PROBLEM OF FALSE SUBSTITUTES IN DEFINING OF THE RELEVANT MARKET IN THE COMPETITION LAW

Abstract

Defining the borders of the relevant market is often one of the most important issues in the competition law. That issue may arise in all three main areas of the competition law - prohibition of restrictive agreements and practices, prohibition of abuse of dominant position on the market and control of concentrations on the market. In the competition law of the European Union main conclusions with regard to the borders of the relevant market will usually be derived based on the analysis of demand through so-called hypothetic monopolist test. However, in certain situations application of this test may be inadequate due to the fact that the prevailing market price has already been raised above the competitive level (most often this will be the case when there is an undertaking with significant market power). In such cases hypothetic monopolist test may provide misleading results with regard to the borders of the relevant market by indicating ostensibly high level of substitutability of the analyzed product with other products to which the customers may revert due to a small but significant and non-transitory increase in price (so-called 'false substitutes'). Practically this may result in inclusion of such false substitutes in the relevant market and in that way in its broader definition, which in turn will generally reduce the possibility for finding of market domination on such market. In this paper the author gives short analysis of the problem of false substitutes in defining of the relevant market in the competition law, as well as of potential approaches to this problem in practice.