THE TREATMENT OF VERTICAL AND CONGLOMERATE
MERGERS IN THE EUROPEAN UNION—THE
EUROPEAN COMMISSION’S NEW GUIDELINES ON THE
ASSESSMENT OF NON-HORIZONTAL MERGERS
Alex Petrasincu
I. Introduction
While the U.S. antitrust authorities have not clarified their enforcement practice
toward vertical and conglomerate mergers since the issuance of the Department
of Justice’s 1984 Merger Guidelines, the European Commission on November 28,
2007 published its long-awaited Non-Horizontal Merger Guidelines.1 The Commission did not draw up Draft Guidelines until February 2007 even though it had
announced its intention to compile such Guidelines shortly after its publication
of the Horizontal Merger Guidelines in January 2004. These Draft Guidelines
were then published on the Commission’s homepage and interested parties were
invited to provide comments on this draft. The Commission received thirty-two
comments, a majority of which supported the new Guidelines and approved of
the Draft Notice.2 The Final Guidelines published in November 2007 are mostly
consistent with the Draft Notice—The European Commission only made minor
changes to its draft.
It took the European Commission almost four years to prepare its Non-Horizontal Merger Guidelines. As such, one would expect the new Guidelines to
carefully and exhaustively describe the Commission’s analysis of vertical and conglomerate mergers—but this does not seem to be the case. This article describes
the Commission’s approach to non-horizontal mergers described in the Guidelines by comparing the new guidelines to the Commission’s previous approach.
II. General Approach of the Guidelines
The Commission now uses the term “non-horizontal merger” as a generic term
for both vertical and conglomerate mergers.3 Thus, the inclusion of this term into
its Guidelines does not indicate any change in the Commission’s enforcement
practice. Rather, by distinguishing primarily between non-horizontal and horizontal mergers, the Commission emphasizes that concerns about competition are
Alex Petrasincu is a law clerk at the District Court for the District of Duesseldorf, Germany.
1.
Guidelines on the assessment of non-horizontal mergers under the Council Regulation on
the control of concentrations between undertakings, 2008 O.J. (C 265) 6, available at http://
eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2008:265:0006:0025:EN:PDF
[hereinafter Non-Horizontal Guidelines].
2.
Press Release, European Commission (Nov. 28, 2007).
3.
Non-Horizontal Guidelines, supra note 1, at para. 3.
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far less likely to arise in the case of vertical or conglomerate mergers than in the
case of a merger between competitors.4
Indeed, unlike horizontal mergers, vertical or conglomerate mergers do not
cause a loss of direct competition between the merging firms.5 On the contrary,
because the activities or products of the companies involved are complementary
to each other, such mergers can be pro-competitive by providing substantial scope
for efficiencies.6 Even before the issuance of the new Guidelines, the Commission
considered vertical or conglomerate mergers to be less problematic than horizontal mergers, as is evidenced by the few non-horizontal cases in which the Commission expressed competitive concerns. The fact that non-horizontal mergers
generally do not pose competition problems was also recognized in the European
literature.7 The Non-Horizontal Guidelines serve as evidence that the European
Commission is now even less skeptical about non-horizontal mergers than it was
before. This new attitude toward non-horizontal mergers corresponds to the U.S.
approach, where vertical and conglomerate mergers have generally been considered as competitively insignificant since the early 1980s.8
Nonetheless, there are still circumstances in which non-horizontal mergers can
significantly impede effective competition.9 For example, the European Commission recognizes problems where the merger would increase the market power of
the merging firms to such an extent that consumers would be harmed by higher
prices.10 To deal with this issue, the Commission employs an effects-based test and
considers consumer welfare to be the primary objective of non-horizontal merger
control. In this respect, the Commission—most likely as a reaction to the severe
criticism of the General Electric/Honeywell decision by American officials and scholars—emphasizes that competition concerns do not arise if a merger only harms
rivals.11
Regarding the possible anticompetitive effects of non-horizontal mergers, the
Commission follows the approach of its Horizontal Guidelines and distinguishes
4.
Id. at para. 11.
5.
Id. at para. 12.
6.
Id. at paras. 13–14, 117.
7.
See, e.g., John Cook & Christoper Kerse, EC Merger Control 7-020 (4th ed. 2005); Christopher Bellamy & Graham Child, European Community Law of Competition 6-151 (5th ed.
2001).
8.
See Jonathan Baker, Mavericks, Mergers, and Exclusion: Proving Coordinated Competitive Effects Under the Antitrust Laws, 77 N.Y.U.L.Rev. 135, 147 (2002); Robert Skitol, The Shifting Sands of Antitrust Policy: Where
It Has Been, Where It Is Now, Where It Will Be in Its Third Century, 9 Cornell J.L. & Pub. Pol’y. 239,
250–51 (1999); Joseph Bauer, Government Enforcement Policy of Section 7 of the Clayton Act: Carte Blanche for
Conglomerate Mergers?, 71 Cal. L. Rev. 348, 350 (1983); William J. Kolasky, Deputy Assistant Attorney General, Antirust Division, U.S. Dep’t of Justice, Conglomerate Mergers and Rage Effects:
It’s a Long Way from Chicago to Brussels, George Mason University Symposium (Nov. 9, 2001),
available at www.usdoj.gov/atr/public/speeches/9536.pdf.
9.
Non-Horizontal Guidelines, supra note 1, at para. 15.
10.
Id. at para. 10.
11.
Id. at para. 16.
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between non-coordinated and coordinated effects.12 Non-coordinated effects principally arise when the merger gives rise to foreclosure. Coordinated effects consist
of increasing the likelihood of coordination between firms active in an oligopolistic
market or making an existing coordination easier, more stable or more effective.13
III. Market Share and Concentration Levels
The Guidelines point out that market shares and concentration levels can provide useful indications of the market power and competitive significance of the
merging firms and their competitors.14 Thus, according to the Guidelines, competitive concerns are unlikely when the post-merger market share of the merged entity
is below 30% in each of the markets concerned and the Herfindahl-Hirschman Index (HHI) is below 2000 points. The Commission will not extensively investigate
mergers that do not reach this threshold, unless at least one of the following factors is present: (a) the merger involves a company likely to expand significantly in
the near future, (b) there are significant cross-shareholdings or cross-directorships
among the market participants, (c) one of the merging firms is a firm with a high
likelihood of disrupting coordinated conduct, or (d) indications of past or ongoing coordination, or facilitating practices, are present.15
Although the market share and HHI thresholds serve the purpose of sorting
out cases in which competition problems generally are unlikely, in actuality these
thresholds have almost no practical significance. Even if the thresholds are met,
it does not establish prima facie illegality. The threshold has also been set quite
low especially as compared to the threshold contained in the Merger Regulation
itself. According to Recital 32 of the Merger Regulation, a merger is presumed
to be compatible with the common market if the market share of the undertakings concerned does not exceed 25%. Thus, the market share threshold in the
Guidelines only marginally exceeds the Merger Regulation’s safe harbor.16 The
Guidelines’ market share threshold is further qualified by the requirement that the
HHI in each market has to be below 2000 points. Accordingly, even if the merging parties’ market shares do not exceed 30% in each of the markets concerned,
the merger still may not be considered compatible with the common market. The
same result applies if the market shares of the merging firms are below the Merger
Regulation’s safe harbor of 25%. The Commission therefore seems to ignore that
Recital 32 of the Merger Regulation establishes an indication of the absence of
competition concerns. However, it is possible that the European Commission
intends to tighten its enforcement practice with regard to non-horizontal mergers.
12.
Id. at para. 17.
13.
Id. at para. 18.
14.
Id. at para. 24; yet, according to para. 25, such mergers will still be investigated if special circumstances are present.
15.
Id. at para. 25.
16.
Response by the International Bar Association on the Draft Guidelines, para. 85; response by
Freshfields Bruckhaus Deringer on the Draft Guidelines, para. 4.3; responses available at http://
ec.europa.eu/competition/mergers/legislation/non_horizontal_consultation.html.
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Regardless, the Commission’s position on this has to be rejected as it is in clear
violation of Recital 32 of the Merger Regulation.
IV. Vertical Mergers
A vertical merger is a merger between companies operating at different levels of
the supply chain. Addressing competitive concerns, the European Commission—
following its approach in the Horizontal Merger Guidelines—now distinguishes
between coordinated and non-coordinated effects.17 The latter can arise in foreclosure or when accessing commercially sensitive information.18 Coordinated effects
tend to arise if the merger changes the nature of competition in such a way as to
allow competitors to coordinate their behavior or if it makes an existing coordination easier, more stable or more effective.19 The adoption of the previously unused terms “coordinated effects” and “non-coordinated effects” for non-horizontal
mergers, rather than indicating a change in the Commission’s enforcement practice, harmonizes the analysis of horizontal and non-horizontal mergers.
For vertical mergers, the European Commission’s Non-Horizontal Guidelines
recognize the same theories of harm acknowledged in the United States by the
Federal Trade Commission (FTC) and the Department of Justice (DOJ). In several cases, U.S. antitrust authorities based their intervention in a merger on the
assumption that the merger in question might either allow the merged entity to:
(a) discriminate against its competitors (particularly by raising its rivals’ costs);20
(b) gain a competitive advantage over their competitors by gaining access to confidential information;21 or (c) increase the risk of market coordination.22
Like the FTC and DOJ, the European Commission has extended its definition
of vertical mergers beyond mergers involving customers and inputs to mergers
of companies making complements.23 This becomes significant if the customers
17.
Non-Horizontal Guidelines, supra note 1, at para. 3.
18.
Id. at paras. 29, 78.
19.
Id. at para. 19.
20. See United States v. Sprint Corp., No. 95-1304, 1995 WL 819147 (D.D.C. Aug. 24, 1995); TRW
Inc.,; Analysis to Aid Public Comment, 63 Fed. Reg. 1,866 (Jan. 12, 1998); Litton Industries;
Consent Agreement with Analysis to Aid Public Comment 61 Fed. Reg. 7,105 (Feb. 26, 1996);
Time Warner Inc., 5 Trade Reg. Rep. (CCH) ¶ 24,104 (Feb. 3, 1997); PacifiCorp., 5 Trade Reg.
Rep. (CCH) ¶ 24,384 (Feb. 18, 1998).
21.
See United States v. MCI Communications Corp., No. 94-1317, 1994 WL 605795 (D.D.C. Sept.
28, 1994); Martin Marietta Corp., 5 Trade Reg. Rep. (CCH) ¶ 23,577 (Jun. 22, 1994); Hughes
Danbury Optical Systems, Inc., 5 Trade Reg. Rep. (CCH) ¶ 23,976 (Apr. 30, 1996); TRW Inc., 63
Fed. Reg. 1,866 (Jan 12, 1998).
22. See In re Union Oil Company of California, FTC Docket No. 9305 (Jun. 10, 2005), available at www.
ftc.gov/os/adjpro/d9305/050610 statement9305.pdf.
23. See W. Blumenthal, Merger Analysis Under the U.S. Antitrust Laws, 987 PLI/Corp. 353, 393 (1997); Martin
Marietta Corp., 5 Trade Reg. Rep. (CCH) ¶ 23,2577 (Jun. 22, 1994); Cadence Design Systems, 5
Trade Reg. Rep. (CCH) ¶ 24,264 (Aug. 7, 1997); Case COMP/M.1601, Allied Signal/Honeywell,
¶ 101 (European Commission, decision of Dec. 1, 1999); Case COMP/M.2861 Siemens/Drägerwerk/JV, ¶¶ 149–50 (European Commission, decision of Apr. 30, 2003); Case COMP/M.3083,
GE/Instrumentarium, ¶¶ 312–13 (European Commission, decision of Sep. 2, 2003).
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want to combine the complements. If one of the merging parties has particular
power in the market for its product, the merger might lead to foreclosure effects
where knowledge of certain technical specifications is necessary to combine this
product with the other complementary products.24 The merger would thus make
it possible for the merging parties to withhold the technical specifications from its
competitors, making it impossible for them to design their products so that they
can actually be combined with the products in a market where one of the merging
parties has sufficient power.
In its Non-Horizontal Merger Guidelines, however, the European Commission
does not explicitly consider such a combination of complementary products to
be a vertical merger. Rather, the Guidelines define vertical mergers in accordance
with the conventional definition—as mergers between companies operating at different levels of the supply chain.25 It is not clear whether this is due to an oversight
or if it reflects the European Commission’s intent to deviate from previous decisions by treating such combinations as conglomerate mergers. Even if the latter is
true, competitive problems could nonetheless be dealt with as a form of technical
tying.26
1. Foreclosure
In practice, the primary anticompetitive effect of vertical mergers is foreclosure—a fact that the European Commission now acknowledges. The problem of
foreclosure arises if the actual or potential rival’s access to supplies or markets is
hampered or eliminated as a result of the merger, thereby eliminating their incentive and/or ability to compete.27 It is not necessary that the rival will be forced out
of the market as a consequence of the foreclosure, as long as it no longer constitutes any significant competitive constraint on the merging parties.
A significant impediment to effective competition only occurs if the merged
entity has the ability and incentive to substantially foreclose access to inputs or
customers and if a significant detrimental effect on competition results.28 These
requirements largely correspond to the Commission’s previous approach. Even
under the old Merger Regulation No. 4064/89, the Commission always examined
whether the merged entity would have the ability to engage in a foreclosure strategy and whether such a strategy would hurt competition.29 However, the Commission did not always investigate whether the merged entity would have the incentive to engage in foreclosure. In older decisions the Commission often did not
24. A very good example of this is Siemens/Drägerwerk/JV, supra note 23, ¶¶ 149–50.
25. Non-Horizontal Guidelines, supra note 1, at para. 4.
26. See infra p. 23.
27.
Non-Horizontal Guidelines, supra note 1, at para 29.
28. Id. at paras. 32, 59.
29. See Case IV/M.23, ICI/Tioxide, 17–18 (European Commission, decision of Nov. 28, 1990); Case
COMP/M.1915, The Post Office/TPG/SPP, 84 (European Commission, decision of Mar. 13,
2001); Case COMP/M.2876, Newscorp/Telepiù, 129 (European Commission, decision of Apr. 2,
2003).
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examine this issue at all.30 In more recent decisions the Commission consistently
addressed the incentive question, but in the majority of cases conducted only a
superficial appraisal of such an incentive.31
The Commission’s acknowledgement that an in-depth analysis of the incentives to adopt a foreclosure strategy must be conducted is to be welcomed.
With this, the Commission incorporated the Court of First Instance’s (CFI) specifications into the Guidelines. In its General Electric decision, the CFI clarified that
a merger can only cause competitive foreclosure concerns if there is a likelihood
of such a foreclosure strategy on the part of the merging firms. Therefore, the
CFI obliged the Commission to provide substantial evidence for the likelihood
of a foreclosure strategy.32 Accordingly, in recent decisions, the Commission has
conducted an in-depth analysis of the merging firms’ incentives to engage in a
foreclosure strategy.33
a. Input Foreclosure
Input foreclosure refers to restricting competitors’ access to the products or services supplied by the merged firm, thereby complicating the efforts of its downstream rivals to obtain the necessary input under similar prices or conditions and
thus raising competitors’ costs. However, such a strategy only causes competition
problems if it leads to higher prices or other consumer harm; it is not necessary
that the rivals are forced to exit the market. Instead, it is sufficient that competitors’ costs are being raised as a consequence of the merger.34 For example,
if a manufacturer of automobiles were to merge with a producer of tires that enjoys a huge degree of market power, the merged entity might find it profitable to
stop supplying other car manufacturers with tires or to only supply them at much
higher prices.
aa.
Ability to Foreclose Access to Inputs
Input foreclosure takes various forms, including refusals to deal with competitors in the downstream market and restricting supply. Refusals to deal might put
30. See Case IV/M.553, RTL/Veronica/Endemol, 101 (European Commission, decision of Sep. 20,
1995). This practice was even approved by the CFI, Case ECR II-1299, Endemol v. Commission,
167–170 (CFI 1999).
31.
See Case COMP/M.2803, Telia/Sonera, 81, 90 (European Commission, decision of Jul. 10, 2002);
Case COMP/M.3440, EDP/ENI/GDP, 414 (European Commission, decision of Dec. 9, 2004);
Case COMP/M.4314, Johnson & Johnson/Pfizer Consumer Healthcare, 131 (European Commission, decision of Dec. 11, 2006). An in-depth analysis of the incentive to foreclose was conducted
in Case COMP/M.3686, Honeywell/Novar, 54 (European Commission, decision of Mar. 20,
205); Case COMP/M/3696, E.ON/MOL, 429 (European Commission, decision of Dec. 21,
2005).
32. Case T-210/01, General Electric v Commission, 2005 E.C.R. II-5575.
33.
See Case COMP/M.4403, Thales/Finmecanica/Alcatel Alenia Space & Telespazio, 263 (European Commission, decision of Apr. 4, 2007).
34. Non-Horizontal Guidelines, supra note 1, at paras. 29–31.
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the downstream competitors at a competitive disadvantage where the inputs are
not available from other sources, are only available at higher prices or are of lower
quality than the inputs produced by the merged entity. Similarly, supply restrictions may raise the prices charged or reduce the quality of the inputs supplied.35
In short, the Commission seems to regard any form of discrimination in supplying input to be a foreclosure. This corresponds to the Commission’s previous enforcement practice. For example, in the cases Bertelsmann/Kirch/Premiere and
Tetra Laval/Sidel, the Commission not only expressed concern that the merged
firms would be able to raise prices, but also recognized that competition might be
harmed by other discriminatory practices.36
Foreclosure, however, only raises competition concerns when two criteria are
present. First, the input in question must be important to the development of a
downstream product.37 Although the Commission stresses the point in its discussion of the ability to foreclose, this point relates to the competitive effects of the
foreclosure in the downstream market. In any event, an input will be sufficiently
important if it represents a significant cost factor relative to the price of the downstream product.38
Second, the merged firm must have significant market power in the upstream
market.39 This requirement exists because otherwise, the potentially foreclosed
competitors would be in a position to switch to alternative suppliers.40 Thus, it is
necessary that the merged firm’s competitors on the upstream market not be in a
position to meet the demand of the foreclosed firms.41 This may occur where the
remaining upstream suppliers are less efficient or are not able to expand output
in response to a supply restriction.42 However, the decision of the merged firm
to procure the input primarily or exclusively from its upstream division must be
taken into account because it frees up capacity on the part of the remaining input suppliers from which the downstream division purchased before. Therefore,
the result of the merger may only be the realignment of purchase patterns.43 The
merging firm’s upstream competitors may thus be in a position to supply their
inputs from other suppliers.
35.
Id. at para. 33.
36. See Case IV/M.933, Bertelsmann/Kirch/Premiere, 58–59 (European Commission, decision of
May 27, 1998); Case COMP/M.2416, Tetra Laval/Sidel, 311 (European Commission, decision of
Oct. 30, 2001).
37.
Non-Horizontal Guidelines, supra note 1, at para. 34.
38. Case IV/M.23, ICI/Tioxide, 18 (European Commission, decision Nov. 28, 1990); Case
COMP/M.2738, GEES/Unison, 20 (European Commission, decision of Apr. 17, 2002); Case
COMP/M.3680, Alcatel/Finmeccanica/Alcatel Alenia Space & Telespazio, 102 (European Commission, decision of Apr. 28, 2005).
39. Non-Horizontal Guidelines, supra note 1, at para. 35.
40. Alistair Lindsay, The EC Merger Regulation: Substantive Issues, 11-018 (2d ed. 2006).
41.
See Case COMP/M.3136, GE/Agfa NDT, 45 (European Commission, decision of Dec. 5, 2003).
42. Non-Horizontal Guidelines, supra note 1, at para. 36
43. Id. 37.
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By emphasizing this point, the Commission has embraced one of the main
views of the Chicago School, which generally considers vertical mergers to have
minor to no competition problems.44
In addition, the competitors’ ability to employ effective and timely counterstrategies, such as changing their production process so that they are less reliant on
a particular input or by sponsoring the entry of new suppliers, must be taken into
account.45 After all, such counter-strategies might neutralize or lessen the negative
impact of a foreclosure strategy on the competitors.
bb. Incentive to Foreclose Access to Inputs
The incentive of the merged firm to engage in foreclosure depends on the profitability of such a strategy. Accordingly, a trade-off between the profits gained by
raising the prices for consumers on the downstream market and the losses in the
upstream market due to a reduction of input sales must be considered.46 This
analysis depends on several factors, including the margins in a market, the ability of the merged firm to capture demand previously controlled by rivals, and the
relationship between market share and sales.
The margins on the upstream and on the downstream market are two of the
most important factors.47 The lower the margins on the upstream market, the
lower the losses from restricting input sales. Conversely, in case of high margins
on the downstream market, a high profit can be gained by increasing the downstream market share. The margins in a market depend on the level of competition
in that market and are generally quite high in case of a non-competitive market.48
Another critical concern is the extent to which the merged firm can capture the
demand diverted away from foreclosed rivals. This depends on the interchangeability of the merged entity’s products and those of its foreclosed rivals.49 The
higher the degree of interchangeability, the less capacity constrained the merged
entity will be relative to non-foreclosed downstream rivals. Additionally it is necessary that the merged firm has enough spare capacity to satisfy the demand diverted away from its competitors.
The Guidelines also emphasize that the greater the market shares of the merged
entity downstream, the greater the base of sales on which to enjoy increased margins.50 The greater the base of sales on which to enjoy increased margins, the more
the merged entity can be expected to benefit from higher price levels downstream
as a result of a foreclosure strategy.
44. See Robert H. Bork, The Antitrust Paradox, 232 (1978).
45. Non-Horizontal Guidelines, supra note 1, at para. 39.
46. Id. at para. 40.
47.
Id. at para. 41.
48. E.ON/MOL, supra note 31, at 432.
49. Non-Horizontal Guidelines, supra note 1, at para. 42; E.ON/MOL, supra note 31, at 429.
50. Non-Horizontal Guidelines, supra note 1, at para. 43.
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Furthermore, the ratio between the production of the merged entity on the upstream market and its consumption on the downstream market must also be considered. If the merged entity can only use a small part of its production on the upstream market internally, it is rather unlikely that it would be profitable to foreclose
competitors.51 In this context, the Commission now emphasizes that an upstream
monopolist able to extract all available profits in both markets has no incentive to
foreclose rivals after a merger.52 The Commission has thus once again addressed
one of the Chicago School’s main concerns against assuming competitive problems in the case of vertical mergers: a monopoly profit cannot be increased simply
by integrating into a second market level.53
Past market strategies and internal strategic documents reveal the incentives
behind a foreclosure strategy.54 The Guidelines, however, do not mention what
weight should be attached to economic studies despite the emphasis placed on the
probative values of such studies in the CFI’s General Electric decision.55 This omission is notable in light of the Commission’s pursuit of a “more economic approach”
to antitrust law. It remains to be seen whether this is just a mistake or whether it
indicates a critical attitude by the Commission towards economic studies.
The Commission not only examines the incentives to adopt a foreclosure strategy, but also the factors likely to reduce such incentives. Accordingly, the Commission will consider the likelihood that such conduct would violate Community law
and that the illegal conduct could be detected.56 The CFI announced the requirement to consider the deterrent effects of competition rules for conglomerate mergers in Tetral Laval.57 General Electric extended this requirement to vertical mergers.58
Yet, as the CFI points out, the Commission need not undertake a specific and
detailed investigation into the deterrent effects of European as well as of national
competition laws. Rather, a summary analysis of the lawfulness of the conduct in
question and of the likelihood that it will be punished is sufficient in order to assess
whether there is a possible deterrent effect.59 Although the question whether the
CFI’s General Electric decision is consistent with the ruling of the European Court
of Justice (ECJ) in the Tetra Laval case remains unresolved,60 the Commission none51.
Case COMP/M.3081, Michelin/Viborg, 28 (European Commission, decision of Mar. 7, 2003);
Case COMP/M.3943, Saint-Gobain/BPB, 78 (European Commission, decision of Nov. 9, 2005).
52. Non-Horizontal Guidelines, supra note 1, at para. 44. In contrast, the Draft Guidelines did not yet
include a corresponding paragraph.
53.
See Phillip E. Areeda, Herbert Hovenkamp & John L. Solow, Antitrust Law, 150 (2d ed.
2006); Richard A. Posner, Antitrust Law, 224–25 (2d ed. 2001).
54. Non-Horizontal Guidelines, supra note 1, at para. 45; see also General Electric v. Commission, supra
note 32, at 333, 439, 466.
55.
General Electric v. Commission, supra note 32, at 296–97.
56. Non-Horizontal Guidelines, supra note 1, at para. 46.
57.
Case T-5/02, Tetra Laval v. Commission, 2002 ECR II-4381, 159.
58. General Electric v. Commission, supra note 32, at 73.
59. Id. at 74–75..
60. See also David Howarth, The Court of First Instance in GE/Honeywell, European Competition Law Re-
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theless chose to follow the CFI’s opinion. However, the disincentive argument
will probably have limited importance at best. The only regulation of European
competition law that could be violated by foreclosure strategies is Article 82 of the
European Convention. In the case of non-horizontal mergers, however, it will be
difficult to characterize a foreclosure strategy as a clear-cut violation of Article 82.61
Furthermore, detection of such illegal conduct will almost certainly be unlikely.
cc. Impact on Competition
In order to constitute a violation of the Guidelines, the merger must ultimately
harm consumers in the downstream market.62 Such harm may be caused by increasing the costs of downstream rivals—leading to an upward pressure on their
sales prices—or by raising the barriers to entry, thus eliminating the competitive
pressure exerted by potential competitors.63 Raising the rivals’ costs, however,
can only harm consumers if the foreclosed competitors play a significant role in
the competitive process on the downstream market. In particular, this occurs if
the rivals have high market shares, if they are close competitors of the merged firm
or if they are particularly aggressive competitors.64 Raising the barriers to entry,
on the other hand, can deter potential competitors from entering the downstream
market by making it necessary to enter at both the downstream and the upstream
level in order to compete effectively.65 That notwithstanding, it is highly unlikely
that prices will rise after the merger if there are enough competitors constraining
the merged firm.66
In contrast to the Draft Guidelines, the Final Guidelines no longer explicitly
mention a reduction of the rivals’ revenue resulting from input foreclosure as a significant impediment to effective competition. As the Draft Guidelines explained,
in such a situation customers may not be harmed directly, but harm to customers
could arise in the future because reduced revenues limit a rival’s ability to invest.67
It is not clear if the Commission has deleted this section of the Draft Guidelines
because it deems such long-term effects to be unproblematic. However, the Commission still recognizes the reduction of rivals’ revenues as a potential competiview 485, 492 (2006); Götz Drauz, Conglomerate and vertical mergers in the light of the Tetra Judgement,
Competition Policy Newsletter No. 2/2005, 35, 38; Luca Prete & Alessandro Nucara, Standard
of Proof and Scope of Judicial Review in EC Merger Cases, European Competition Law Review 692, 702
(2005).
61.
Response of Mayer, Brown, Rowe & Maw LLP on the Draft Guidelines, 3; Götz Drauz and
Michael König, The GE/Honeywell judgement: Conglomerate mergers and beyond, ZWeR Journal of Competition Law 107, 123 (June 2006).
62. Non-Horizontal Guidelines, supra note 1, at para. 47.
63. Id. at paras. 48–49.
64. Id. at para. 48.
65. Id. at para. 49; see also Case IV/M.993, Bertelsmann/Kirch/Premiere, 34, 48, 53 and 66 (European
Commission, decision of May 27, 1998).
66. Non-Horizontal Guidelines, supra note 1, at para. 50.
67.
Draft Non-Horizontal Guidelines, 46 n.39.
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tive threat of customer foreclosure.68 However, as the Commission still recognizes
such long-term effects in the Guidelines section on customer foreclosure, it is possible that the omission of these long-term effects in the section on input foreclosure
was just a drafting error.
The Commission will also take into account the existence of substantial buyer
power, the possibility of an entry upstream and the potential of the merger to
cause substantial efficiencies.69 For example, the merged entity might not be able
to significantly impede effective competition if its customers wield substantial
countervailing buying power. Such power can result from the customer’s size,
commercial significance or ability to switch to alternative suppliers, and its effect
is to prevent the merged entity from raising prices in the downstream market. The
same would be true if a price increase by the merged entity on the downstream
market would result in the upstream market entry of potential competitors. In this
regard, the Non-Horizontal Guidelines refer to the corresponding sections of the
Horizontal Merger Guidelines.70
b. Customer Foreclosure
Customer foreclosure consists of foreclosing the access of actual or potential
rivals in the upstream market to a sufficient customer base, thereby reducing their
ability and incentive to compete. This foreclosure, in turn, raises the cost to downstream rivals by making it harder for them to obtain input supplies under similar
prices and conditions as the merged entity, thereby allowing the merged firm to
raise prices in the downstream market. However, for such consumer harm to occur, it is not necessary that competitors be forced to exit the market – it is sufficient
that consumers face higher prices as a result of the rising costs.71
However, customer foreclosure has not yet played a decisive role in the Commission’s enforcement practice. It appears that the Commission last came to the
conclusion that the likelihood of a customer foreclosure would cause competitive
problems in a decision dating back to 1998.72 Since then, customer foreclosure
seems to have had no significance whatsoever in the Commission’s assessment of
competition problems. Therefore it is surprising that the Commission devotes
more than four pages in its Guidelines to this theory. It is not yet clear whether
this actually marks a change in Commission policy.
aa. Ability to Foreclose Access to Downstream Markets
The Commission recognizes two types of customer foreclosure. The merged
firm may decide to stop purchasing from its competitors, it may reduce its purchas68. Non-Horizontal Guidelines, supra note 1, at para. 73.
69. Id., at paras. 51–52.
70. Horizontal Guidelines, 64–67, 68–75 and 76–88.
71.
Non-Horizontal Guidelines, supra note 1, at para. 58.
72.
See case IV/M.1157, Skanska/Scancem, 96 (European Commission, decision of Nov. 11, 1998).
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es or it may decide to purchase from its rivals on less favorable terms than existed
before the merger.73 All these strategies might foreclose the competitors’ access to a
sufficient customer base or might at least reduce the competitors’ revenues. However, customer foreclosure can only give rise to a competitive concern if the downstream division of the merged firm is an important customer with a significant
degree of market power. If upstream rivals have sufficient economic alternatives to
sell their products, any anti-competitive effects will be muted.74 However, even if
the customer foreclosure does not directly lead to higher prices for the customers,
foreclosure may also exist if the long-term ability of the competitors to compete is
reduced by negatively impacting their revenue streams.75
A foreclosure strategy must also lead to higher prices for the inputs supplied
by the upstream competitors. This will usually occur if the declining sales on the
downstream market lead to higher costs per unit.76 This will be the case when there
are significant economies of scale or scope in the input market or when demand is
characterized by network effects.77 In such a situation, customer foreclosure may
also deter potential entrants from entering the market.78
bb. Incentive to Foreclose Access to Downstream Markets
The incentive to foreclose access to downstream markets largely depends on the
profitability of such a strategy.79 Profitability, in turn, depends on the efficiency
of the merged firm’s upstream division as compared to the foreclosed suppliers,80
and the market share of the merged entity’s downstream division. This is also critically important because high market share is correlated with a larger sales base on
which to enjoy increased margins.81 The unlawfulness of foreclosure strategies, on
the other hand, can act as a disincentive to engage in customer foreclosure.82
cc. Impact on Competition
The foreclosure of upstream rivals may adversely impact both the competition in
the downstream market and consumers.83 Such harm to consumers can be caused
by either increasing the costs of downstream rivals or by raising barriers to the
73.
Non-Horizontal Guidelines, supra note 1, at para. 60.
74. Id. at para. 61.
75.
Id. at para. 65.
76. Id. at paras. 62–64.
77.
Id. at para. 62.
78. Id. at para. 64.
79. Id. at para. 68.
80. Id. at para. 69.
81.
Id. at para. 70.
82. Id. at para. 71.
83. Id. at para. 72.
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entry of other competitors.84 The former tends to push sales prices higher, while
the latter eliminates pressure from competitors. Market power plays an important
role in this analysis because consumers will only be harmed as a consequence of
raising rival’s cost if a high percentage of upstream output is affected by customer
foreclosure. Additionally, the probability of harm to consumers diminishes where
there is countervailing buyer power, because such power can maintain effective
competition either in the upstream or in the downstream market or if the merger
causes efficiencies counteracting the adverse effects it otherwise would have.85
2. Gaining Access to Commercially Sensitive Information
Vertical mergers also threaten competition when the merged firm gains access
to commercially sensitive information regarding the activities of its upstream or
downstream rivals. For example, a firm active in the downstream market may
obtain critical information about its competitors by merging with a supplier of
its rivals. This may either enable the downstream division of the merged firm to
compete less aggressively or it may put competitors on the downstream market at
a competitive disadvantage.86 For example, gaining knowledge about the price
structure of its downstream competitors might enable the downstream division of
the merged entity to price less aggressively.
Even though it has become more and more important in the Commission’s enforcement practice over the last years, the Guidelines only devote three sentences
to this theory,.87 In comparison to the section on customer foreclosure which since
1998 has had no practical importance, the Guidelines’ lack of focus on this topic
is remarkable. Additionally, the Guidelines do not indicate the different circumstances or requirements that have to be met in order to assume that competition
problems are being caused by an access to commercially sensitive information.
It is clear, however, that the information to which the merged entity gains access
has to be of competitive relevance,88 such as information about pricing, customers, technology, product design, etc. The Commission considers gaining access
to information about the cost structure of competitors as particularly alarming.89
Nonetheless competition concerns generally do not arise if it is ensured—for example, by erecting “Chinese Walls” within the company—that the confidential information will not be shared within the merged entity.90 Yet many questions still
remain unsolved.
84. Id. at paras. 74–75.
85. Id. at paras. 76–77.
86. Id. at para. 78.
87.
For example, this theory played a prominent role in the following decisions: Case COMP/M.1879,
Boeing/Hughes, 82 (European Commission, decision of Sep. 29, 2000); EDP/ENI/GDP, supra
note 31, 368; Johnson & Johnson/Pfizer Consumer Healthcare, supra note 31, 125.
88. Case COMP/M.2510, Cendant/Galileo, 37 (European Commission, decision of Sep. 24, 2001).
89. EDP/ENI/GDP, supra note 31, 368; Johnson & Johnson/Pfizer Consumer Healthcare, supra note
31, 133 (European Commission, decision of 11.12.2006).
90. Case COMP/M.3101, Accor/Hilton/SixContinents/JV, 27 (European Commission, decision of
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3. Coordinated Effects
Vertical mergers may also lead to coordinated effects, i.e., increasing the likelihood of coordination between firms active on an oligopolistic market or making
existing coordination easier or more effective.91 Although this factor has played
only a limited role in the Commission’s enforcement practice—no vertical merger
has ever been blocked out of such a concern92—these effects may severely restrict
competition. For example, a vertical merger may make it easier to reach a common
understanding on the terms of coordination especially by reducing the number
of effective competitors and increasing the degree of symmetry between the firms
with respect to market share, financial means, etc.93 Furthermore, market transparency may be increased, thus making it easier to monitor deviations.94 The merged
firm may also be able to punish oligopolists deviating from the terms of coordination much more effectively.95 Finally, the competitive pressure exerted by outsiders
may be eliminated due to the merger.96
V. Conglomerate Mergers
A conglomerate merger is a merger between firms that neither compete in the
same market nor operate at different levels of the supply chain.97 In the Commission’s opinion such a merger may lead to coordinated as well as non-coordinated
effects in the form of foreclosure.98 As such, these theories of harm—which the U.S.
federal antitrust authorities have abandoned since the early 1980s99—continue to
play an important role in the European Union competition law.
May 16, 2003); Thales/Finmecanica/Alcatel Alenia Space & Telespazio, supra note 33, 443–44.
91.
Non-Horizontal Guidelines, supra note 1, at para. 79.
92. Response of the American Bar Association on the Draft Guidelines, p. 17.
93. Non-Horizontal Guidelines, supra note 1, at paras. 82–85.
94. Id. at paras. 86–87.
95. Id. at para. 88.
96. Id. at paras. 89–90.
97.
Id. at para. 91.
98. Id. at paras. 93, 119. Note that in contrast to the United States, the European Commission no
longer considers the combination of potential competitors to be a conglomerate merger. ���
Instead, the European Commission classifies these mergers as horizontal mergers. Compare 1984
Merger Guidelines, § 4.1 with Horizontal Guidelines, 58–60. One justification for this different
classification is that anticompetitive effects are much more likely to occur in mergers between
potential competitors than in classical conglomerate mergers. There are many cases in which
anticompetitive effects due to the removal of a potential competitor were assumed, see e.g., case
COMP/M.1630, Air Liquide/BOC, 201 (European Commission, decision of Jan. 18, 2000); Case
COMP/M.1853, EDF/EnBW, 51–68 (European Commission, decision of Feb. 7, 2001); Case
COMP/M.2530, Südzucker/Saint Louis Sucre, 80 (European Commission, decision of Dec. 20,
2001); EDF/ENI/GDP, supra note 31, 335; Case COMP/M.3796, Omya/Huber PCC, 440 (European Commission, decision of Nov. 19, 2006).
99. Bauer, Government Enforcement Policy of Section 7 of the Clayton Act: Carte Blanche for Conglomerate Mergers?, 71
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1. Foreclosure
Foreclosure concerns only arise in case of mergers between companies active
in closely related markets. In such markets, the combination of the products of
the merging firms may incentivize and allow the merged firm to leverage a strong
market position in one market to a strong position in another by means of tying,
bundling or other exclusionary practices which may ultimately allow the merged
entity to profitably increase its prices.100 Thus, such means may make it possible to
expand a strong market position from one market to another market.
The Commission recognizes, however, that tying and bundling are quite common practices which in general do not lead to anticompetitive effects. Accordingly, in its Guidelines, the Commission stresses the fact that a broad range or
portfolio of products does not necessarily raise competition concerns.101 Nevertheless, tying and bundling practices can reduce the rivals’ ability and/or incentive to
compete in a market, thus reducing the competitive pressure on the merged firm
and allowing it to increase prices.102 Yet, such anticompetitive effects are only likely if the merged firm would 1) have the ability and economic incentive to foreclose
its rivals; and 2) if such a foreclosure strategy would have a significant detrimental
effect on competition, thereby causing harm to consumers.103
a. Bundling or Tying Practices
A foreclosure of competitors may first and foremost arise out of bundling or tying practices by the merged firm.104 Even under the older Merger Regulation No.
4064/89, the European Commission based several prohibition decisions on the
likelihood of bundling or tying practices following the merger.105
aa. Ability to Foreclose
After the merger, the merged company may be in a position to foreclose its
competitors in one market by conditioning sales in a second market in which the
Cal. L. Rev. 348, 350 (1983); Kolasky, supra note 8. The U.S. courts on the other hand have not yet
explicitly abandoned these theories of harm. See FTC v. Consolidated Foods Corp., 380 U.S. 592,
595, 600 (1965); FTC v. Procter&Gamble Co., 386 U.S. 568, 578–79 (1967); U.S. v. Ingersoll-Rand
Co., 320 F.2d 509, 521 (3d Cir. 1963); Southern Concrete Co. v. U.S. Steel Corp., 535 F.2d 313, 317
(5th Cir. 1976); FTC v. Atlantic Richfield Co., 549 F.2d 289, 298 n.12 (4th Cir. 1977); U.S. v. IT&T,
324 F. Supp. 19, 42 (D.Conn. 1970); Crouse-Hinds Co. v. Internorth, Inc., 518 F. Supp. 416, 442,
446 (N.D.N.Y. 1980).
100. Non-Horizontal Guidelines, supra note 1, at para. 93.
101. Id. at para. 104.
102. Id. at para. 93.
103. Id. at para. 94.
104. Id. at paras. 95–97.
105. Case COMP/M.2220, General Electric/Honeywell, 341, 412 (European Commission, decision of
Jul. 3, 2001); Tetra Laval/Sidel, supra note 36, 359.
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merged company has market power on the purchase of products from the first market.106 “Bundling” in this regard consists of offering separate products together.
In the case of “pure bundling,” these products are only sold together. In the case
of “mixed bundling,” the price of the bundle is below the sum of the stand-alone
prices of the products.107 In contrast, “tying” occurs if the customers that purchase
one product (the tying product) are required to also purchase another product
(the tied product) from the producer either because of the technical design of the
tying product or because of contractual obligations.108
The ability to engage in such bundling or tying practices requires a significant
degree of market power in at least one of the markets concerned. Thus, customers
must consider at least one of the merging parties’ products very important. Furthermore, the merged company will not be in a position to engage in tying or bundling practices if there are enough competitors left in the market to constitute a
sufficient alternative in the customers’ view.109 In addition, the products concerned
have to be bought by basically the same customers. Otherwise, there would be no
possibility of linking the sales of the products concerned.110
Tying or bundling thus becomes more likely where the customers tend to buy
all of the products concerned.111 As the Commission recognizes, the foreclosure
effects of tying and bundling are likely to be more pronounced in industries where
there are economies of scale and the demand pattern has dynamic implications for
the conditions of supply in the market in the future.112 However, the Guidelines
also emphasize that bundling or tying practices are less likely if there are effective
and timely counter-strategies that the rival firms may deploy, such as combining
their offers in order to make them more attractive or pricing more aggressively to
maintain market shares.113
bb. Incentive to Foreclose
The incentive to foreclose depends on the degree to which a foreclosure strategy
would be profitable.114 Thus, the possible gains from expanding market share must
be compared to the possible losses that result from customers not purchasing the
product bundle.115 For the necessary trade-off between possible gains and losses,
the turnover and margins on the markets concerned are of critical importance. It
106. Non-Horizontal Guidelines, supra note 1, at para. 95.
107. Id. at para. 96.
108. Id. at para. 97.
109. Id. at para. 99.
110. Id. at paras. 98, 100.
111. Id. at para. 100; see also Case COMP/M.3732, Procter&Gamble/Gillette, 117 (European Commission, decision of Jul. 15, 2005).
112. Non-Horizontal Guidelines, supra note 1, at para. 101.
113. Id. at para. 103.
114. Id. at para. 105.
115. Id. at para. 106.
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is very unlikely that a company would risk sales in a large and highly profitable
market to gain market share in a smaller, less profitable one.116
In assessing the incentives of the merged firm, the Guidelines now also provide—in line with the General Electric judgment of the CFI117—that the Commission
will take into account the types of strategies adopted in the market in the past
and the content of internal strategic documents.118 The incentives to engage in
a foreclosure strategy are well evidenced by economic studies. Accordingly, it is
notable that the Guidelines do not mention such economic studies even though
in its General Electric decision the CFI arguably saw such studies as the main source
of evidence to prove the likelihood of a foreclosure strategy.119 It is not yet clear if
the silence of the Guidelines on this point is just a mistake or whether it indicates
a critical attitude of the Commission towards economic studies.
Finally, the Commission will take into account the possibility that the conduct
in question is unlawful as a factor liable to reduce the incentives to engage in foreclosure.120
cc.
Impact on Price and Choice
Bundling or tying products may impair effective competition by reducing competitors’ sales in a particular market. The reduced sales may result in lower profitability and, in turn, lower incentive to compete aggressively. The ultimate result
may be that the merged entity acquires market power or maintains already existing
market power.121 Yet, in reaction to the criticism expressed following the General
Electric decision, particularly by U.S. scholars, the Commission now emphasizes
that the reduction in sales by competitors, on its own, is not in and of itself a problem.122 Additionally, such foreclosure practices may also decrease the competitiveness of a market by detering potential competitors from entering the market.123
Thus, competition concerns are unlikely to arise if effective competitors remain in
either market.124 Harm to consumers may also be unlikely if (1) there is countervailing buyer power; (2) it is likely that entry would maintain effective competition
in either market; or (3) the merger would cause substantial efficiencies counteracting the adverse effects of the merger.125
116. Id. at para. 107.
117. General Electric v Commission, supra note 32, 333, 466.
118. Non-Horizontal Guidelines, supra note 1, at para. 109.
119. General Electric v Commission, supra note 32, 296–97.
120. Non-Horizontal Guidelines, supra note 1, at para. 110. For more details see the above section on
vertical mergers.
121. Id. at para. 111.
122. Id.
123. Id. at paras. 101 and 112.
124. Id. at para. 113.
125. Id. at paras. 114–18.
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b. Other Exclusionary Practices
According to the Guidelines, foreclosure can also consist of exclusionary practices other than bundling and tying.126 In order to identify those other exclusionary practices, it is instructive to analyze the Commission’s previous enforcement
practice.
aa. Portfolio Theory
The so-called “portfolio theory” played a very important role in the Commission’s enforcement practice prior to the publication of the Guidelines. In 2001, the
portfolio theory became the European Commission’s main weapon against conglomerate mergers.127 However, since the beginning of 2002 the importance of this
theory has drastically decreased. Since then, there have been no cases in which the
Commission assumed competition concerns based on this theory.
The portfolio theory relies on the assumption that the market power derived
from a portfolio of brands exceeds the sum of its parts.128 As the European Commission explained in its Guinness/Grand Metropolitan decision, a company owning an
entire product portfolio has a much stronger position in relation to its customers
because it accounts for a much larger percentage of the customers’ turnover. The
company will be able to leverage its influence to disproportionately benefit individual products in its portfolio because such a company will be much more price
flexible and will be able to realize economies of scale and scope. It will also be
able to threaten, implicitly or explicitly, to withhold supply of a wide variety of
products and will therefore be able to have greater influence in a given market than
smaller competitors.129 The importance of these advantages and their potential effect on the competitive structure of the market depends on several factors, such as
whether the holder of the portfolio has a leading brand in a particular market, the
market shares of the various brands, and the relative importance of the individual
markets in which the merging parties have significant market shares and brands.130
In its enforcement practice the Commission identified three competition concerns arising out of such an increase in brands. First of all, a large product portfolio could enable the merged firm to realize economies of scale or scope.131 Second,
such a portfolio could also allow the customers to achieve significant cost sav126. Id. at para. 93.
127. See case COMP/M.1681, Akzo Nobel/Hoechst Roussel VET, 40–43 (European Commission,
decision of Nov. 22, 1999); Case COMP/M.2268, Pernod Ricard/Diageo/Seagram Spirits, 23
(European Commission, decision of May 8, 2001); Case COMP/M.2283, Schneider/Legrand,
549 (European Commission, decision of Oct. 10, 2001).
128. See Case IV/M.938, Guinness/Grand Metropolitan, para. 38 (European Commission, decision
of Oct. 15, 1997); see also Simon Baker & Derek Ridyard, Portfolio Power: A Rum Deal?, E.C.L.R. 181
(1999).
129. Guinness/Grand Metropolitan, supra note 128, 40.
130. Id. at para. 41.
131. Id. at para. 40.
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ings, thus leading them to purchase primarily from the merged firm.132 Third, a
large product portfolio may strengthen the merged firm’s position in relation to
its customers. In addition to these advantages, the merged firm may be also be
able to induce its customers to increase their purchases by using bundling or tying
practices or by threatening a refusal to supply.133
The Commission has not distinguished clearly between the anticompetitive effects of tying strategies and the portfolio theory.134 However, the bundling or tying
concept of the Guidelines does not necessarily include the threat of a refusal to
supply. Such a concern can thus be considered another exclusionary practice for
the purpose of the Guidelines. The first two competition concerns traditionally associated with the “portfolio theory” on the other hand can no longer alone justify
the prohibition of a merger. The Guidelines now explicitly emphasize that competition concerns are not created by the sole fact that rivals may be harmed due to
efficiencies brought about by a merger.135 Accordingly, the Guidelines also point
out that a broad range of products, as such, does not necessarily raise competition
concerns.136 Thus, the Guidelines require some kind of exclusionary behavior
on the part of the merged entity in order to assume an impediment of effective
competition due to foreclosure concerns. It is to be welcomed that the Commission has finally abandoned its view that a product portfolio and accompanying
efficiency gains necessarily have anticompetitive effects. Even if there do not seem
to be any cases in which the Commission based its competition concerns solely
on such a product portfolio, the Commission’s change in its approach to merger
control is of the utmost importance. Whereas in the past it was possible that the
Commission intended to protect competitors as well as consumers, it is now clear
that the European Commission’s only concern is the protection of consumers.
bb. Reciprocal dealing
Furthermore, a merger may give rise to reciprocal dealing, which enables the
merged firm to use its volume of purchases on one market to induce its supplier
to buy the merged firm’s products on another market. This theory was applied by
the European Commission in the case Skanska/Scancem.137 In this case, which concerned the merger of the largest Swedish construction company with a producer of
cement, the Commission concluded that the merged entity would be able to exert
pressure on concrete producers to continue buying cement from it by threatening
132. See Case IV/M.053, Aerospatiale-Alenia/de Havilland, 32–33 (European Commission, decision of
Oct. 2, 1991); Case IV/M.877, Boeing/McDonnell Douglas, 41–42 (European Commission, decision of Jul. 30, 1997).
133. See Guinness/Grand Metropolitan, supra note 128, 40; case IV/M/784, Coca-Cola/Amalgamated
Beverages GB, 208 (European Commission, decision of Jan. 22, 1997).
134. See Procter&Gamble/Gillette, supra note 111, 115.
135. Non-Horizontal Guidelines, supra note 1, at para. 16.
136. Id. at para. 104.
137.
See Skanska/Scancem, supra note 72, 98–99. see also General Electric/Honeywell, supra note 105,
12145, 341, 455.
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not to purchase concrete from them in the future. There is no reason why this concept of “reciprocity” should not be considered another exclusionary practice for
the purpose of the Guidelines. Thus, the Commission could still use this theory
to prohibit a merger. Yet, in contrast to several decisions in U.S. courts,138 that
customers themselves would voluntarily and without any pressure buy only from
the merged entity is not sufficient evidence of an exclusionary practice. Rather, it
is necessary that the merged company itself would force its customer into buying
exclusively from it. After all, as has already been explained, the Commission’s
Guidelines require some kind of exclusionary behavior on the part of the merged
entity. Thus, it would be necessary that the merged firm have the possibility as
well as the incentive to engage in such a strategy. Furthermore, such a strategy also
would have to lead to increased prices or other negative effects for the consumers. However, since the concept of “reciprocity” has only been used twice in the
Commission’s enforcement practice, it is questionable whether the Commission
actually intends to hold on to this theory.
cc. Deep pocket theory
In the past the Commission has occasionally assumed that a conglomerate
merger would lead to competition problems simply because one of the merging
parties would gain access to the huge financial resources of the other merging
party.139 The European Commission has, at times, used turnover alone to measure
a company’s financial resources.140 However, as the Commission now seems to
recognize, cash-flow is a much better indicator of financial strength.141 The deep
pocket theory requires that the merger result in an increase in financial resources.
A merger thus causes no competition problems if the acquired company already
had access to comparable resources prior to the merger.
Furthermore, it is necessary that financial resources are of competitive importance for the market in question. To use a well known example from U.S. merger
control, a huge advertising budget, for example, has no significance whatsoever if
advertising does not play any role in the market.142 Finally, an increase in financial
resources does not cause any competition problems by itself if the competitors of
the merged entity have access to comparable resources.143
138. FTC v. Consolidated Foods Corp., 380 U.S. 592, 595, 600 (1965); Gulf & W. Indus. v. Great Atl.
& Pac. Tea Co., 476 F.2d 687, 694 (2d. Cir. 1973); Allis-Chalmers Mfg. Co. v. White Consolidated
Industries, Inc., 414 F.2d 506, 518–19 (3d. Cir. 1969).
139. See Case COMP/M.1630, Air Liquide/BOC, 190, 195 (European Commission, decision of Jan.
18, 2000); Case IV/M.1578, Sanitec/Sphinx, 248 (European Commission, decision of Dec. 1,
1999).
140. Case IV/M.1221, Rewe/Meinl, 53 (European Commission, decision of Feb. 3, 1999).
141. Boeing/McDonnell Douglas, supra note 132, 78; General Electric/Honeywell, supra note 105, 345;
Case COMP/M.2978, Lagardère/Natexis/VUP, 461 (European Commission, decision of Jan. 7,
2004).
142. U.S. v. Black & Decker Mfg. Co., 430 F. Supp. 729, 774–76 (D.Md. 1976).
143. Lagardère/Natexis/VUP, supra note 141, 461.
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The Guidelines, however, no longer acknowledge this “deep pocket theory”.
After all, the huge financial resources as such are not an exclusionary practice, as a
“practice” implies the need for some affirmative behavior on the part of the merging firms. The Commission thus seems to have finally abandoned a very controversial theory of competitive harm.
2. Coordinated Effects
Finally, a conglomerate merger may also increase the likelihood of coordination
between firms active on an oligopolistic market or may make existing coordination
easier, more stable or more effective. This would be accomplished by reducing the
number of effective competitors, thereby enabling the merged firm to foreclose
rivals, and leading to multi-market-contacts.144
VI. Conclusion
In conclusion, the Commission’s Non-Horizontal Guidelines are disappointing. Even though they have to be commended for summarizing the Commission’s
approach to foreclosure concerns in case of vertical and conglomerate mergers,
they largely correspond to the Commission’s already well-known enforcement
practice and thus do not bring about many changes. In particular, the market
share and HHI threshold does not seem to have any practical consequences. Furthermore, the focus of the Guidelines is questionable as they only devote a rather
short passage to the practically important aspect of gaining access to commercially
sensitive information, while at the same time devoting a large section to customer
foreclosure which, up to now, has not played a prominent role in many decisions.
However, it is to be welcomed that the Guidelines now recognize that the realization of efficiencies as a result of the merger or the fact that the merged firm would
have large financial resources do not, in and of themselves, lead to competition
concerns.
There are still some differences between the European and the American approach to non-horizontal mergers, especially in the area of conglomerate mergers. However, these differences no longer result from an intention on the part of
the European Commission to primarily protect competitors. In this spirit it has
been claimed quite often by U.S. scholars and even officials of the U.S. antitrust
authorities that European merger control protects competitors whereas the U.S.
antitrust authorities protect competition itself.145 It is not necessary to analyze
here whether this claim was justified in the past, even though it appears that such
a view was over-simplistic. The European Commission has made it clear in its new
Non-Horizontal Merger Guidelines that the enhancement of the customer welfare
is the primary objective of European merger control. Accordingly, the remaining
144. Non-Horizontal Guidelines, supra note 1, at paras. 120–21; see also Case COMP/M.4141, Linde/
BOC, 146 (European Commission, decision of Jun. 6, 2006); Ioannis Kokkoris, The Development of
the Concept of Collective Dominance in the ECMR, 30 World Competition 419, 432 (2007).
145. See e.g., Kolaksy, supra note 8.
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differences between both legal systems now result from varying opinions on how
to best protect and promote such consumer welfare.146
146. See also Leary, Commissioner, U.S. Federal Trade Commission, A Comment on Merger Enforcement in the United States and in the European Union, Transatlantic Business Dialogue
Principles Meeting, available at www.ftc.gov/speeches/leary/tabd010111.htm; Götz Drauz, Unbundling GE/Honeywell: The Assessment of Conglomerate Mergers under EC Competition Law, 25 Fordham Int’l.
L.J. 885, 904 (2002).
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