The Relevant Geographic Market is determined by the area where
different undertakings provide products and/or services with homogeneous
conditions of competition. The
geographic market is defined by the interchangeability of products made/sold in
different areas and it should be observed the behavior of consumers once the
product sold in certain locations suffers an increase of price, they should buy
a substitutable product of another location, if that happens both areas should
be considered as one relevant geographic market.
Moreover, to define the
Relevant market, two main steps are required, in the first place the relevant product
market should be delimited, in order to do so the products and/or services that
are substitutable because of its characteristics, prices or intended use should
be analyzed; after that the geographic market should be delineated.
“The relevant geographic market encompasses a
geographic area in which the conditions of competition are sufficiently
homogeneous”1, therefore, the size
and extent of the relevant geographic market will depend on how homogeneous is
the competition in the analyzed areas: “Depending on the degree of homogeneity
of the conditions of competition between different areas, the relevant
geographic market may be global, regional, trans-regional, national,
sub-national, or in rare cases, confined to a facility in a single geographical
location (e.g., a port).”2
As has been stated in
the Commission Notice on the definition of relevant market for the purposes of
Community competition law, the relevant geographic markets can be defined as
the area where “undertakings concerned are involved in the supply and demand of
products or services, in which the conditions of competition are sufficiently
homogeneous and which can be distinguished from neighboring areas because the
conditions of competition are appreciably
different in those areas.”3
In order to determine
the relevant geographic market a three steps analitycal process has been
proposed by Robert O’Donoghue and Jorge Padilla, they describe it as follows:
“According to the Market
Definition Notice, the Analytical approach used when defining relevant
geographic markets involves three steps:
Identifying the putative market from the demand
side. (…) Market shares and prices in and out of the putative market must then
be compared to ascertain whether the conditions of competition are homogeneous
or heterogeneous across regions. (…)
Supply-side factors. (…) The goal is to
investigate whether suppliers located outside the putative market would be able
to enter the market in response to a price increase. (…)
Scope for widening the market based on future
integration. (…) to ask whether there is a continuing process of market
integration. As a result, it may identify a wider geographic market (…).”4
Nevertheless, the definition of the Relevant Geographic Market should also be observed in
practice, the already quoted authors suggest that the following topics should
be analyzed5:
Price Evidence: Once a region has been identified, we should observe that the prices of a certain product in a
candidate market cannot be higher than the same product sold in a different
region, unless there are obstacles to trade.
Trade flows (quantity evidence): This can be
used to understand the geographic purchasing patterns. Although this theory has
been criticized because the levels of imports and exports are not a sufficient
element to determine a geographic market, because even if a product goes
between two regions they can belong to different product markets.
Barriers to trade: The barriers to trade
generate a separation on the relevant product markets.
-
Transport costs: They affect trade depending on
how high are the costs.
-
Consumer preferences: They affect the definition
of the relevant geographic market because the consumers have preferences, for
example of local products and that helps to constraint the demand to an
specific area.
-
Capacity constraints: When firms operating in a distant
region have the capacity of providing their products in a specific area without
additional costs the region has to be included in the relevant product market.
-
Long term contracts: When firms have long term
contracts with the local market they will be unable to sell their products in a
candidate market even if prices increase.
-
Regulatory barriers: These limit the size of the
geographic market; there are many types of regulatory barriers as legal
monopolies or technical standards.
-
Local presence: In markets where is important to
have local distribution foreign competitors may be in disadvantage.
1 O'Donoghue/Padilla, The
Law and Economics of Article 102, Oxford University Press. P. 96.
2 O'Donoghue/Padilla, The
Law and Economics of Article 102, Oxford University Press. P. 96.
3 Official Journal C 372,
09/12/1997 P. 0005 – 0013.
4 O'Donoghue/Padilla, The
Law and Economics of Article 102, Oxford University Press. P. 125.
5 Points 1, 2 and 3 have been
obtained from the reading of: O'Donoghue/Padilla, The
Law and Economics of Article 102, Oxford University Press. P. 125-128.
