Defining the Market

A market, in the normal economic sense, is of a place or system where buyers and sellers gather for exchanging goods and services. The main purpose of market definition is to assist CCS in its competition assessment. For example, in determining whether a seller has substantial market power, it is useful to define the boundaries of the market so as to identify those sellers who can be regarded as competitors within the same market. It is also useful to identify those sellers who are affected by the business conduct that is under investigation.

CCS typically considers two main types of markets in defining the relevant market. The product market consists of all the goods and services which are regarded as interchangeable or substitutable by the buyers, and all the actual or potential sellers who sell these products and substitutes. Similarly, the geographic market consists of all the geographic areas where buyers are willing to buy the products and substitutes, and where sellers are willing to sell at.

To define the product market, CCS starts with the product and/or service being investigated, i.e., the focal product, and then study the effect of a small but significant and non-transitory increase in price (also known as "SSNIP" which is usually a 10% increase in price above competitive levels) If a significant number of buyers switch to other products following the price increase such that the price increase is not profitable, these products are regarded as substitutes and included in the definition of the product market. The exercise is repeated and the market progressively widened until the price increase does not lead to significant switching i.e. a market whereby a hypothetical monopolist is able to profitably sustain prices above competitive levels. This is the relevant product market. The SSNIP test is similarly performed to determine the relevant geographic market. The product and geographic markets together form the relevant market for competition assessment.

More information on defining the market(s) can be found in the CCS Guidelines on Market Definition.

The definition of a relevant market, in the first instance, allows CCS to have an idea of the boundary within which competition takes place, i.e., where competitors constrain each other from exploiting their market power, and where business activities may injure competition. Once the market has been defined, the market share(s) of the firm(s) in question may be measured. This then allows CCS to better understand for example whether agreements have an appreciable adverse effect on competition in a market in Singapore and whether individual firms are dominant.

Where an agreement involves undertakings whose combined share of the relevant market is low, the agreement is unlikely to raise competition concerns unless it involves, for example, price-fixing, bid-rigging, market sharing, or output limitations. An undertaking with low market share is also unlikely to possess market power. Therefore, an investigation relating to an abuse of a dominant position by an individual firm with low market share can normally be closed at an early stage, unless other relevant factors indicate that the firm possesses substantial market power.

The relevant market is not necessarily global, even if your company sells all over the world. It depends on whether buyers from Singapore are able or willing to buy from the rest of the world. If they are only able or willing to buy in Singapore, i.e., a local market, then the fact that your company sells overseas does not provide Singapore customers with additional choice.

In addition, if overseas sellers are able or willing to sell in Singapore, then the customers in Singapore will have more choices, in which case the relevant market can be expanded to include these overseas sellers.

More information on defining the market can be found in the CCS Guidelines on Market Definition.