BEREC REPORT ON IMPACT OF FIXED-MOBILE ... - berec - Europa

BoR (11) 54
This suggests that evidence on substitution from a number of different sources should
be considered. Although the information used will vary from case to case, there are
some pieces of evidence and issues often likely to be important 9 .
How much substitution is enough?
There is no clear procedure within competition law for determining when the degree of
substitution is enough to justify a revision of the definition of a relevant market. In
economic analysis, the small but significant and non-transitory increase in the price test
(hereinafter SSNIP or hypothetical monopolist test – discussed further below) and the
critical loss test 10 or the critical elasticity of demand are used.
Substitute products included in the same market can have quite different technical
characteristics but still be considered in some instances to fulfil similar functions from
the point of view of end users (for example, different products could be in the same
market because according to national circumstances a segment of customers may
view them as close substitutes for certain purposes – Austrian case: fixed and mobile
broadband internet for residential customers). Similarly, the products' prices do not
have to be identical. For example, if one product is of lower quality, customers might
still switch to it if the price of the higher quality one increased such that they no longer
felt that the higher quality justified the price differential.
What is most important is the degree of competitive pressure (price limitation) that one
product exerts on another.
In practice, the concepts of demand-side and supply-side substitutability are typically
applied in the framework of the SSNIP test, where interchangeability is assessed
based on non-transitory changes in relative prices. In the Commission’s Notice on
relevant markets, the SSNIP test is described as “a thought experiment, postulating a
hypothetical, small, non-transitory change in relative prices and evaluating the likely
reactions of customers to that increase”.
The SSNIP test attempts to describe customers’ reaction to a hypothetical small (5-10
per cent) but non-transitory relative price increase on the products and in the areas
being studied. If substitution were enough to make the price increase unprofitable on
the grounds of reduced sales, additional products and areas would be included in the
relevant market until the product market and geographical market were such that a
small, permanent increase in relative prices would be profitable. The SSNIP test shows
9
For further information see “COMMISSION NOTICE on the definition of relevant market for the purposes of
Community competition law”.
10
The critical loss is defined as the maximum sales loss that could be sustained as a result of the price increase without
making the price increase unprofitable.
11