In the ever-evolving digital markets landscape, the European Commission has continually refined its approach to defining relevant markets, especially concerning multi-sided platforms and digital ecosystems. The Commission's release of the Revised Market Definition Notice in February 2024 marks another significant step in this ongoing process, aiming to adapt to the dynamics of these fast-moving markets. In this article, we explore the key updates outlined in the notice and its implications for defining relevant markets in the context of multi-sided platforms and digital ecosystems, drawing insights from pertinent cases.

Reason for revisions

The Revised Market Definition Notice (Revised Notice) reflects the Commission's efforts to keep pace with the digital sphere's rapid technological advancements and evolving business models. It emphasises the importance of considering a broader ecosystem perspective in defining relevant markets and, for the first time, includes guidance on issues particularly relevant to digital markets, such as defining a market for multi-sided platforms, innovation competition, digital ecosystems, market share calculation in zero-price markets, and distinguishing between offline versus online markets.

Market definition in a digital age

Market definition is a non-mandatory tool that is used to identify the market for a product or service; it is a useful first step to determine whether a company is in a position of market power. To find the relevant market, products or services that are close substitutes to those offered by the company in question are identified. These substitutes exert competitive pressure on the company by acting as alternatives that customers can turn to when conditions of sale for the company's products and services deteriorate. This is the case when a company is acquired and its products and services get downgraded in favour of the acquiror's offering, or when several companies collude to raise prices or alter competition conditions in a market. But the relevant market also has a product and geographical dimension. When a product becomes more expensive, if a consumer or supplier can switch to an alternative product or source the same product from another area, these options are considered part of the same relevant market.

Because it is necessary to first identify the relevant market before assessing the competition conditions between companies active in that market, market definition plays a role in all types of competition cases, including merger control, abuse of dominance, cartel investigations, and vertical and horizontal behavioural issues.

Approaches to defining relevant markets for multi-sided platforms

Multi-sided platforms, also known as multi-sided markets or two-sided markets, are business models that facilitate interactions between two or more distinct customer groups. The most commonly recognised multi-sided platforms are found in our pockets: app stores, such as the iPhone App Store or the Google Play store connect app developers to mobile phone users. Social platforms, like Facebook or LinkedIn, connect people to each other, but also to businesses through advertising, product markets, or job postings. Platforms can be two-sided or multi-sided, depending on the number of user groups connected.

One oft-cited feature of multi-sided platforms is the interlinking of the demands of two or more customer groups, and how the platform connects them in a way that generates value for at least one of the customer groups. This definition presents some challenges, as it is clear that both customer groups must see value in engaging with the platform, otherwise they would not do it. However, among the customer groups a platform serves, it is usually easier to identify one group for which the benefit is expressed in monetary terms. Often, business users of platforms generate revenue through various means, such as by advertising, selling products or providing services. Since these benefits are already expressed in monetary terms, platforms may be able to more easily generate revenue from business users through the provision of business-to-business services or through advertising. For example, Apple charges software developers a commission for distributing apps through the Apple AppStore.

On the other side of the platform (typically consisting of consumer groups), services are usually offered on a "freemium" basis, as in the case of Facebook or Amazon. However, consumer groups can also generate revenue for the platform, as in LinkedIn's premium features. In this respect, the Revised Notice makes clear that a product or service being supplied at a zero monetary price or even a negative price does not imply that there is no separate market for that product or service.

The Revised Notice retains two possibilities to define the relevant market for multi-sided platforms:

• one relevant market for the platform as a whole, encompassing all or multiple user groups
• distinct product markets for each side of the platform

The Commission is more likely to find distinct product markets in the presence of significant differences in substitution possibilities on the different sides of the platform. This may be the case when suppliers of goods and services for each user group differ or when there is a high degree of real or perceived product differentiation on each side of the platform. Behavioural factors, such as homing decisions, and the nature of the platform also play a part. The two possibilities can best be understood in the context of two recent cases: Microsoft's acquisition of LinkedIn, reviewed by the Commission under EU merger control rules, and the Mastercard case, reviewed by the Commission as an infringement of the cartel prohibition.

Platform as a whole and lessons from Microsoft/LinkedIn

When businesses, consumers, and platform all operate on the same market for the products and services being transacted, in the presence of significant network effects and low differentiation between the different sides of the market, the Commission is more likely to adopt a platform-as-a-whole approach. When the Commission examined Microsoft's acquisition of professional networking platform LinkedIn (case M.8124 Microsoft/LinkedIn), the central question was whether the merger would substantially lessen competition in any relevant market. The Commission identified a single market for "professional social networks" that included job seekers and recruiters.

This decision was driven by four considerations: the interconnected nature of products and services; the presence of network effects; competitive dynamics; and the need to safeguard consumer choice and market competitiveness. In reaching its conclusion, the Commission considered that professional social networks like LinkedIn derive substantial value from network effects, where the usefulness and attractiveness of the platform increase as more users join. The platform-as-a-whole approach allowed the Commission to consider aspects of competition that might not be evident if the market were defined more narrowly, such as the merger's effects on user engagement, consumer choice, innovation or pricing, which would have given an incorrect perspective of LinkedIn's market power.

Separate but interrelated markets: lessons from Mastercard

When a platform acts merely as an intermediary between businesses and their customers, the Commission is more likely to conclude that the platform is not active in the same market as its customers, but rather that it provides intermediation services. The two sides of the platform can remain part of the same market, for example, when the platform acts as a distribution channel with low differentiation to other channels, such that consumers are close to indifferent to whether they purchase through the platform or outside, and businesses are close to indifferent when it comes to sales channels. For example, when assessing the merger of Essilor (a manufacturer and wholesale distributor of ophthalmic lenses) and Luxottica (a manufacturer and distributor of prescription frames and sunglasses), the Commission assessed whether the market for optical retail should be segmented between online and offline channels. In the end, it looked at the effects of the transaction on the market as a whole (case M.8394 Essilor/Luxottica).

However, if there are significant differences between the market conditions on either side of the platform, the relevant market can be narrowed down even further and end up comprising the market on which the platform is active with separate markets corresponding to each side of the platform. For example, when the Commission investigated Mastercard for infringing the cartel prohibition in relation to interchange fees (case AT.34579 Mastercard I), it concluded that the market on which the platform operated was distinct from the market in which its customers operated and the groups of customers themselves were also sufficiently different from each other to constitute separate markets. The issue at stake was exchange of information concerning interchange fees, which are fees charged by card issuers to acquirers for each transaction.

Five distinct groups of actors were potentially affected or involved: issuers and acquirers acting on the upstream market; merchants and cardholders acting on the downstream market and Mastercard acting as a platform bringing the other four together. Mastercard's position, which appears to have changed over the course of the proceedings, was that Mastercard together with its acquirers and issuers supplied a "joint product" on one side of the market, whereas cardholders and merchants as recipients of the "joint product" comprised the other side of the market. Mastercard claimed that this meant that there was a single relevant market for payment services.

The Commission rejected this argument stating that two-sided demand alone is insufficient to conclude there is a single "joint product" for merchants and cardholders. Moreover, since the two customer groups had a different response to final prices, they could not be part of the same market. As a result, the Commission identified three separate product markets: an upstream network market where card scheme owners like Mastercard compete to persuade financial institutions to join their schemes; a downstream acquiring market where acquirers provide services to merchants wishing to accept payment cards; and, separately, a downstream issuing market where consumers acquire payment cards. Though the three markets were distinct, they were nevertheless interrelated and, in the Commission's view, Mastercard's practices had ripple effects across the ecosystem, leading to anticompetitive outcomes.

Approaches to defining the relevant market for digital ecosystems

One of the notable aspects of the Revised Notice is its acknowledgment of the complexity of digital ecosystems. The Revised Notice defines such ecosystems by referring to the General Court's judgment of 14 September 2022 in Google and Alphabet v Commission (case T‑612/17), where the Court held that in digital ecosystems "the products or services which form part of the relevant markets that make up that ecosystem may overlap or be connected to each other on the basis of their horizontal or vertical complementarity. Taken together, the relevant markets may also have a global dimension in the light of the system that brings its components together and of any competitive constraints within that system or from other systems." Examples include Apple's or Google's mobile ecosystems containing the core mobile operating system and connected components like hardware, app stores, and software applications. The Revised Notice recognises that these ecosystems often comprise interconnected platforms, services and user groups, making traditional market delineation challenging.

Interestingly, the Revised Notice takes an old approach and applies it to a new age, by lumping together digital ecosystems with aftermarkets. As such, the Revised Notice distinguishes three possible ways to define the relevant market in the presence of digital ecosystems:

• System markets comprising all connected products and services
• Dual markets consisting of a primary market for a core product or service, and one aftermarket comprising all connected secondary products and services. For example, when examining a concentration between manufacturers of access solutions (case M.9408 Assa Abloy/Agta Record), the Commission defined one primary market for access solutions and one market for after-sales services, without distinguishing the service provider.
• Multiple markets consisting of distinct combinations of the core product with each connected secondary product or service. For example, when the Commission investigated manufacturers of prestige and luxury watches for refusing to supply spare parts to independent repairers (case AT.39097 Watch Repair), the Commission identified multiple separate relevant markets for each particular watch brand. Each relevant market included both the watch (core product) and spare parts, and maintenance services for the watch (secondary products and services). Since they were active in distinct markets, the Commission rejected the complainants' argument that the watchmakers were collectively dominant, subsequently closing its investigation.

A system market is more likely to exist when the core product is close in price or value to secondary products and services; is substitutable with alternative core products and the cost of switching is low; and is offered by suppliers who typically also offer secondary products and services. If these conditions are not met, the products and services concerned are subject to sufficiently distinct competitive constraints and considered to be part of separate product markets, while remaining connected by interoperability requirements or other technological links. For example, when examining alleged anticompetitive practices by Google in the market for Android mobile phones (case AT.40099 Google Android), the Commission concluded that the conditions to define a system market comprising app stores and smart mobile operating systems (OS) were not present. App stores and mobile OSs did not compete together as a system because they each satisfied different user needs and were offered separately on the market by other players (Aptoide, LG Electronics, Opera, SFR and Yandex offered app stores but not smart mobile OSs). The Commission concluded that there was a distinct product market for Google's Android OS and that Google was dominant in that market. Therefore, its practices of tying Google Search and Chrome to Android OS devices could be investigated as a potential abuse of dominance since these products were not part of the same market and thus did not form a unique product offering.

When secondary products and services are bundled, the Commission may consider the bundle a single relevant market. The Revised Notice does not offer further insights into the factors that the Commission would consider to conclude that the relevant market is that of the bundle and not of the bundled products. Most likely, the Commission will follow the reasoning of its guidance on Article 102 TFEU, last revised on 27 March 2023. Accordingly, competition takes the form of "bundle vs bundle" when there is no or little distinct demand for the underlying products if they are sold separately, and there is little to no scope for stand-alone production and distribution of the bundled products. Evidence that products are distinct could include customer choice; the presence of market players who specialise in the manufacture or sale of only one of the bundled products, or the distribution of each bundled product separately; or evidence that small market players tend not to bundle products.

The Commission concedes that not all digital ecosystems fit an after-market or bundle market approach, with factors such as network effects, switching costs (including factors capable of leading to customer lock-in) and single or multi-homing decisions being relevant to defining the relevant product market.

Dynamic markets and impact of new EU regulations on market definition

Though the Revised Notice manages to capture case law up to the point of its publication, it fails to meaningfully take into account the potential knock-on effect of new and developing EU rules aimed at regulating the digital landscape. The Digital Markets Act (DMA), the Digital Services Act (DSA) and, potentially, even the AI Act could all play a role in the future delineation of relevant markets for multi-sided platforms and digital ecosystems.

Designation under the DMA and compliance with its obligations is meant to change market dynamics and is therefore likely to influence the delineation of product markets. For gatekeepers, the DMA sharpens up the boundaries between their core platform services (CPSs); for example, by setting obstacles to sharing data between CPSs; making it more difficult to bundle CPSs or lock-in users of CPSs; or introducing interoperability requirements. In Google Android, for example, the Commission concluded that app stores and smart mobile operating systems did not belong to the same market in part because "a user's choice of an app store is determined by its choice of a smart mobile device and the corresponding mobile OS and a user cannot, for technical reasons, install an app store that has not been developed for that OS." However, the DMA requires gatekeepers to ensure interoperability of their core platform services with third parties. As part of its compliance plan in relation to that requirement, Apple announced it would be making it possible for users to download third-party app stores. If the Google Android case were re-examined now that the DMA is in force, the Commission would no longer be able to use the argument that users are locked in to the Android app store. Though the user lock-in argument was not pivotal, it added to the body of evidence that contributed to the Commission's finding on relevant market. It will be interesting to see how changes brought about by the DMA shape market dynamics and competitive constraints and may possibly lead to redefining the boundaries of digital markets.

Considering the distinct regulatory requirements for Very Large Online Platforms (VLOPs) and Very Large Online Search Engines (VLOSEs), DSA designations could possibly also play a role in market definition, particularly concerning product functionalities and competitive dynamics. For example, the DSA bans targeted advertisement to minors on online platforms. The Commission reported that VLOPs have taken steps to comply with these prohibitions and that Snapchat, Alphabet's Google and YouTube, and Meta’s Instagram and Facebook no longer allow advertisers to show targeted ads to underage users. TikTok and YouTube now also set the accounts of users under the age of 16 to private by default. This could mean that a market definition for targeted advertisement on online platforms might look different in the future. As regards its geographic scope, conditions of competition in the EU/EEA differ in areas where the DSA does not apply. Even within the territory of the EU/EEA, only VLOPs and VLOSEs face restrictions in delivering targeted ads to minors, whereas competitors that do not yet meet the size requirements of the DSA are still allowed to do so.

Looking Ahead

The Revised Notice tries to address uncertainties by adopting a "dynamic markets" approach, acknowledging that market definition results may vary over time if competition dynamics change. Furthermore, as mentioned at the beginning of this article, market definition decisions are non-binding, meaning that past decisions can be informative, but not predictive. It remains to be seen whether the Commission, national competition authorities and national courts will be able to balance the need for flexibility in defining markets, with providing legal certainty and predictability to market participants.

Looking ahead, several future developments and challenges warrant consideration. First, implementation of the DMA and DSA is likely to reshape market dynamics and competitive constraints within the digital ecosystem, influencing the delineation of relevant markets and requiring ongoing adaptation by competition authorities. Second, the evolving nature of digital markets, characterised by rapid technological advancements and evolving business models, poses challenges for traditional market definition frameworks. Whether the "dynamic markets" approach of the Revised Notice is sufficiently flexible to keep up, remains to be seen.

The original Market Definition Notice, published in 1997, served as a tool for over 25 years to identify the boundaries of competition between companies, and a great many changes in technology and law. It remains unclear whether the Revised Notice will outlast its predecessor or fall behind developments that are unfolding at this very moment, such as artificial intelligence, and the increasing convergence of digital ecosystems with other sectors.