(15):

Merger Control
&

The EC Merger Regulation

Regulation 139/2004
Article 1
(3) A concentration which would significantly impede effective competition, in the common market or
in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position,
shall be declared incompatible with the common market.

General

Merger control is the anticipation of dominance based on a prospective analysis

On the ground of market structure and the presumptive incentives for abusive conduct

Dominance is ok if it is due to customers choice but if the dominance comes about through merger
it will be viewed with suspicion from the regulators

Mergers also offer a very precise point in time for regulatory intervention to take place

Difference in analysis with merger control vs abuse of dominance:

o
o

1. Regulators have to imagine how the merger will affect competition in the future rather
than assessing how it has affected it in the past.
2. Since the companies under investigation are not defendants (in fact they are the one
applying for permission to merge) the parties provide much more information to
regulators. This allow for tighter timelines.

Characterising a concentration
Definition

Outright merger [3(1/a)] acquisition of direct or indirect control, by purchase of

These agreements may reduce competition when they involve:

Price fixing;

Equity or assets or by contract [3(1/b)(2)]

By creation of a joint venture [3(1/b)]

Sharing of markets or other restrictions on business operations; or

Softer forms of cooperation, which increase the transparency in the market and reduce
uncertainty concerning the competitors conduct.

Standard of Assessment

Significant impediment of effective competition (SIEC), in particular as a result of the creation or

strengthening of a dominant position [2(2)(3)]

Taking into account the structure of the market [2(1/a)]

And taking into account the market position of the undertakings, the economic and financial
power, the alternatives available to suppliers and users [2(1/b)]

If the postmerger market structure creates the possibility for abuse the concentration will not be
permitted (This is the Harvard model of analysis)

Dominance may be singular or collective

Thresholds of Notification:

Notification requirement based on turnover thresholds:

5 billion Euros in global turnover is the threshold for investigation (with some exceptions)

2.5 billion Euros (a lower threshold) if the companies operate significantly in 3 countries

Even though the vast majority get approved the existence of the regime makes companies
contemplate competition concerns internally before making any merger plans. This has a
powerful normative effect.

Notification Procedure

EU is different from US-style because approval is required before the merger can proceed. In the
USm a merger can proceed until and unless the competition authority decides to intervene.

Authorization regime: Reg 139/2004 creates an obligation to notify that you would like to merge.
o

Request must contain lots in formation such as the nature of the product, turnover, etc.

If the notification is incomplete the timeline of the deadlines does not start. (firms usually
want fast processing)

Phase 1: 25 working days (in most cases this is all that is required for approval)

Phase 2: 90-105 working days

A . C O L L E C T I V E D O M I N A N C E

Dominance can arise as a result of a market structure which has too few players and therefore a
possibility that those players could behave anti-competitively

Where there is an oligopoly collective dominance will be possible if there is:

o

1. Transparency

There must be sufficient transparency such that each member of the dominant
oligopoly has the ability to know how the other members are behaving in order to
monitor cooperation.

It is not enough that the members of the oligopoly are aware that interdependent
market conduct is profitable for all of them.

2. Sustainability

The situation of tacit coordination must be sustainable over time

This usually means cooperating undertakings have the ability to retaliate against
each other, such as by under-pricing

3. Constraints

The foreseeable reaction of current and future competitors, as well as of

consumers, would not jeopardize the common policy

. T-342/99 Airtours plc v Commission collective dominance

CB

Facts

Airtours, a UK tour operator proposed a merger with First Choice

On 22 September the European Commission prohibited the merger of Airtours plc and First
Choice Holidays plc, two UK companies active principally in the package holiday business. Both
companies are vertically integrated with interests in charter airline operations and travel
agencies.

Airtours is active in tour operating, travel agencies, charter air- lines, hotels and cruise ships
with operations in 17 countries across Europe and North America. First Choice engages in tour
operating, travel agencies, charter airlines, seat broking and car rental broking, mainly in the UK
and Ireland.

The Commission found that in the UK market for short haul foreign package holidays, the
acquisition would create a collective dominant position held jointly by Airtours/First Choice and
two other large vertically integrated operators, Thomson and Thomas Cook.

It noted that the market structure was already highly concentrated, with four vertical- ly
integrated companies having some 80% of the short-haul package tour market between them.

This merger would reduce the number of major player from 4 (27%, 21%, 20% 11%) to 3
(32%, 27%, 20%) in the relevant market of UK short-haul package holidays)

The Commission found that the merger was not compatible with the common market because
the post-merger structure of the market it would give rise to a position of collective dominance
among the 3 remaining major players.

Airtours appeals the decision of the Commission to the Court of First Instance

Issue

If the existing market shows evidence of healthy competition and proposed merger does not
significantly alter the structure of the market, can the merger be considered a significant
impediment of effective competition?

Decision

No

Reasoning

The Commission argued that the merger of Airtours and First Choice would create a position of
collective dominance in the industry, by reducing the number of significant competitors from
four to three.

There existing level of collective dominance is relevant to the finding of future collective
dominance (b/c it suggests that the merger may not actually create that structure)
o

1. The historical volatility of the share prices of the big players suggests competition is
rife.

Demand volatility (which would undermine any collective dominance was

ignored by the commission). Tacit coordination of airline capacity would
therefore be very difficult

Coordination of undertakings may not be sustainable b/c:

Deviation (from the coordinated price/capacity) would be difficult to detect by

the other oligopolists

Volatility suggests that customers, smaller competitors, and new entrants could
undermine the dominant oligopoly

2. There had already been lots of acquisitions that had no impacted the competitiveness
in the past.

Therefore, the Court concluded that the Commission erred in its finding that the merger would
have a significant impact on competition in the market. (In fact, the merger would not greatly
alter the structure of the market.)

Principles

Existing levels of competition in the current market structure need to be taken into account in

determining whether the post-merger structure would actually increase the likelihood of a
collective dominance.