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  • Debargha Mukherjee

Market Definition, Power in Digital Economy and Challenge of Zero Price Markets: Time to Evolve?

[Debargha is a student at ILS Law College, Pune. The following post is one of the winning entries in the Second IRCCL Blog Writing Competition (2021-22), organised in association with Khaitan & Co]

A competition analysis usually starts by defining relevant antitrust markets and an assessment of whether the enterprise/firm which is being scrutinised holds market power in their relevant market. Market power is the ability to raise prices profitably above the marginal cost or the ability to lower quality or output below that which would exist in a competitive market while still maintaining profitable sales levels. It is known that digital markets post explicit analytical challenges, yet, competition enforcements have always been inclined to endorse the flexibility, applicability and resilience of current analytical structures for market definition and power. That said, analysis of market power in the digital space seeks to define relevant markets, post which evaluation of barriers to entry/expansion, competitive constraints, scale of advantages, etc. are done (similar to traditional markets). Enforcement commissions also realise that digital markets exhibit special characteristics like rampant network effects, importance of non-price competition, low-variable costs, etc. which possess direct impacts on competition analysis, thereby adding to the already-existing complexity. Privacy has not been under the radar expressly for analysis of market power definition (yet). Commissions have concentrated on concerns posed by digital markets, including the role of data in competition, and challenges of zero-price products, amongst others. These are reviewed herein as considerations which may merge with privacy and its enforcers. Evidently, price cannot form the base for competition in zero-price markets; thus, it is argued that privacy and other product qualities might undertake a noticeable role in competition in such prevailing markets.

Market Definition and Privacy: Can They be Interlinked?

Analysis of market definition tends to have a base on buyers’ views about which locations or products are relatively interchangeable for the same objective, based on considerations like quality, price, etc. This is where the SSNIP (small but significant non-transitory increase in price) test comes in which is a common analytical tool used to assess replaceability (and define markets). The market is defined to be comprised of the group of services over which the monopolist could profitably impose a SSNIP, rather than losing profits from sales diverted to the next-best substitute. Herein, it is essential to note that SSNIP focusses on price-change solely, which would ideally not work in zero-price markets because in such markets, consumers do not pay any fee for the service or product which they use. Other non-price factors drive consumers and their product choices.

In such scenarios of zero-price markets, competition authorities like the Australian Competition and Consumer Commission and the Singapore Competition and Consumer Commission have opined that focus should shift from ‘price change’ to ‘quality change’, or in other words, opt for the SSNDQ (small but significant non-transitory decrease in quality) test in order to define relevant antitrust markets for enterprises and firms. This would mean that products would be considered to be in one class/the same relevant market when a monopolist would reduce a “product quality parameter” in a small but significant non-transitory manner without missing its consumers. This test was seen to be used by the Chinese Competition Authority in the case of Qihoo v. Tencent. There exist almost no occurrences where the SSNDQ approach with a specific consideration given to ‘privacy protection’ was used for defining a relevant market. If privacy is deemed a substantial element of quality-based competition among the services and products, then the SSNDQ test may possibly be used to evaluate whether monopolists are able to gainfully enforce a decrease in privacy quality. That said, it ought to be accepted that this approach will possibly be more difficult to set up when compared to the regular price-based approach. Measurement of privacy effects is challenging owing to the discrepancy in user privacy inclinations. Thus, market definitions may need to follow perceptions from behavioural economics to understand user biases. In traditional models, demand curves are relatively linear and orderly which means if the price moves down, then demand moves up, however, this ceases to be true when prices drop to zero (as it is the case in zero-price markets. It is evident that all these added up, ought to make the process of defining markets even more complex.

Yet another approach to define markets is to focus on the sustainability of the function provided by a product or service in a market without taking the quality change model into consideration. For instance, if a social media application is employed to connect people in a professional setup with each other and for job hunting, then other apps which provide interchangeable functionality would be considered within one class/same relevant market. This approach however is subjected to widespread criticism because it lacks analytical rigour when compared to the standard SSNIP test.

Ultimately, another possibility is the SSNIC [small but significant and non-transitory increase in (exchanged) costs] test which measures changes in the costs consumers pay for a free good in a non-monetary currency viz. information or attention. For instance, investigators analysing a merger between a couple of search providers might ask whether a ten percent increase in the ‘number’ of advertisements would cause search customers to substitute away to a different product. Similarly, the number can be replaced with length or duration, etc. That said, enforcement agencies might base its market definition in part on the evidence of past increases in the levels of information or attention costs extracted by participants of the market. This approach ought to have some downsides and difficulties as was the case with other approaches because attention or information costs vary from person to person, and are entirely heterogenous in nature.

Given the challenges in all these alternative tests, all in all, it still stands true that demand substitution is one of the most sort-after approaches to define relevant markets. However, as markets develop, the price-based approach ought to change while determining market definitions in zero-cost markets.

Market Power: Network Effects and the Role of Data

The correlation between market power and privacy is dubious. Focus of competition regulators have continuously been on whether/when data might confer market power, and not on privacy or personal data as such. That said, numerous reports on the antitrust law and digital markets have pondered whether the scope of data collection acts as a barrier to entry/detrimental to competition.[1] The Competition Commission of India, the French and the German Competition Authorities have clearly cited that collection of data may result in entry barriers when new entrants are unable to collect such data/buy access to the same kind of data in terms of its volume or variety as established companies. Some competition regulators have also diverted their attention to the possibility of data-driven feedback loops, wherein incumbents with superior data access are better able to improve and refine their data-driven products.[2] It is true that such feedback loops may represent good competition as services and products are getting improved to the benefit of the users, however, it could also possibly create a barrier to entry and expansion for new entities who do not have similar data-driven advantage and funds.

Apart from data, there has been considerable focus on the role of network effects in bolstering the market power. These effects take place in numerable data services types like gig economy services, etc. wherein the greater the user database, the more the enterprises’ value would be. Network effects evidently act as barrier to entry as it raises switching costs for users, thereby rendering markets prone to focus on the services of a large and single provider. Google’s dominance over the past few years in online search and advertising is a classic example of how network effects are created and operate as a barrier to entry and expansion for other newer services. Regulators have also acknowledged that network effects amplify the competitive viability of a new entrant to any relevant market as it could be seen in the Immonet/Immowelt merger case placed before the German Competition Authority.

Lastly, it is evident that market shares play an influential role in evaluations of market power. High market share in a relevant market might not be adequate to determine market power, but it impacts considerably. That said, in some zero-price markets, market share determination ought to be distinct when compared to price-driven markets where profit shares are used to calculate market share and power. Zero-price markets may measure market share on the basis of interactions of users with the apps, user database (transactions, searches, time spent on the app), etc.


It is true that there exist several challenges for competition law albeit theoretically whilst defining zero-price markets and measurement of market share in the digital space. However, in practice, these issues have not thwarted competition commissions and regulators until now. That said, competition law and economics highly and heavily depend on the existence of positive prices. However, services and products are increasingly being offered in exchange of users’ information and attention, and not in exchange of their money. In the coming years, many standard tools used by competition regulators and commissions will be difficult or impossible to use in zero-price markets. Thus, they ought to adapt to the changes and evolve in the face of zero-price markets to perform their delegated role of preserving and maintain competition in the market. Additionally, data privacy is something which authorities have not used until now to analyse market definition and power. If privacy becomes essential to analyse these, the expertise of data privacy authorities in evaluating and measuring privacy will be vital in notifying the competition analysis.

[1] Jason Furman et. al, Report on the Digital Competition Expert Panel: Unlocking Digital Competition (UK), 9 (2014). [2] Ibid at 33.


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