Before anyone can ask whether a business is dominant — or whether an agreement harms competition — the relevant market must be defined. Market definition fixes the boundaries within which market power is measured, and it is the essential first step in any abuse-of-dominance case under the Competition Act 2010.

This article explains how the relevant product and geographic market is defined, the role of the SSNIP test, how market power is assessed beyond simple market share, and why the exercise matters so much in practice.

Key takeaways •Market definition comes first. Market power can only be measured within a defined market. •Two dimensions. The relevant product market and the relevant geographic market. •The SSNIP test. Asks whether a hypothetical monopolist could profitably raise prices, to see which substitutes belong in the market. •Share is not everything. Barriers to entry, competitor strength, buyer power and durability all matter. •It is often the battleground. A narrow market makes dominance more likely; a broad one less likely — so the definition is frequently contested.

Why does defining the market matter?

Market power is relative. A bakery may be the only supplier in a small town yet trivial nationally; a software firm may dominate one narrow application yet be a minnow across software generally. Whether a business is “dominant” therefore depends entirely on how widely or narrowly the market is drawn. Because the answer drives the whole abuse-of-dominance analysis, market definition is usually the first and most hard-fought issue in a Chapter 2 case.

The relevant product market

The relevant product market comprises the goods or services that customers regard as interchangeable or substitutable by reason of their characteristics, prices and intended use. The central question is demand-side substitution: if the price of product A rose, would enough customers switch to product B that the increase would not be worthwhile? If so, A and B are in the same market. Supply-side substitution — whether other producers could quickly switch to making the product — can also widen the market.

The relevant geographic market

The relevant geographic market is the area in which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighbouring areas. It may be a town, a state, the whole of Malaysia, or wider, depending on factors such as transport costs, customer willingness to travel or buy remotely, regulation, and the location of competitors. As with products, the test is whether customers would switch to suppliers in another area in response to a price rise.

The SSNIP test: the hypothetical monopolist

Economists and regulators commonly use the SSNIP test — a “small but significant non-transitory increase in price”, often in the region of 5–10% — to delineate the market. The test imagines a hypothetical monopolist of a candidate set of products and asks whether it could profitably impose such an increase. If customers would respond by switching to other products or to suppliers in other areas, those products or areas are added to the market and the test is run again, until the smallest set of products and area over which a monopolist could profitably raise prices is found. That set is the relevant market.

Assessing market power beyond market share

Once the market is defined, MyCC assesses whether the enterprise has substantial market power. Market share is the starting point — a persistently high share points towards dominance — but it is not decisive on its own. MyCC also weighs:

• Barriers to entry and expansion. If new competitors can enter easily, even a high current share may not confer durable power.
• The strength of competitors. Whether rivals are capable of constraining the enterprise’s behaviour.
• Countervailing buyer power. Whether large, sophisticated customers can discipline the enterprise.
• Durability. Whether the position is stable over time or vulnerable to disruption.

How market definition is used in a case

In an investigation, MyCC defines the market on the evidence, guided by its published market-definition guidance. Because the definition so strongly influences the outcome, it is often where the real argument lies: a business under investigation will frequently contend for a broader market (making dominance less likely), while a complainant argues for a narrower one. The same analytical tools also feed into the substantial lessening of competition assessment proposed for the forthcoming merger control regime. See abuse of dominant position under the Competition Act 2010 and will your deal be notifiable? thresholds and the SLC test.

Frequently asked questions

Why does defining the relevant market matter?

Because market power and dominance can only be measured within a defined market. A firm may look powerful in a narrow market but weak in a broad one. Market definition is the essential first step in abuse-of-dominance cases and, in some agreements, in assessing effects.

What is the SSNIP test?

SSNIP stands for a “small but significant non-transitory increase in price”. It asks whether a hypothetical monopolist could profitably raise prices by a small amount (often around 5–10%); if customers would switch to other products or areas, those are included in the relevant market.

What is the difference between the product market and the geographic market?

The relevant product market covers the goods or services that customers regard as interchangeable. The relevant geographic market covers the area in which the conditions of competition are sufficiently similar — which may be local, national or wider.

Does a high market share mean a firm is dominant?

A high market share is a strong indicator but not conclusive. MyCC also considers barriers to entry and expansion, the strength of competitors, countervailing buyer power, and whether the position is durable.

Who decides what the relevant market is?

In an investigation, MyCC defines the market based on the evidence, guided by its published guidelines on market definition. The defined market is often contested, and parties can put forward their own analysis.

Speak to NZSK’s competition law team If you have received a notice from MyCC, are reviewing an agreement or a contemplated deal, or want to put a compliance programme in place, our competition law team can help. Ng, Zainurul, Seke & Khoo (NZSK) Offices: Mont Kiara and Puchong Phone / WhatsApp: 016-557 4789 Email: [email protected] Web: nzsklegal.com