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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Global | Publication | February 2024
On 8 February 2024, the European Commission (Commission) adopted its first revision of the Market Definition Notice (Notice) since its adoption in 1997.1 Significantly expanding the Commission’s guidance (from 9 pages in 1997 to 45 pages in 2024), the revision is intended to respond to developments in recent years, with an emphasis on digitalisation,2 experiences in the Commission‘s enforcement practice, and Union case law.
In this brief, our focus is on how the Notice will impact market assessments of digital markets and market shares, along with economic tools used in those assessments.
For the first time, the Commission provides market definition guidance for “multi-sided platforms”3 (e.g., advertising-sponsored online intermediaries), noting that such intermediaries support interactions between different groups of users, creating a situation where demand from one group of users likely has an influence on demand from one or more other groups, creating indirect network effects. Against that background, the Commission:
The Commission also provides guidance in relation to after-markets, bundles and (digital) ecosystems,4 noting that:
Traditional antitrust market definition relies heavily on well-established economic tools, including the SSNIP (small but significant non-transitory increase in price) test, which attempts to identify the smallest relevant market within which a hypothetical monopolist could profitably impose a price increase of 5 to 10%. However, the SSNIP test is not particularly useful in the context of digital services, particularly “free” (to the end-user), digital services. The Commission addresses the use of alternative tools in Section 4.4 of the revised Notice:
The Commission has revisited its guidance on the use and importance of market shares,8 noting that, while it is an important tool in traditional markets (e.g., in homogeneous product markets with limited dynamics), there are other factors that might be useful, both in traditional and digital markets (e.g., barriers to entry or expansion, access to specific assets and inputs, product differentiation and degree of substitutability). Further, while market shares are based on the value of sales and/or the number of units sold in traditional markets, the Commission addresses in detail additional metrics that it may rely on in the context of digital markets, e.g., number of users, number of visits, time spent, audience numbers, number of downloads and updates, number of interactions and number (or value) of transactions concluded.
Apart from relevant product markets, the Commission also expands its guidance regarding the identification of global geographic markets (in the context of increasingly globalizing business), addressing in particular:
The revision essentially updates the Notice to reflect approaches that the Commission has already been applying in the context of digital and global markets. While it effectively summarizes the Commission’s enforcement practice in antitrust and mergers, including the tools the Commission is likely to deploy, it does not enhance clarity as to how the Commission is likely to deploy these tools in any given situation. However, it was always unlikely that the Commission would tie its hands in this way.
Communication from the Commission - Commission Notice on the definition of the relevant market for the purposes of Union competition law, OJ C, C/2024/1645, 22.02.2024, available here: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:C_202401645
For that, it sought feedback in a public consultation and also consulted with National Competition Authorities within the European Competition Network, see e.g., The Autorité de la concurrence welcomes the European Commission’s adoption of a revised version of its Notice on the definition of the relevant market (Market Definition Notice), 8 February 2024, available here: https://www.autoritedelaconcurrence.fr/en/article/autorite-de-la-concurrence-welcomes-european-commissions-adoption-revised-version-its.
Section 4.4. of the Notice.
Para. 96-97 of the Notice.
Para. 98 of the Notice. The EU General Court accepted this as an alternative test in general in Google Android (ECLI:EU:T:2022:541), para. 180.
Para. 98 of the Notice.
Section 5 of the Notice.
Para. 69 of the Notice.
Para.70-71 of the Notice.
Publication
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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