Market definition under the EC Market Definition Notice: Substitutability versus homogeneous conditions of competition

Market definition traditionally relies on the principle of substitution and the hypothetical monopolist test (HMT) framework, which defines the relevant market as the narrowest market worth monopolizing, given the absence of sufficiently strong competitive constraints from demand substitution and, potentially, supply substitution outside that market. However, the revised EC Market Definition Notice puts much greater emphasis on homogeneous conditions of competition (HCC) as a different and simpler framework, to be used when suppliers (i) negotiate with individual customers or (ii) discriminate between customer groups on the basis of observable criteria, including in particular location. We discuss how the HCC framework may lead to a relevant market that is narrower than under the HMT framework, because it does not directly consider the competitive constraints imposed by demand and supply substitution beyond the candidate market. We then present how this may change the economic interpretation of the defined market and increase the effort required in any subsequent competitive assessment to identify the actual competitive constraints exerted on firms.