Substitutability in Relevant Market Definitions – A Two Way Street?


Market definition is arguably the most essential analytical tool which antitrust regulators across the globe use to analyze competition concerns. An inaccurate market definition would entail incorrect market share computations – the primary and most commonly relied on indicator of a firm’s market power. Given the significance of market shares in a competitive analysis, particularly for merger control notifications and analysis, it becomes all the more critical to ensure an accurate market definition. For this purpose, antitrust regulators of various jurisdictions seek to construct a systematic conceptual framework that must be followed while determining the relevant market.

Relevant Markets

The (Indian) Competition Act, 2002 (‘Act’) identifies a relevant product market to include all products or services regarded as interchangeable or substitutable by the consumer by reason of characteristics, price and intended use. Factors relevant for determining a relevant product market include both demand side factors (physical characteristics, end-use, price and consumer preferences) and supply side factors (classification of industrial products, specialized producers, exclusion of in-house production).

Accordingly, the empirical determination of a relevant market hinges, largely, upon the test of substitutability (or interchangeability)[1]. Typically, substitutability is tested on a two-sided basis i.e. if X is substitutable with Y, Y would, by and large, be substitutable with X. However, there may be instances where substitutability is asymmetric, i.e. where X may be viewed as being substitutable with Y, but Y is not viewed as substitutable with X. In this article, we examine how antitrust regulators approach relevant market definitions in the case of one-way substitution or ‘asymmetric’ substitutability.

Asymmetric substitution

Markets may be asymmetric for several reasons. Markets which include products at different levels of the quality spectrum or markets where new and old technologies coexist, typically show some measure of asymmetric substitution. The high quality version of the product may exert a considerable competitive constraint on the pricing of a low quality version, whereas the converse may not hold true. If so, the regulator may define two separate product markets: one including the low and high quality versions, and another one including the high quality version only, depending on the subject of the inquiry or areas of overlaps.[2]

Asymmetric substitution is most frequently experienced in technology markets. If two products perform the same function, but one product has additional functionalities or is of a higher quality and price, it may well be argued that on account of varying characteristics, prices and number of end uses, they should form distinct markets. When considering products or services that exhibit asymmetric substitution, it is key to identify the focal product for the analysis (usually the subject of the inquiry) or areas of overlaps. For e.g. the European Commission (‘EC’), when reviewing the merger between Crown Cork & Seal Company Inc. and CarnaudMetalbox SA[3], in which both entities were engaged in the business of packaging manufacturing, found asymmetric substitution between aluminum and tinplate cans, in that, while there was no evidence of substitution from tinplate to aluminum, consumers were able to and indeed did switch from aluminum to tinplate cans on account of lower cost of and the ability to recycle the latter. Further, there were no significant switching costs – since customers who used aluminum in their operations could move to tinplate with minor adjustments to their equipment. However, since both parties supplied only tinplate cans and not aluminum cans, the EC rejected the parties’ contention that the relevant market should include both aluminum and tinplate cans. Instead, the EC defined the relevant market as the market for tinplate cans only. It is likely that in case the parties were present only in the market for provision of aluminum cans, the EC would have defined the market as comprising of both aluminum and tinplate cans, given that the EC found competitive constraints posed by aluminum cans to tinplate cans.

Similarly, when examining Bayer/Aventis Crop Science[4], the EC noted that both Bayer and Aventis were active in the market for crop protection agents including herbicides, insecticides, fungicides, etc. to control plant diseases. The EC defined the relevant market for insecticides by type of crop and subdivided into foliar and soil insecticides. One of the sub-markets assessed by the EC was of the products designed for protecting cereals against the fungus Gaeumannomyces Gaminis, also known as ‘take-all-disease’. There were only two products available for protection against this disease – Jockey (a Fluquinconazole-based product developed by Aventis) and Latitude (a comparable product manufactured by Monsanto). The EC noted that while both Jockey and Latitude could protect against the ‘take-all-disease’, Latitude only treated the ‘take-all-disease’ whereas Jockey has a broader spectrum. The EC noted this as a classic case of asymmetric substitution – wherein Latitude was always substitutable with Jockey, but Jockey was not always substitutable with Latitude (i.e. in cases where the consumer sought to protect cereals against diseases other than the ‘take-all disease’).

In an abuse of dominance investigation against Wanadoo Interactive (‘Wanadoo’), a subsidiary of France Telecom (a leading internet service provider in France), the EC assessed the substitutability between high-speed internet access and low-speed internet access.[5] Wanadoo argued for a single market for internet access as subscribers used both high-speed access and low-speed access to use the same type of internet applications and functions. The EC disagreed as there was a range of activities that could be carried out on a high-speed internet connection (downloading videos or games), whereas, all activities possible on low-speed internet were possible on a high speed connection. Accordingly, the EC noted that subscribers migrated from low-speed internet facilities to high-speed facilities and “its operation is extremely asymmetrical, given the value attached by users to the intrinsic features of high-speed Internet access.” The EC went on to observe that had the two services been perfectly substitutable, the rates at which customers of high speed internet migrated to low speed internet would be identical or at least comparable to the migration patterns from low speed to high speed. The EC, accordingly, held the relevant market to be specifically for high-speed internet access, excluding the low-speed market.

Decisional Practice of CCI

The Competition Commission of India (‘CCI’) has examined the concept of asymmetric substitution in only a handful of cases till date. When considering the proposed merger between Dish TV and Videocon D2H[6], where both parties were engaged in the provision of Direct to Home (‘DTH’) services, CCI distinguished DTH as a content distribution service from services provided by other distribution platform operators (DPOs) such as multi system operators (MSOs’), internet protocol television, local cable operators (LCOs) and over-the-top (‘OTT’) services on the basis of packages offered, pricing, flexibility, technology, infrastructure requirements, etc. Notably, both parties were engaged in DTH services only and not other content distribution services mentioned above. CCI held the relevant market to be that for the provision of DTH services alone. Had the parties shown empirical evidence of significant migration from DTH to cable (both of which are, incidentally, priced in India), or from DTH to other forms of content distribution such as OTT, CCI may have arguably accepted a broader market for cable and DTH, or possibly one involving all distribution platforms. However, since both parties were present only in the market for provision of DTH services, the argument that DTH and other forms of distribution formed a single market was rejected. On the other hand, in RIL/Den/Hathway[7] in which both parties were MSOs and present in the market for cable TV services in India, CCI noted that DTH services provide competitive constraint to cable TV operations and, as such, the two services may be viewed at par in terms of end-use and quality of service. Customers frequently moved from cable TV to DTH platforms and on this basis, CCI defined the relevant market as “the market for aggregation and distribution of broadcast TV channels to homes through cable TV and DTH services”.


In markets where technologies contrite to develop rapidly, and enterprises continue to develop and integrate service offerings, defining relevant market becomes an increasingly complex challenge for antitrust regulators such as CCI. While the guiding principle i.e. the assessment of interchangeability between two products/ services, shall remain constant across all such analysis, regulators such as CCI would need to continue to stay conscious of the risks of defining a market narrowly by not taking into account asymmetric substitution. With more and more cases dealing with fast paced and increasingly technology driven markets – ranging from e-commerce to precision manufacturing, it would be interesting to see how the Indian antitrust watchdog tackles the issue of substitution and market definition going forward.

[1]       The SSNIP (Small but Significant and Non-transitory Increase in Price) test seeks to meaningfully test for substitutability between products and services, The application of the SSNIP test begins with defining the smallest possible markets both in the product and geographic dimension, in which a hypothetical monopolist could profitably and permanently raise the price of the products by 5 to 10 % above the competitive level. The relevant market would then include all those products which the consumer would regard as sufficiently interchangeable or substitutable to avoid the increase in price.
[2]       For example, the CCI in the past has defined separate markets for luxury cars [Jeetender Gupta/ BMW India (Case No. 104 of 2013)]; luxury apartments [Belaire’s Owners Association/ DLF (Case No. 19 of 2010)]; luxury watches [M/s Counfreedise/ Timex Group (Case No. 55 of 2017)]; and luxury sports goods [Om Datt Sharma/ Adidas AG (Case No. 10 of 2014)].
[3]       [1998] OJ L316/1.
[4]       [2004] OJ L107/1.
[5]       COMP/38.233.
[6]       Combination Registration No.C-2016/12/463.
[7]       Combination Registration Nos. C-2018/10/609 and C-2018/10/610.

Published In:Inter Alia Special Edition - Competition Law - October 2019 [ English
Date: October 18, 2019