Issue S: Market Definition
Background
206. A market should be defined by identifying which products are sufficiently good demand substitutes for the product in question to be regarded as being in the same market. The feasibility of substitution is also the crucial question in the other elements of market definition such as the geographic dimension.
207. The Commission defines a market to include all suppliers and buyers between which there is close competition, and to exclude all other suppliers and buyers. The focus is upon those goods or services that are close substitutes in the eyes of buyers, and upon those suppliers who produce, or could easily switch to produce those goods or services.67 The Commission uses the internationally accepted "small but significant and non-transitory increase in price" (SSNIP) test. The Commission tests buyer and supplier reactions to a given price increase (usually 5-10 percent sustained for a year), when all other prices remain constant, in a hypothetical exercise, which assumes the creation of a total monopoly. The smallest space in which such market power may be exercised is then defined.
208. That said, this is not the full extent of the analysis that the Commission carries out when defining markets. Section 3(1A) requires the Commission to define a market to "include other goods and services that, as a matter of fact and commercial common sense, are substitutable for them." Hence, the Commission needs to do a reality check. We are seeking stakeholders’ views on whether the Commission’s approach, including using the SSNIP test is sufficiently flexible.
Question
Q30. Is the approach used to define markets appropriate?
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