Introduction
Market definition is the analytical foundation of competition law. Before a competition authority can assess whether an enterprise is dominant, whether a merger reduces competition, or whether an agreement has anti-competitive effects, it must first define the relevant market — the space within which competition occurs and within which competitive pressure constrains market participants’ behaviour. The traditional tools of market definition — the hypothetical monopolist test (or SSNIP test), price correlation analysis, and customer substitution surveys — were developed for markets where products are sold at positive prices. Their application to digital markets where services are provided free of monetary charge to users is a task for which the tools were not designed and for which they produce uncertain results.
The problem is not merely technical. Market definition in zero-price digital markets determines the scope of dominance assessment and, consequently, whether platform companies with enormous economic power over digital ecosystems are subject to competition law constraints at all. Getting market definition wrong in this context means either over-including products that do not constrain each other competitively (over-broad markets that understate dominance) or excluding products that provide competitive constraints (under-broad markets that overstate dominance). Both errors have significant consequences for competition law enforcement.
Legal Framework
The Competition Act 2002 defines the “relevant market” as the relevant product market or the relevant geographic market, or both. Section 2(r) defines the relevant product market as “a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and their intended use.” Section 19(7) requires the CCI to have due regard to all or any of the factors listed in determining the relevant product market, including characteristics, physical characteristics, prices, end use, and cross-price elasticity of demand.
The cross-price elasticity of demand approach — measuring how the demand for one product changes in response to a price change in another — is the standard economic measure of substitutability used to test market boundaries. The SSNIP test applies it by asking whether a hypothetical monopolist of a candidate market could profitably raise prices by 5-10% — if consumers would substitute away significantly, the market is too narrow. If not, it is properly defined.
When the product in question is offered at zero price, a price increase from zero to some positive level is qualitatively different from a small increase in an already-positive price. The SSNIP test cannot be applied in its standard form because there is no price to raise. Modified versions have been proposed — the “SSNDQ” test (small but significant non-transitory decrease in quality) and the “SSNIC” test (small but significant increase in cost to advertisers on the other side of the platform) — but these tests are less established, require more complex empirical analysis, and are not yet part of the CCI’s standard decisional toolkit.
CCI Decisional Practice
The CCI’s market definition in digital cases has evolved through practice in the Google matters and related proceedings. In the Android case, the CCI defined the relevant product market as “online general web search services” and separately as “licensable mobile operating systems” — both markets characterised by significant user bases who paid no monetary price. The CCI’s dominance finding in these markets was based on market share measured by user volumes and search query volumes rather than revenue or transaction values.
This volume-based approach to dominance assessment in zero-price markets — using the number of users or queries rather than monetary market share — is pragmatic but has limitations. Volume share does not capture the intensity of competitive constraint: a product with 60% of users may face intense competition if the 40% on alternatives is highly engaged and constantly switching, or may face no meaningful competitive pressure if the 40% represents captive users of competing products. The relationship between volume share and competitive power requires more nuanced analysis than simple share measurement provides.
The market definition in the SAIL case — where the CCI defined a market for online booking platforms — illustrates the challenge: the CCI had to determine whether Google Search and specialised booking platforms are in the same market. Consumers use both for related purposes, but their substitutability for the specific function of booking is limited.
Contemporary Issues and Analysis
The multi-sided platform challenge is fundamental. Google Search is not simply a zero-price product for users — it is a two-sided platform that provides free search services to users and sells advertising to advertisers. These two sides are interdependent: more users attract more advertisers, and more advertising revenue supports investment in better search. Defining the relevant market requires a decision about whether to define a single two-sided market (search advertising to users and advertisers together) or separate but linked markets on each side.
The European Court of Justice in Google Shopping addressed this by defining separate markets — general search services (user side) and comparison shopping services — and examining the competitive relationship between them. The OECD, in its work on digital markets, has noted that there is no settled analytical framework for multi-sided platforms and that both single-market and separate-market approaches have been adopted by different authorities in similar cases.
The data as competitive input problem creates a further layer of complexity. In many zero-price digital markets, data — specifically, user-generated data that improves the service — is the key competitive input. A search engine with more users generates more click data, which trains its algorithm to produce better results, which attracts more users. This feedback loop creates structural barriers to entry that are not captured in market share analysis but are fundamental to understanding competitive dynamics.
Comparative and International Perspective
The European Commission’s Google Shopping decision defined the relevant market as “general internet search services” based on functional substitutability analysis rather than the SSNIP test, acknowledging that standard price-based market definition was inapplicable. The General Court upheld this approach, and the Court of Justice, in its 2024 ruling, confirmed that qualitative market definition is appropriate for zero-price services.
Germany’s Bundeskartellamt has developed the most detailed methodological approach to zero-price market definition in digital markets, incorporating quality-adjusted competition analysis, multi-homing data (the extent to which users use multiple competing platforms simultaneously), and platform interdependence analysis. The Bundeskartellamt’s Facebook market definition case — defining a market for private social networks in Germany — applied this methodology to conclude that Facebook held a dominant position in a narrowly defined market despite the absence of monetary prices.
Practical and Policy Implications
For competition law practitioners advising digital platforms, the uncertainty about market definition methodology is a compliance planning challenge: a platform cannot know with confidence whether it is “dominant” in the competition law sense if the boundaries of the relevant market are unclear. This creates a potential compliance paralysis — or, alternatively, a temptation to exploit the ambiguity.
For the CCI, the methodological challenge is institutional: the Commission needs economists with specific expertise in two-sided platform analysis, multi-homing assessment, and quality-adjusted competition metrics to conduct rigorous market definition in digital cases. This is a capability investment question as much as a legal one.
Suggestions and Reforms
The CCI should issue detailed guidance on market definition methodology for digital markets, specifying the alternatives to the SSNIP test that it will apply, the data sources it will use for market definition analysis, and the weight it will give to different indicators of substitutability. The guidance should be developed in consultation with economic experts and with reference to international best practice from the EU, Germany, and OECD.
The Competition Act should be amended to include a definition of “platform market” — acknowledging the multi-sided nature of digital platforms and providing specific market definition guidance for cases involving two-sided or multi-sided markets.
Conclusion
Market definition in zero-price digital markets is the foundation on which all subsequent competition analysis rests, and the analytical tools for conducting it are still being developed. The CCI’s digital market enforcement is as good as its market definition methodology, and currently that methodology is substantially underspecified. Building the analytical capability and institutional knowledge to conduct rigorous market definition in the digital economy is among the most important investments the Commission can make — because market definition errors in digital cases are not merely academic mistakes but determinants of whether the competition law framework can actually constrain the conduct of the most economically powerful platform companies.
