The Egyptian Competition Authority (ECA) Issues New Market Definition Guidelines

On 21 September the Egyptian Competition Authority (ECA) issued new market definition guidelines. The guidelines are intended to provide guidance to businesses on how to define the relevant markets for the purposes of competition law analysis. With the new guidelines the ECA sought to align the authority's practice with internationally recognized standards. They also seek to address changes in the economy, including the growing importance of digital markets and globalization.

The guidelines are (in part) designed for readers who have limited experience with competition law and do explain basic concepts such as that markets will be defined by (1) relevant product or service, and (2) geographical scope. However, the guidelines also provides guidance on more practice issues that can arise in market definition, such as: (1) how to deal with new and innovative products and services, (2) distinctions of products and services by quality, brand, or similar factors, (3) and cross-border markets.

One of the key changes the new guidelines bring to established ECA practice is the increased emphasis on non-price factors in market definition. In the past, the ECA tended to focus primarily on price competition in its market assessments. However, the new guidelines recognize that other factors, such as quality, innovation, and brand, can also be important in determining the boundaries of competition.

Another change introduced with new guidelines is the introduction of a more forward-looking approach to market definition. Previously, the ECA tended to focus on the current state of competition when defining markets. However, the new guidelines recognize that the competitive landscape can change rapidly, and that it is important to consider future trends when defining markets.

Furthermore, the new guidelines introduce a small but significant non-transitory increase in price (SSNIP) test. This test asks whether a hypothetical monopolist with control over the candidate market would be able to profitably raise prices by a small but significant amount (typically 5-10%) without losing a significant number of customers (typically 5-10%). If the answer is yes, then the candidate market is likely to be a relevant market.

The new guidelines also expand on the critical loss analysis. This test asks whether a supplier of a particular product or service could profitably withdraw from the candidate market without causing a significant increase in prices or a significant decrease in output. If the answer is yes, then the candidate market is likely to be a relevant market.

The ECA also considers several other factors in its market definition assessments, such as:

• buyer substitution patterns — the ECA examines the actual and potential substitution patterns of consumers. This involves identifying the products and services that consumers are likely to switch to if prices for their preferred products or services increase;

• supplier substitution patterns — the ECA examines the actual and potential substitution patterns of suppliers. This involves identifying the products and services that suppliers could switch to producing if demand for their current products or services decreases; and 

• barriers to entry and exit — the ECA considers the barriers to entry and exit in the candidate market. This is because high barriers to entry and exit can make it difficult for new suppliers to ente the market and for existing suppliers to exit the market. This can make it easier for a hypothetical monopolist to raise prices.

• the treatment of new and innovative products and services — the ECA recognizes that new and innovative products and services can be difficult to define. However, the ECA generally takes the view that new and innovative products and services should be defined as separate markets, unless there is clear evidence that consumers are willing and able to substitute them for existing products and services;

• the treatment of products and services that are differentiated by quality, brand, or other factors — the ECA recognizes that products and services can be differentiated by quality, brand, or other factors. However, the ECA generally takes the view that differentiated products and services should be defined as a single market, unless there is clear evidence that consumers are willing and able to substitute them for other products and services; and

• the treatment of cross-border markets — the ECA recognizes that the competitive landscape in cross-border markets can be complex. However, the ECA generally takes the view that cross-border markets should be defined as a single market, unless there is clear evidence that consumers are willing and able to substitute products and services from different countries.

Overall the guidelines can be seen as a positive development. They provide welcome insights into the ECA’s thinking and priorities. Still, the timing is somewhat curious as we are still waiting for a clear timeline when the new Egyptian pre-closing notification merger control regime will enter into force.