being defined too widely.13 This problem relates to the so-called SSNIP test and the “cellophane fallacy”14, which are both described in more detail below. The existence of the cellophane fallacy implies that market definition in Article 82 cases needs to be particularly carefully considered and that any single method of market definition, including in particular the SSNIP- test, is likely to be inadequate. It is necessary to rely on a variety of methods for checking the robustness of possible alternative market definitions.15
Small but Significant Non-transitory Increase in Price 14. Under the SSNIP-test, which in particular in merger cases constitutes a central part of the Commission’s approach to market definition, it is asked whether the customers of the undertaking(s) concerned would switch to readily available substitutes or to suppliers located elsewhere to such an extent that it would be unprofitable to implement a small but significant (normally in the range 5%-10%), non-transitory increase in relative prices for the products and
the areas being considered. If answered in the affirmative, additional substitutes and areas are added to the relevant market until such a price increase would be profitable. At that point, a hypothetical single seller of the now included products and within the now included areas would be able to profitably raise prices by 5%-10%, signifying that the products and areas in question constitute a market that is worth monopolising. As a consequence thereof it constitutes an appropriate framework for competition analysis.
SSNIP test based on prevailing prices not competitive price 15. It is essential to take account of the fact that the SSNIP-test normally is based on the assumption that prevailing prices constitute the appropriate benchmark for the analysis. This assumption often does not hold in Article 82 cases. The very notion of dominance involves an assessment of whether or not the undertaking in question is subject to effective competitive constraints. The appropriate benchmark for this assessment is the competitive price, which may not be the prevailing price. Indeed, the prevailing price may already have been substantially
It is assumed that undertakings seek to maximise their profits. As long as the demand facing the undertaking is relatively inelastic, it has an incentive to increase prices.
Cellophane Case This problem has received its name from a United States case involving a producer of cellophane, United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 76 S.Ct 994 (1956). See paragraph 25 of the Commission Notice on the definition of the relevant market cited in footnote 11.