Challenges in defining relevant markets for digital businesses

By Deeksha Manchanda and Niti Richhariya, Chandhiok & Mahajan

Defining the relevant market is the first and most significant step of antitrust analysis. It sets the scope of that analysis and provides a structure and foundation for the economic and legal assessment within it. Digitisation has radically transformed both business activities and consumer behaviour. A major challenge for antitrust authorities worldwide dealing with these changes is to delineate the relevant market.

Deeksha Manchanda, Partner, Chandhiok & Mahajan
Deeksha Manchanda
Chandhiok & Mahajan

Businesses in the digital era display unique characteristics, which makes the process of delineation of relevant markets complex. The tools presently used for delineating these markets have limited utility in scrutinising digital markets.

One unique feature of these markets is that they are often zero-price markets. This means consumers do not have to pay a monetary consideration for the supply of services. It is therefore very difficult to apply one of the long-standing tests for the determination of a relevant market, that is the small but significant non-transitory increase in price, to these markets. Lately, regulators have applied tests that focus on ascertaining quality, such as the small but significant non-transitory decrease in quality (SSNDQ). However, the parameters that need to be set for SSNDQ remain far from clear.

Similarly, authorities are using more qualitative parameters of distinctive characteristics to determine demand side substitutability. However, determination of distinctive characteristics can often lead to markets being defined more narrowly than they are in reality. For instance, defining a market for WhatsApp as a market for Over-The-Top messaging apps through smartphones focuses solely on one feature provided by the app, but ignores the reality that WhatsApp is essentially competing for user attention.

Another unique feature is the multi-sided nature of these markets, which facilitates interaction between two or more customer groups joined by mutual interests. This raises the question of whether two distinct markets or a single market should be defined. There are no guidelines on the right approach. The Competition Commission of India (CCI) has defined both multiple and single markets. In a case against Google, the CCI defined two relevant markets namely, “the market for online general web search services in India” and “the market for online search advertising services in India”. In dealing with cab aggregators, the CCI defined only one relevant market, relying on the necessary feature of the involvement of the platform, namely riders and users for every trans-action. What is missing is the reasoning of the CCI to adopt the single market approach in one case and the distinct markets approach in the other.

The US Supreme Court in dealing with credit card markets, adopted a single market approach, noting that credit cards enabled transactions between the two sides of the market, as opposed to the function of non-transaction platforms.

Niti Richhariya
Senior Associate
Chandhiok & Mahajan

Whether the transactional or non-transactional nature of a platform could be the basis of determining whether a single market or multiple markets should be defined, and a lack of clarity on the theoretical framework applied by the CCI is a critical barrier to understanding the issue.

Fast-paced innovation makes the determina tion of competition and supply side substitutability critical. This is often ignored by regulators who narrowly focus only on qualitative aspects and demand side substitutability. Failure to account for market volatility and potential competition may result in artificially narrow markets.

The geographic aspect of markets is also of considerable importance. Digital markets do not recognise traditional boundaries and are by their nature global. However, there is an inherent regulatory hesitation to define global markets. This may lead to mistaken assess ments and false positives, which regulators should avoid.

The definition of relevant markets in the digital era has undoubtedly led to complexities that call for the revision of traditional tests. More objective standards should provide a more robust delineation of relevant markets.

Suggestions for a reduced focus on the definition of relevant market should be evaluated sceptically. The relevant market concept remains the cornerstone of competition law analysis as we know it today and delineating it cannot be excluded.

Deeksha Manchanda is a partner and Niti Richhariya is a senior associate at Chandhiok & Mahajan

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