of the "relevant" market. There are two fundamental dimensions of market definition: (i) the product market, that is, which products to group together and (ii) the geographic market, that is, which geographic areas to group together. Market definition takes into account both the demand and supply considerations. On the demand side, products must be substitutable from the buyer’s point of view. On the supply side, sellers must be included who produce or could easily switch production to the relevant product or close substitutes. Market definition generally includes actual and potential sellers, that is, firms that can rapidly alter their production processes to supply substitute products if the price so warrants. The rationale for this is that these firms will tend to dampen or curb the ability of existing firms in the market to raise price above the competitive level. The location of buyers and sellers will determine whether the geographic market is local, regional, national or international. If markets are defined too narrowly in either product or geographic terms, meaningful competition may be excluded from the analysis. On the other hand, if the product and geographic markets are too broadly defined, the degree of competition may be overstated. Too broad or too narrow market definitions lead to understating or overstating market share and concentration measures.

The U.S. Department of Justice and the Canadian Bureau of Competition Policy Merger Guidelines, for example, provide a paradigm for defining the relevant product and geographic markets that is based on the likely demand response of consumers to an anticompetitive price increase. A market is defined as a product or group of products and a geographic area in which it is sold such that a hypothetical, profit-maximizing firm that was the only seller of those products in that area could raise prices by a small but significant and non-transitory amount above prevailing levels. The result of applying this paradigm is to identify a group of products and a geographic area with respect to which sellers could exercise market power if they were able to coordinate their actions perfectly so as to act like a monopolist.

© OECD

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