HP-2020-000016 - [2025] EWHC 1451 (Ch)

The classic definition of a dominant position is set out in Case 27/76 United Brands v Commission EU:C:1978:22, §65, and is:

“a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers.”

No single factor is determinative in the assessment of whether an undertaking occupies a dominant position on a relevant market. Rather, it is necessary to consider all relevant matters including the nature of the conduct alleged to constitute the abuse: United Brands, §66–68. The conventional starting point, however, is the definition of the relevant market. It is nevertheless important to bear in mind that defining the market in the context of an abuse of dominance claim is a means to an end, i.e. the determination of whether the relevant undertaking has or had market power amounting to dominance, rather than an end in itself: Socrates v Law Society [2017] CAT 10, §106. As the Commission’s 2024 notice on the definition of the relevant market for the purposes of Union competition law (the Market Definition Notice) puts it, at §§8 and 10, market definition is an “intermediate tool” to structure and facilitate the competitive assessment in appropriate cases, by enabling the calculation of market shares which may be used to assess an undertaking’s market power.

For that purpose, the relevant product market has been defined as comprising all the products which customers regard as interchangeable with or substitutable for the products of the relevant undertaking, based on their characteristics, prices and intended use, and taking into consideration the conditions of competition and the structure of supply and demand on the market. That does not, however, require the inclusion of all products that might potentially be substitutable with the focal product. Rather, the focus is on the products that exert “effective and immediate” competitive constraints on the relevant undertaking, during the relevant timeframe. As discussed further below, competitive constraints from products falling outside the relevant market should nevertheless be taken into account in the more general competitive assessment: Market Definition Notice §§6, 12 and 17.

The standard analytical structure for the assessment of the relevant product market is to start with the “focal product” under assessment, i.e. the product in relation to which the competition concern arises, and to add readily available substitute products in an iterative manner. Starting with the correct focal product is important. The Competition Appeal Tribunal (CAT) noted in Allergan v CMA [2023] CAT 56, §185(4) that:

“As a matter of good practice, the focal product ought to be defined as conservatively i.e. as narrowly as possible. … If one tests the focal product narrowly, then if that definition proves to be too narrow, no harm is done: the substitutes will be captured, not as focal products, but as substitutes for the focal product. On the other hand, if too wide a definition of the focal product is adopted, one runs the risk of ‘baking in’ an erroneous assumption, and thereby adopting an incorrect definition of the market by including within the market definition products that should not be so included.”

As that comment indicates, the problem with the adoption of a market definition that is too wide is that it may not capture market power arising in a more narrowly-defined market. This point is also made in Niels et al. in Economics for Competition Lawyers (3^rd ed, 2023), §3.35, noting that taking the smallest market “avoids overlooking pockets of market power”.

The starting point must therefore be defined as narrowly as possible, so as to be able to test whether there is indeed a relevant narrow market on which the undertaking under investigation is dominant. If the starting point is confined to the product under assessment, appropriate substitutes can then be added to that in order to define the boundaries of the relevant market. If, however, the point of departure is a broader market which includes a range of products, that assumes that all of the products within that range are indeed substitutable. The standard process of market definition has no means of testing whether that starting assumption is correct.

Put another way, the standard iterative process of market definition, which stops when no further competitive constraints are evident, is reliable only when the starting point is defined narrowly and products are then added. That process does not envisage the subtraction of products. So if the starting point is too broad and includes products that do not in fact exert “immediate and effective” competitive constraints on the product under assessment, then the standard iterative process leads to an unreliable conclusion.

Once the focal product is identified, the primary means of identifying substitute products is an assessment of demand substitution by customers. In that regard, products are regarded as effective and immediate competitive constraints if customers would switch easily from the focal product to those alternative products, in response to a deterioration in the conditions of supply of the focal product relative to other undertakings, e.g. an increase in price or a deterioration in the quality or innovation of the product.

The notional theoretical test of whether an alternative product exercises such a competitive constraint, such that it should be added to the defined market is the so-called “SSNIP test” or “hypothetical monopolist test”. That test posits a hypothetical monopolist supplying the focal product, and asks whether sufficient consumers would switch to an alternative product in response to the imposition by that hypothetical monopolist of a “small but significant non-transitory increase in price” above competitive levels (usually specified as being around 5–10%) so as to render that price increase unprofitable. If so, then the alternative product is deemed to fall within the relevant market, and the exercise is repeated with further alternative products, until the set of products is such that a SSNIP can be sustained profitably. If not, then the focal product is the relevant product market and the analysis stops there: see Market Definition Notice §§27–29; and Allergan §185(7).

In practice, however, in most cases there will not be reliable market data on which a SSNIP test as such can be conducted. The Market Definition Notice also notes that the SSNIP test may be difficult to apply when undertakings compete on parameters other than price, such as quality or the level of innovation. While, therefore, the SSNIP test may serve as a useful conceptual framework, in most cases the definition of the market will need to rest on other evidence: Market Definition Notice §§30–31.

In addition to the consideration of demand substitution, as discussed above, supply side substitution may also be relevant where the constraining effect of suppliers that are able to switch production is equivalent to that of demand substitution in terms of effectiveness and immediacy. Supply substitution may be relevant, in particular, where suppliers are able to switch production between products in the short term so as to supply customers who might otherwise switch to other substitutable products: Market Definition Notice §§32–33 and fn 58.

It will readily be appreciated from the above points that the exercise of defining a relevant market is not a precise science. Rather, it is an exercise of judgment which requires consideration of all the available evidence.

In relation to demand substitution, relevant evidence includes consideration of the product characteristics, prices, functionalities and intended use, as well as an assessment of the parameters that are most relevant for the choice of customers: Market Definition Notice §§48–50. Where available, evidence of past substitution can be informative, particularly where that is caused by factors such as an unexpected cost shock or unavailability of certain products in the market. However, evidence of customers shifting away from a product as a result in a change of preferences or consumption patterns is less informative for demand substitution: Market Definition Notice §§51–52.

In relation to supply substitution, relevant evidence includes evidence of the ability and willingness of undertakings to switch production and supply in the short term, and the barriers and costs to doing so. Again, where available, any evidence of past supply substitution will be informative: Market Definition Notice §§60–61.

Particular considerations arise where the relevant markets contain products that are significantly differentiated, such that the customer’s choice turns on specific attributes of the product such as design, brand image or technical specifications. One approach is to define a narrow market, while recognising the competitive constraints which may be exerted by other products along the continuum of differentiated products. An alternative approach may be to define a relatively broad relevant market, but to assess the competitive dynamics in specific market segments within that market: Market Definition Notice §§85–86 and fn 113. Both approaches ultimately reflect the same principle, which is that in a highly differentiated market it will generally be necessary to assess the closeness of competition between different products, rather than basing the assessment on a hard-edged market definition analysis: see Market Definition Notice §110 and Whish and Bailey, Competition Law (11^th ed, 2024), pp. 33 and 38–39.