1. Concept and importance

The definition of the relevant product market is one of the main analysis that is necessary to delineate the scope of the market on which is going to be assessed the level of dominance of certain firm or undertaking. In the same line, this assessment will show what is going to be considered as a product in a set or portion of offer and demand relation.

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The assessment of the relevant product market is of utmost importance for the analysis of market power and accordingly for the promotion of effective competition, detection of distortions of the market, regulation of mergers and controlling and preventing abuses of dominant position.

2. Market indirect definition

The relevant product market is an important element of the indirect definition of market power. Since a direct assessment implies several conditions that are difficult to fulfill on modern economies (e.g. very stable situations for estimating the elasticity of the residual demand function), an indirect approach to market definition is necessary to estimate the market power on the basis of the respective market share of an undertaking.

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The indirect assessment of market power usually is made in three consequent steps: “First, the relevant market has to be defined. Then, the firms’ market shares have to be determined. Finally, the market shares have to be interpreted, taking into account the competitive conditions prevailing in the market in order to establish whether a dominant position exists, or if it is strengthened or being abused”.Since the delineation of the relevant product market is one of the most important points to determine the market by itself, it is considered also as the starting point of the market power assessment. Hence the importance of a conscientious definition of the product since a mistake in this element would imply an error on further analysis.

3. Determination of relevant product market: substitutability

The main criterion used for defining the relevant product market is its substitutability with other products with similar or the same characteristics. As a general rule, a bigger similarity between products implies bigger substitutability (e.g. mineral water can be easily substituted with natural water), and products with a considerable differentiation are unlikely to be substitutable between them (e.g. technological markets leaded by innovators).

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Applying the lines explained above, the analysis will appreciate how the demand will react before a Small but Significant Non-Transitory Increase in Price (SSNIP test). If costumers switch to another products with a price increase it means that the market is broader. The relevant product market will be define when the costumers stop of switching to other similar commercial options.

4. Interrelation with the relevant geographical market

Traditionally the definition of the relevant product market was before defining the geographical element in order to complement the study in two steps. Nevertheless, the analysis carried in this way usually presents some limitations for defining accurately the market since product switching is studied regardless the geographical factor tending to overrate the latter.

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