How Is a Market Defined? The Importance of the Relevant Market in Competition Law

When discussing Competition Law, one of the first questions that competition authorities must answer is: In which market does a company actually compete? The answer lies in the concept of the relevant market, a legal and economic tool that is essential for assessing anticompetitive practices, abuse of market power, and merger transactions.

The relevant market identifies the products or services that compete with one another and the geographic area in which that competition takes place. Defining it correctly is essential, as it serves as the starting point for determining whether a company holds market power and whether a particular conduct may restrict or distort competition.

One of the most widely used methodologies to define the relevant market is the SSNIP Test (Small but Significant and Non-transitory Increase in Price). This test evaluates whether consumers would switch to a substitute product or service in response to a small, significant, and non-transitory price increase. If consumers are willing to switch, both products may belong to the same relevant market.

However, price is not always the main competitive factor. In regulated markets, free services, or digital platforms where users do not pay directly for the service, the analysis must focus on other competitive parameters. In these cases, the SSNDQ Test (Small but Significant and Non-transitory Decrease in Quality) becomes particularly relevant. It assesses whether consumers would switch to an alternative product or service in response to a significant and lasting decline in quality. Factors such as innovation, privacy, security, user experience, and service quality may become the key dimensions of competition.

In addition, there are sectors where traditional competition is limited for technical reasons or because of the public interest. In natural monopolies, such as certain electricity transmission and distribution activities, or in highly regulated markets operating under exclusive concessions, government intervention changes the competitive dynamics. In these situations, regulatory oversight aims to ensure that the operator does not engage in abusive practice and that the market functions efficiently, transparently, and with legal certainty.

Ultimately, properly defining the relevant market is the foundation of any Competition Law analysis. Understanding how companies actually compete enables authorities to make more accurate regulatory decisions, protect consumer welfare, and promote efficient, transparent, and competitive markets.