The small but significant and non-transitory increase in price (SSNIP) test is a basic tool used to define the relevant market in an investigation. Developed in US antitrust practice and globally accepted, the central idea is this: if a hypothetical monopolist could profitably raise the price of a product by a small but significant amount (usually 5-10%) for a sustained period without consumers switching to an alternative, then that product constitutes a separate relevant market. If, however, such a price increase leads consumers to switch to alternatives, then the hypothetical market is not to be considered as the relevant market and such alternatives should also be included in defining the market. 

For instance, suppose a situation wherein a competition authority is examining a proposed merger between two beverage companies, one producing fruit juices and the other producing carbonated drinks. To assess the impact of such a merger, the authority would have to first check whether they fall in the same relevant market, since that would imply a merger between direct competitors, leading to a higher possibility of anticompetitive effects. However, if they are not operating in the same relevant market, there would be minimal horizontal overlaps. 

The authority here may apply the SSNIP test to analyze whether a hypothetical monopolist in the carbonated beverages market increasing the price of the beverage by a small but significant amount (5%) would lead to consumers switching to buying fruit juices instead. If yes, then carbonated beverages and juices are in the same relevant market, because juices act as substitutes to carbonated beverages. However, if the answer is no and only a small or insignificant number of consumers would switch, the two products would be understood to fall in different relevant markets, as both are being treated as distinct products.

In India, the SSNIP test is used to define the relevant market under section 2(r) of the Competition Act, 2002 which includes ascertaining both the relevant geographical market and relevant product market under section 2(s) and section 2(t) respectively. Although not explicitly mentioned in the Act, the Competition Commission of India (CCI) has used the SSNIP test to interpret the ‘substitutability’ criteria in section 2(t) of the Act. However, the court in MCX v NSE had observed that SSNIP is ‘technical, arcane and would be better applicable only in merger control/combination cases.’

One of the most widely debated limitations of the SSNIP test is called the ‘cellophane fallacy’, which emerges when the test is applied in markets where prices are already at monopoly levels. In this case, even a small increase in price is unprofitable, leading competition authorities to wrongly define the relevant market too broadly and thus underestimate dominance. Moreover, the reliance on quantitative elasticity data further limits the application of the SSNIP test in fragmented or informal markets. CCI in such cases often applies SSNIP qualitatively, as in United Breweries v Heineken, where consumer preferences were analyzed rather than an econometric model.

Yet another shortfall of the SSNIP test is that it becomes ineffective in markets where monetary prices are ‘zero’ and consumers pay with factors other like advertisements, attention or data. Google platforms, for example, do not charge their consumers with money, and hence applying the SSNIP test is fruitless to define the relevant market here.

The overall trend now is that CCI has started to focus on factors beyond just price increase, such as quality, innovation and user lock-in and while SSNIP test remains a useful tool in analyzing price factors, other non-price dimensions have been increasingly used to ascertain relevant market in competition law enforcement.