RELEVANT MARKET AND RELEVANT GEOGRAPHICAL MARKET
INTRODUCTION
Competition law is a body of laws and regulations designed to avoid imbalances in markets
caused by anti-competitive commercial practises. The primary objective of competition law is
to provide a healthy environment for both buyers and sellers by banning illegal activities with
the aim of gaining a bigger share of the market than would've been possible through genuine
competition. Anti-competitive behaviours not only make it harder for smaller enterprises to
enter or develop in a market, but they also result in higher customer costs, inadequate services,
and a lack of innovation. To prevent such behaviour, the Competition Act, 2002 was enacted.
It created the Competition Commission of India (CCI), the statutory national regulator whose
purpose is to uphold the Act, in order to foster competition and stop acts that have major
adverse effects on competition in India. The CCI investigates cases in which there is a
detrimental effect on competition. Now for a competition law to be effective in preventing anti-
competitive measures, it is crucial that the correct operating place or ‘market’ be identified
correctly.
RELEVANT MARKETS:
The concept of relevant market is important for the purposes of dominant position and
concentration analyses, because an extensive or restrictive approach concerning the relevant
market would have direct effects on the finding of a dominant position.
Relevant market is defined in Section 2(r) of the Act:
"Relevant market" means the market which may be determined by the Commission with
reference to the relevant product market or the relevant geographic market or with reference
to both the markets;
Relevant market has been stipulated in multiple laws around the globe, such as the Act, UK
statutes, European laws, and US antitrust laws; nevertheless, it is not feasible nor fair to restrict
the scope of 'relevant market' to a few hypothetical definitions. Even courts and other forums
of dispute resolution have difficulty with limiting the extent of the concept, and every debate
gives rise to an original unique understanding. The definition of the relevant market under
Section 2(r) of the Act is not exhaustive because the term originates from the concepts of
Economics and is thus bound to be fluid based on the distinctive mix of facts for each case. It
is transparent that the responsibility of identifying the ‘relevant market’ is left to the CCI, and
terms like "relevant product market" and "relevant geographic market" call for proficiency in
legal concepts, economic concepts, and a scrutiny of large amounts of data/statistics before
reaching a decision. In common vocabulary, a relevant market is one in which competition
exists. Competition authorities usually apply a two-fold analysis to define the relevant market:
(i) defining the relevant product (or services) market, and
(ii) defining the geographical market.
1. RELEVANT PRODUCT MARKET:
A relevant product market covers all of the products and/or services which are deemed as
interchangeable or substitutable by the consumer, for the products' characteristics, their prices
and their area of use. The definition takes us to the concept of “demand substitution”, which
represents the most immediate and effective disciplinary force on the suppliers of a given
product/service. The Board’s decisional practice and Guidelines also indicate “supply
substitution” as another main criterion for the relevant product market definition exercise. A
detailed analysis of the demand and/or supply conditions is usually required for a correct
market definition.
a) Demand Substitution
“Demand-side substitutability” or “demand substitution” is the most important and widely-
used concept in defining the relevant market, both at the Turkish and European levels. That is
because the fastest and most straightforward reaction to a price increase would come from the
demand side. That reaction may take the form of stopping the purchase of the good/service and
purchasing substitutable products/services instead. The competition authorities usually apply
the SSNIP test - “small but significant and non-transitory price increase” - to analyze the
substitutability of similar products/services to the products/services in question.
b) Supply Substitution
Supply substitutability may also be taken into account, to the extent its effects are equivalent
to those of demand substitution. Supply substitutability focuses on the question of whether
suppliers can switch production to the substitutable products in the short term without incurring
significant costs or risks.
The concept of supply substitution can be an important factor in defining the relevant market,
but past experiences suggest that competition authorities are usually inclined to concentrate
more on demand-based analyses. Supply substitutability may, as mentioned in the Guidelines,
be taken into account in those cases where its effects are equivalent or at least comparable to
those of demand substitution in terms of effectiveness and immediacy.
FACTORS DETERMINING THE RELEVANT PRODUCT MARKET ARE:
As per section 19(7), the factors enlisted for the relevant product market for CCI’s
consideration are:
• Physical characteristics or end-use of goods;
• Price of goods or services;
• Consumer preferences;
• Exclusion of in-house production;
• Existence of specialized producers;
• Classification of industrial products.
In the case of Atos Worldline v. Verifoneindia, 1 the Competition Commission of India (CCI),
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Case No. 56 of 2012
held that the relevant product market is to be looked at from both demand and supply
perspective based on the characteristics of the product, its price and intended use.
In the case of "Surinder Singh Barmi v The Board of Control for Cricket in India (BCCI)2, it
was held that the relevant market was settled on the thought of demand substitutability of
different types of amusement or entertainment. It was decided that a cricket match could not
be replaced by another game based on neither the attributes nor the purpose of the person
viewing the cricket match.
2. RELEVANT GEOGRAPHICAL MARKET:
To determine a relevant geographic market, it is crucial to consider the location of buyers and
sellers within the market. The geographic boundaries of the market should encompass an area
where all competitive conditions for the products or services are similar. The presence of the
market can be classified as local, regional, national, or international, depending on the locations
of the buyers and sellers involved. By understanding the geographic scope of the market, we
can gain insights into the nature and extent of competition within that specific area. Section
2(s) of the Act defines the relevant geographic market as a market that includes an area where
the competitive conditions for the supply or demand of goods or services are clearly similar
and distinguishable from the conditions prevailing in neighbouring areas. In other words, it
refers to a specific geographic region where the market conditions for buying and selling goods
or services are noticeably uniform and can be differentiated from the conditions in nearby areas.
This definition helps to determine the boundaries and extent of the market based on the
homogeneity of competitive factors in a particular geographic area.
FACTORS DETERMINING THE RELEVANT GEOGRAPHIC MARKET:
As per section 19(6), the factors enlisted for the relevant geographic market for CCI’s
consideration are:
• Regulatory trade barriers;
• Local specification requirements;
• National procurement policies;
• Adequate distribution facilities;
• Transport costs;
• Language;
• Consumer preferences;
• Need for secure or regular supplies or rapid after-sales services.
DETERMINATION OF THE RELEVANT MARKET
The determination of the relevant market is always an issue for the Commission as narrowing
the market would exclude some manufacturers and competition. However, if it is determined
too widely, the competition will be overestimated. So, the scope of market has to be carefully
construed otherwise either it will be undermined or overwhelming. Inclusion of the e-
commerce has given rise to new issues too. CCI held in the case of Ashish Ahuja v. Snapdeal
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Case No. 61/2010
and others that a customer before purchasing any good compares discounts and prices on
offline and online stores. Hence, though the channels of trade are different, they are not two
separate relevant markets. Similar definition was observed by the CCI in few other cases where
offline and online stores were held to be on same footing and not separate relevant market.
Apart from the categorized markets, there are few cardinal factors for consideration into
relevant market determination. The factors are:
• Identification of an appropriate product on which the market is based on,
• Identification of the relevant geographical area with respect to the product and from
the perspective of the customers, and
• Conditions of the market for the entry of the manufacturers.
However, the real and more definite test for determining the relevant market was discussed in
the case of M/s Saint Gobain Glass India Ltd. v. M/s Gujarat Gas Company Limited3. The
factors to be considered for the determination of the relevant market were pondered upon and
the CCI observed that the commission will have regard to section 19(7) and 19(6) for relevant
product market and relevant geographic market respectively.
The determination of the relevant market is to be done so that the commission can regulate the
competition in the market and not let giant companies assert dominance and promote
transparency in trade practices. The commission also introduces restraints and imposes costs
to encourage healthy competition as a gatekeeper watching and monitoring every activity in
the market. There are few rules to analyze the restraints like per se (by itself) and rule of reason.
As per per se rule, if the respondent has done anything in violation of law of the land. Under
this rule, the restraints are justified if the methods are against competitions and damaging to
the market. On the contrary, the rule of reason deals with the conspiracy, combination or
agreement of unreasonable restraint on trade practices after an extensive analysis of anti-
competitive methods, the position of the defendant to dominate the market using their power,
and definition of the geographic market and relevant product.
THE ROLE OF RELEVANT MARKETS IN COMPETITION LAW
a. Cartelization:
A cartel or cartelization is an alliance of companies that work together to control pricing, rig
bids, and share customers. There can be a group of producers, sellers, distributors, traders, or
service providers who, by an agreement, restrict, control, or attempt to restrict and control the
manufacturing, distribution, sale, or price cost of goods or the supply of services. The
assumption is that it is always assumed by default is that cartels have a significant negative
impact on competition in the relevant market. Cartel are strictly banned under Section 3(1) to
be read with Section 3(3) of the act.
b. Abuse of Dominant Power:
Chapter II of the Act's second section provides a definition and prohibits the abuse of a
dominant position. Abuse of dominant position hinders fair competition among businesses,
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Case No.20 of 2013
cheats customers, and makes it more difficult for competitors to compete on merit with the
dominating company. As per the legislation, a dominant position in the Indian market refers to
a company that possesses the power and authority to:
• Operate independently, unaffected by the competitive pressures within the relevant
market.
• Exert influence over its competitors, consumers, or the relevant market in a manner that
favours its own interests.
It is crucial to make clear that the Act's concept of dominance does not rely on a specific
quantitative threshold or market share percentage. This is due to the fact that a company with
a large market share may continue to operate legitimately provided there is strong competition
from strong rivals, whereas a firm with a small market share can abuse its position in the market
if its competitors hold the remaining market share in a fragmented manner. Setting a specific
limit may allow offenders to escape or result in unnecessary lawsuits. In the Indian context,
dominance is decided by taking into consideration the relevant market. The Competition
Commission might determine the relevant market based on the product market, the geographic
market, or both. It must be remembered that the difference between anti-competitive
agreements and abuse of dominant position is that anti-competitive agreements need a
minimum of two parties and can be between any company or corporation, but abuse of
dominant position does not. A dominant position can be abused by just one party, but the party
must be dominant in the relevant market. Dominance has typically been defined as the
company's or firm's market share. Section 4 of the Competition Act, 2002 provides for
prohibition of abuse of dominant position.
CHALLENGES IN DEFINING RELEVANT MARKETS
The primary step in competitive analysis is defining the relevant market. It defines the limits
of the investigation and provides an outline and basis for the economic and legal examination
included within it. Both company activities and customer behaviour have been dramatically
changed by digitization. Determining the relevant market is an ongoing challenge for
regulatory bodies around the world adapting to these changes.
Previously, the CCI saw online and offline marketplaces as merely alternate channels of
distribution within the same relevant market. In recent years, it appears that the CCI has altered
its approach to defining 'relevant markets,' seeing online and offline distribution as separate
relevant markets. The reason for the CCI's reinterpretation might be to keep a close eye on any
anti-competitive practises of companies in the Indian e-commerce sector, which has grown
rapidly in recent years.
Yet, by doing so, the CCI seems to have created a false dichotomy that implies that online and
offline distribution strategies do not compete with one another, pitting solely online enterprises
against one another. The CCI has also dismissed the idea that certain internet businesses have
developed new product/service categories for themselves in previously non-existent industries,
resulting in the rise of 'copycats' in the offline market.
In recent years, CCI's policy towards digital market situations has been contradictory. Unique
characteristics and diverse business models require case-by-case examination. The elements
evaluated during the investigation into misuse of dominating position play a significant effect
in the conclusion of such cases. The emergence of data-driven digital platforms and their
unique business models poses a huge challenge to traditional market definitions used in
competition rules around the world. This problem was raised in the Harshita Chawla v
WhatsApp case, where it was recognised that consumer communication apps such as
WhatsApp and Facebook have distinct characteristics that make them appear as substitutes for
certain activities but not others.
As a result, determining an app's classification within the relevant product market requires
identifying its most important qualities. Furthermore, when dealing with multiple sides of
platforms that provide middlemen services, a full market characterisation is required to
determine their market dominance.
SUGGESTIONS
The concept of a relevant market is important in economics, especially competition law. It
helps define the pool of businesses that directly compete with a specific product or service.
There are two main ways to define a relevant market:
1. Product market: This refers to the group of products or services that are considered
close substitutes for each other by consumers.
2. Geographic market: This refers to the specific location where businesses sell their
products or services and where consumers can purchase them.
By considering both the product and geographic markets, we define the relevant market.
This is crucial for assessing a company's market power, its influence on factors like pricing.
CONCLUSION
In conclusion, understanding and defining relevant markets play a vital role in competition law.
They provide a framework for assessing market power, analysing competitive effects, and
ensuring fair competition. While the determination of relevant markets can be complex, it is
essential to consider factors such as product characteristics, pricing, and consumer
substitutability. The rise of digital platforms has added new challenges, necessitating a closer
examination of their unique features and market power. As competition regimes evolve, it is
crucial to adapt market definition methodologies to effectively address emerging market
dynamics. Continual research and analysis of relevant markets are essential to promote
competition, protect consumers, and maintain healthy and vibrant market environments.
REFERENCES:
https://www.lawyersclubindia.com/articles/market-matters-understanding-the-significance-
of-relevant-markets-in-competition-law-15870.asp
https://www.mondaq.com/advicecentre/content/1652/Market-Definition-Relevant-Market--
Relevant-Geographic-Market-Natural-Market
https://eur-lex.europa.eu/EN/legal-content/summary/definition-of-relevant-market.html
https://lordsoflaw.com/concept-of-relevant-market-in-india/
https://www.legalserviceindia.com/legal/article-8609-relevant-market-an-important-factor-in-
determining-abuse-competition-act-2002.html
https://www.casemine.com/judgement/in/574c14d77de1a8779874c51b
