Concurrences
Revue des dRoits de la concuRRence | Competition Law JournaL
Substantive convergence
in merger control:
An assessment
Law & Economics
l Concurrences N° 1-2015 l pp. 21-41
Frédéric Jenny
[email protected]
Professor of economics, ESSEC Business School, Paris
Co-director, European Center for Law and Economics (CEDE), ESSEC, Paris
Chairman of the OECD Competition Committee
Law & Economics
This article focuses on substantive
convergence in merger controls, a topic of
increasing importance and on which there is
no unanimity. Two questions are discussed:
First, how much substantive convergence has
taken place over the last two decades?
Second, how much more convergence is
possible ? Based on work done in the context
of the OECD and the ICN and on a detailed
study of competition laws and merger control
practices in various countries including China,
South Africa and Brazil, this article shows that
there has been a tendency towards
convergence on merger control during the last
two decades but that the level of convergence
is uneven and very much depends on which
substantive issue one focuses. It suggests
that complete convergence is neither realistic
nor economically justified. It argues that the
remaining substantive differences between
merger control regimes are often due either to
differences in the economic characteristics of
countries or to the presence of public interest
clauses in merger control laws of some
countries. It suggests a way to decrease the
importance of public interest considerations
in merger control laws to promote further
convergence.
Cet article examine la convergence sur la
substance des régimes nationaux de contrôle
de la concentration, sujet qui a donné lieu à de
nombreuses controverses. L’analyse vise à
répondre à deux questions : en premier lieu,
dans quelle mesure les régimes de contrôle
de la concentration ont-ils convergés au cours
des deux dernières décennies ; en second
lieu, de nouveaux progrès dans la
convergence sont-ils possibles? en se
fondant sur les travaux de l’oCDe et de l’iCN ,
d’une part, et sur une analyse détaillée du
droit de la concentration et de sa mise en
oeuvre dans un certain nombre de pays,
notamment la Chine, l’Afrique du sud et le
brésil, l’article montre que s’il y a eu un
mouvement général significatif de
convergence entre les régimes de contrôle de
la concentration dans les dernières décennies,
le degré de convergence atteint reste inégal
d’un sujet à l’autre. L’article suggère que la
convergence totale des règles substantielles
en matière de contrôle de la concentration
n’est ni atteignable ni économiquement
justifiée ; il soutient que les différences
substantielles qui demeurent entre pays sont
souvent explicables par les différences de
structure économique des pays considérés ou
par le fait que parfois les droits de la
concurrence ont des dispositions visant des
objectifs sociaux-économiques allant au-delà
de la défense du surplus du consommateur
ou de l’efficience. il suggère , enfin, une façon
de diminuer la tentation des gouvernements à
assigner au droit de la concentration de tels
objectifs.
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Substantive
convergence in
merger control:
An assessment
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
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ABSTRACT
Frédéric Jenny
[email protected]
Professor of economics, ESSEC Business School, Paris
Co-director, European Center for Law and Economics (CEDE), ESSEC, Paris
Chairman of the OECD Competition Committee
1. The question of how much convergence there is in competition law is controversial at best. David Gerber expresses the view that : “Given the relative weakness
of its impetus factors and the obstacles that convergence face there is little basis
for expecting extensive convergence to occur (at least in the near future) across
wide ranges and dimensions of competition law and on a global basis.” (D. Gerber,
Global Competition Law, Markets, and Globalization, Oxford University Press,
p. 289). However, according to a number of practitioners and legal specialists either this view does not apply to merger control or David Berger misapprehended
the amount of convergence going on. For example, Rachel Brandenburger and
Joseph Matelis have argued1 that there is a “generally convergent state of merger
policy around the world,” that the 2010 U.S. Horizontal Merger Guidelines are
“consistent with other merger guidelines,” and that the new Guidelines “contribute
to the developments in convergence.” Other authors have pointed out that convergence has not only taken place between the United States (“U.S.”) and the European Union (“EU”). As Gönenç Gürkaynak, Serdar Dalkı and Derya Durlu have
remarked (G. Gürkaynak, S. Dalkı and D. Durlu, Emerging Markets and U.S.
Horizontal Merger Guidelines: A Turkish Competition Law Perspective, Journal
of Competition Law & Economics, 0(0), pp. 1-30, doi:10.1093/joclec/nht037) :
“There are numerous examples of emerging market merger regimes adapting to
changes taking place in more developed jurisdictions, particularly the United States
and Europe.” Recent changes in the merger law of Brazil (2012 amendment), the
incorporation of certain elements that reflect the perspectives of U.S. and EU
laws in the Anti-Monopoly Law of China and the issuance in 2011 by MOFCOM
of Interim Provisions on Evaluation of Impact of Concentrations of Business Operators on Competition (which creates a merger review framework largely aligned
with internationally accepted theories and best practices) are cited as examples of
the generalized movement toward convergence of merger control.
2. Convergence of merger control laws is desirable in a world characterized by
the increasing internationalization of business and an ever increasing number of
multi-jurisdictional mergers for at least two reasons:
1 R. Brandenburger and J. Matelis, The 2010 U.S. Horizontal Merger Guidelines: A Historical and International
Perspective, Antitrust, Summer 2011.
Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment I
21
– Second, to lower the transaction costs that
merging firms which engage in transnational
mergers have to face, due to procedural differences in the national merger controls of the
often numerous countries where they have to
file, and due to inconsistencies in analysis or
in the merger remedies imposed by various
national competition authorities.
3. Promoting convergence among national merger
controls is all the more desirable that the number of
countries which have merger control provisions in their
competition law has increased considerably over the
last two decades. Now more than 120 countries have a
competition law and many of them have merger control
provisions. Therefore, first, the number of jurisdictions
where parties to a transnational merger have to file has
increased considerably and some mergers are reviewed
by several dozen competition authorities. Second, in
a number of developing country merger filing fees are
an essential source of financing for the competition
authority. There is thus a risk that the competition
authority in those countries may want to assess international mergers even when the parties to those mergers
have little commercial presence or assets in the country.
Third, because a large number of competition authorities were recently created, they may lack the experience
or the understanding of more experienced competition
authorities and need to acquire, as fast as possible, the
best possible practices that have been developed in other
jurisdictions.
4. Different processes can lead to convergence:
– First, trade or economic negotiations between
nation states lead to a certain form of convergence, at least when trade agreements include
provisions calling for the establishment of a
legal apparatus covering the main areas of
intervention of antitrust authorities: anticompetitive agreements, abuses of market power
and (though less frequently) merger control.
An increasing number of trade agreements
or economic integration agreements include
competition provisions as competition on
domestic markets is seen as one of the guarantees that trade concessions will not be
replaced by private barriers to trade. The
EU is, of course, the leading example of an
economic integration agreement which led to
the convergence of national competition laws
of the Member States. But the EU is also a
leading example of a set of countries which
has used trade negotiations, notably with
22
Eastern European countries or countries in the
MENA region, to push countries which were
not Member States but wanted to trade with
the Member States to adopt competition laws
consistent with the principles of European
competition law. Another example, in the
developing world, of an economic agreement
pushing toward convergence with respect to
competition law and policy is the ASEAN. In
the ASEAN Economic Community Blueprint,
the Member States of the ASEAN have
committed to introduce national competition
policy and law by 2015, thus making them more
homogenous since to-date only Indonesia,
Malaysia, Singapore, Vietnam and Thailand
have a competition law.
– Second, soft convergence can come from
exchanges of experiences and consensus
among competition authorities on what are
the best practices in competition law enforcement. Competition authorities meet in a
large number of plurilateral, multilateral or
regional fora (such as the OECD Competition
Committee, the International Competition
Network, UNCTAD or, at the regional levels,
the African Competition Forum, the OECD
Ibero-American Forum, etc.) and undertake
to exchange their experiences, analyze why
and how they are different and promote best
practices. National competition authorities are
often keen to adopt those international best
practices both because conforming to them
makes competition law enforcement more
acceptable domestically and because of the
value that each competition authority attaches
to having the respect of other competition
authorities. Peer reviews conducted in the
OECD and UNCTAD have become important
vehicles for domestic competition authorities
to benchmark their enforcement system and
their practices, and they are widely used to
promote domestic changes in conformity with
international best practices.
– Third, the passage of time and the fact that
competition authorities gain more experience
in itself promote convergence. It is noticeable that in the last fifteen years, while about
sixty new countries which previously had no
competition law have adopted one, an equal
number of countries which already had a
competition law amended it and improved it,
sometimes more than once during the period.
Competition authorities, like other organizations, go through a learning curve of what
works and what does not work and integrate
what they have learned in the past in a pragmatic adaptive process. A good example of
this is provided by COMESA, which adopted
a merger control system that came into being
in 2013 with extremely high fees, very low
filing thresholds and the absence of a “nexus”
requirement. As a result, it is sufficient that
I Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
– First, to avoid the political conflicts arising
when national competition authorities having
overlapping jurisdictions come to different
conclusions about the same merger due to
divergences in their substantive and/or procedural rules as happened in a number of high
profile cases between the U.S. and the EU in
the 1990s.
one party to a merger has even minimal turnover or assets or presence in two or more of
the COMESA countries for the merger to
be notifiable to the COMESA Competition
Commission. One of the consequences of this
extreme merger control system is that most
merging firms which had a low presence in
the COMESA region did not bother to notify
their mergers to the COMESA Competition
Commission because the filing fee would have
been disproportionate to their turnover in the
region. At the same time, some mergers were
notified which could not raise a competition
issue given the limited presence of the merging
parties in the region, creating tension between
the business community and the COMESA
Competition Commission. As result, the
COMESA Competition Commission devised
ways to alleviate the problem, first through
the use of informal exemptions from filing
and second through a proposal to amend
the COMESA merger control system by
introducing reasonable thresholds and nexus
requirements for the filing of mergers. In so
doing, the COMESA Commission is trying to
solve a dysfunction of its system, which will
make it, once the amendment to the legislation
is adopted, more consistent with best international practices.
– Second, convergence of merger control laws is a
necessary condition to ensure that competition
authorities of different countries interpret the
same facts the same way. But it is not a sufficient
condition. Thus, the convergence of merger
control regimes cannot guarantee that there will
be no conflicts or divergence of results. Indeed,
merger control rests on economic analysis and
economic analysis uses models and counterfactuals that are based on simplifying assumptions
and measurement techniques which are often
based on imperfect data. Hence, perfectly reasonable and competent competition authorities can
disagree on the interpretation of the same facts.
A very good example of this was given recently by
the controversy between the French Competition
Authority and the United Kingdom (“UK”)
Competition Commission, which both reviewed
the acquisition by the Eurotunnel Group (which
operates the Channel tunnel between England
and France and controls 40% of cross-channel
traffic) of three ferries belonging to Sea France,
a ferry company operating between Dover
and Calais which had gone into liquidation
and ceased operations. In this case, the French
“Autorité de la concurrence” concluded that
the acquisition did not raise any horizontal
competitive issue, was likely to affect competition
through conglomerate effect on the freight transport market and through vertical effects on the
cross-channel transport market, but that these
risks could be remedied by a series of undertakings and were not such that the acquisition
could be prohibited. But the UK Competition
Commission, using a different counterfactual than the one used by the Autorité de la
concurrence, found that the decision of the
Eurotunnel Group to acquire the assets of Sea
France was motivated by a desire to ensure that
they were not acquired by DFDS/LD, one of
the other main operators on this route and a
bidder for Sea France assets. Thus, according
to the Competition Commission, the acquisition was a defensive measure designed to
prevent cross-channel ferry prices being driven
down and negatively impacting the Eurotunnel
car and rail tunnel service. The Competition
Commission then concluded that there was no
clear remedy and that the transaction should
be blocked or that the acquiring firm should
be prohibited from operating a ferry service at
Dover with the acquired ferries for ten years
and prohibited to operate a ferry service at
Dover with any vessel for two years.2
5. However, two observations should be made about
the convergence of merger control systems:
– First, the convergence of national merger
control regimes across the world, if desirable,
is unlikely to lead to the complete homogeneity
of merger control regimes. Merger control laws
or competition laws, like all laws, are the result
of a political compromise which takes into
consideration various and sometimes antagonistic economic and socio-political goals.
Furthermore, as we shall see later, countries
of different sizes, with different resources and
different economic structures, may not need
similar merger controls laws. The important
question then is to assess the causes of the
divergences between merger control regimes.
Some of the causes may be entirely legitimate
from an economic point of view. For example,
a large country which has a very large number
of structurally competitive markets may want
to choose high turnover threshold levels for the
definition of mergers which must be notified to
the competition authority because low thresholds would increase the risk that the competition authority may prohibit mergers which
are in fact not anticompetitive more than high
thresholds would increase the risk that anticompetitive mergers would escape detection.
Conversely, a small country with very concentrated markets may prefer to have low turnover
thresholds because low thresholds will increase
the probability that the competition authority
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L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
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will block mergers which are not anticompetitive less than high thresholds will increase the
probability that anticompetitive mergers will
escape the control is high.
2
See Aut. conc., déc. no 12-DCC-154 du 7 novembre 2012 relative à la prise
de contrôle exclusif d’actifs de la société Sea France par la société Groupe
Eurotunnel, and Eurotunnel/Sea France final decision, CMA, 27 June 2014.
Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment I
23
I. Overarching goals
of competition law
7. In order to assess the convergences or the divergences
in merger control goals, we shall look at the goals of the
competition laws which provide for merger control.
8. As George J. Stigler observed: “A careful student of the
history of economics would have searched long and hard,
on July 2 of 1890, the day the Sherman Act was signed
by President Harrison, for any economist who had ever
recommended the policy of actively combating collusion
or monopolization in the economy at large.”3 Thus, the
economic profession or the economic rationale had very
little to do if anything with the adoption of the second
and most well-known antitrust statute: the Sherman Act.
9. The idea that the only goal of competition law should
be the promotion of consumer welfare is relatively recent
and can be traced to the quest by Judge Richard Posner,
Judge Robert Bork, and other Chicago School scholars
for a single unifying economic goal in the late 1980s
and the early 1990s. As M. Stucke underlines, for
these scholars, antitrust’s whole task was “the effort to
improve allocative efficiency without impairing productive
efficiency so greatly as to produce either no gain or a net
loss in consumer welfare.”4 Yet, as M. Stucke argues, this
attempt to unify the goal of antitrust did not succeed.
10. The ICN Competition Advocacy Working Group
thus reported in 2002: “The objectives of competition laws
vary widely from one jurisdiction to another. Some competition laws expressly pursue economic efficiency. Others
put a greater emphasis on consumer welfare alone, which
forms part of economic efficiency.”5
11. Nine years later, in 2011, the ICN conducted another
survey of fifty-six competition authorities. The results of
this survey, when compared to the results of the earlier
24
3
G. Stigler, The Economists and the Problem of Monopoly, 72 Am. Econ.
Rev. 1, 3 (1982)
4
M. E. Stucke, Reconsidering Antitrust’s Goals, Boston College Law Review,
Vol. 53, Issue 2, Article 4, 3-1-2012.
5
Advocacy and Competition Policy, Report prepared by the Advocacy
Working Group, ICN’s Conference, Naples, Italy, 2002.
survey, suggests that the first decade of the 21st century
did not lead to much convergence on the goals of
competition law. Whereas most competition authorities are concerned with the protection of the consumer
surplus, there are differences of opinion about whether
the protection of consumer surplus is a natural result of
competition or an underlying goal of competition law.
Among the jurisdictions for which consumer surplus is
indeed a goal of competition law, there are differences
between those which consider that consumer surplus is
the only goal of competition and those which consider
that competition has other economic goals. Finally,
among the jurisdictions for which consumer surplus
is one of the economic goals of competition there are
differences between those which consider that economic
goals are the sole goals of competition law and those for
which competition law may also have social or political
goals.
Besides the protection of consumer surplus,
some competition authorities pursue other
economic goals
12. Besides the protection of consumer surplus, some
competition authorities pursue other economic goals.
Many of the Competition Authorities responding to the
2011 ICN survey stated that even if consumer welfare
were an important end goal, economic growth in general
and total welfare were the more specific goals of competition law.
13. In countries like Australia, Norway or New Zealand,
the goal of competition law is the protection of total
welfare rather than consumer welfare. Thus, in Australia,
the ACCC has powers to grant exemption from competition law in certain circumstances, such as where benefits
to the public from the anticompetitive conduct outweigh
the detriment that the conduct may cause and in assessing
benefits to the public it may have regard to total welfare
effects. In Norway, the goal of the Competition Act is:
“(…) to further competition and thereby contribute to the
efficient utilization of society’s resources.”
14. The competition authority of Swaziland also uses a
total welfare standard and noted in its response to the
2011 ICN survey that besides consumers, there are other
equally important stakeholders, such as competing businesses, and that this can lead to the importance of ensuring welfare of groups other than consumers. The strategic goal of the Competition Authority of Swaziland is
thus to promote active competition for the public benefit.
In Kenya competition law sometimes seeks to maximize
producer and consumer surplus, not consumer surplus
alone.
15. It should be noted here that if, from an economic
perspective, in an ideal world total welfare would seem
to be a more desirable objective, as Damien Neven and
I Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
6. Convergence and divergence are abstract terms and
it is often difficult to get a sense of where competition
authorities actually diverge or converge in their substantive analysis. This paper tries to fill this gap by assessing
the extent to which there is convergence or divergence
across the world on a number of substantive issues in
merger control, namely, the goals of competition laws
and merger controls, the definition of mergers, thresholds, market definitions, the substantive standard of
review and remedies. It also investigates the reasons for
the divergences observed and draws some conclusions on
the future of substantive convergence of merger control.
16. However, they show that this result does not necessarily hold if competition authorities make mistakes and if
business firms (either the merging firms or their competitors) are successful in lobbying competition authorities.
17. They find that under a total welfare standard,
competition authorities will allow relatively inefficient
mergers that decrease welfare (type II error). The higher
the transparency and the coordination costs, the lower
the possibility of competitors of merging firms to reduce
the scope of undesirable deals that merging firms can
manage to push through. The size of mergers considered
may also have an effect. Parties to larger mergers, which
have more resources to lobby the competition agency,
manage to push more deals through, despite the fact that
larger deals are also less desirable in terms of welfare
(and hence require more lobbying to be pushed through).
18. They also find that under a consumer surplus standard, competition authorities will prohibit relatively
efficient mergers that would increase welfare. Lobbying
(by the merging parties) reduces the extent to which
this occurs, albeit at a cost in terms of real resources.
More transparency (which makes lobbying more expensive) shifts the balance towards wrong decisions because
it reduces firms’ effectiveness in lobbying. But since
wrong decisions are socially more costly than lobbying,
transparency is actually not desirable under a consumer
surplus standard. Large size mergers are less of a problem.
On the one hand, the parties to large size mergers tend to
have more ability to lobby competition authorities, but,
on the other hand, the deals that they push through may
be less damaging (since certain efficient mergers may get
an approval by lobbying that they would not have gotten
otherwise).
19. The important result of these authors’ findings is
that the optimal standard assigned to a competition
authority (consumer welfare or total welfare) will depend
on “the institutional environment in which the agency
operates and the population of cases that the agency is
likely to consider.” This in turns means that convergence
on the goals of competition (whether convergence on a
consumer welfare standard or a total welfare standard)
among countries where competition authorities operate
in different environments may actually be undesirable.
20. Among the countries that have a broader economic
agenda than the strict promotion of consumer surplus,
one may also include Germany, Hungary, Iceland, Ireland
or Switzerland. In Germany, according to a recent draft
guideline issued by the Bundeskartellamt, the purpose of
6
D. J. Neven and L.-H. Röller, Consumer Surplus vs. Welfare Standard
in a Political Economy Model of Merger Control, WZB Discussion
Paper, No FS IV 00-15, October 2000, available at: http://hdl.handle.
net/10419/51051.
merger control is “to protect competition as an effective
process,” which the draft guidelines explain “may sometimes coincide with protecting competitors.”7 In Hungary,
the goals of the competition law are the maintenance of
effective competition and the promotion of efficiencies.
The Icelandic Competition Act aims to promote effective competition and thereby increase the efficiency of
the factors of production of society. According to the
Irish Competition Authority, the primary goal of its
work is to ensure competitiveness in the Irish economy,
which will ultimately benefits the consumer (although
the benefits of this law enforcement activity might not
always be immediately clear to consumers). The main
goal of Switzerland’s Cartel Act is to prevent the harmful
economic or social effects of cartels and other restraints
of competition.
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
Lars-Hendrik Röller6 state: “In a world with no regulatory failures, excluding firms’ profits from the objectives
assigned to the antitrust authority would seem hard to
justify on efficiency grounds.”
21. Besides broader economic goals than the promotion
of consumer surplus, a number of competition laws
also have social or political goals. As the OECD noted
in 2011: “The specific objectives behind merger control
(…) may differ between jurisdictions. (…) For example,
protecting local or small and medium size competitors,
achieving various socio-economic and socio-political
objectives, protecting employment, encouraging enterprise,
and achieving various industrial policy objectives including
promoting the international competitiveness of the local
economy and building strong national firms.”8
22. For example, the above-mentioned 2011 ICN survey
states that the goals of competition law in Canada are to
promote the efficiency and adaptability of the Canadian
economy, to expand opportunities for Canadian participation in world markets while at the same time recognizing the role of foreign competition in Canada, and
to ensure that small and medium-sized enterprises have
an equitable opportunity to participate in the Canadian
economy.
23. Similarly, the Korean competition law goals are a
mix of economic and non-economic goals. Article 1
of Korea’s Monopoly Regulation and Fair Trade Act
(MRFTA) states that “this act seeks to promote free and
fair competition such that creative business activities are
fostered, to protect consumers, and to strive for the balanced
development of the national economy by preventing the
abuse of market dominance by enterprises and excessive
concentration of economic power and by regulating unlawful coordinated interaction and unfair business practices.”
24. The Competition Act of South Africa and that of
Namibia have very wide goals that are both economic and
non-economic. The purpose of the South African Act is
to promote the efficiency, adaptability and development
of the economy; to provide consumers with competitive
prices and product choices; to promote employment
7
Reported in L. Fullerton and M. Alvarez, Convergence in International
Merger Control, Antitrust, Vol. 26, No 2, Spring 2012.
8
OECD Global Forum on Competition, Roundtable on Cross-Border Merger
Control: Challenges for Developing and Emerging Economies, Background
Note (Jan. 13, 2011).
Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment I
25
25. Similarly, the Anti-Monopoly Law of China (the
“AML”), which took effect in 2008, has a variety of goals
including “the protection of fair competition in the market”
and “the interests of consumers,” but also “the promotion
of the healthy development of the socialist market economy.” Another stated objective of the Chinese AML is to
protect the “lawful business operations” of undertakings
in industries “controlled by the State-owned economy and
concerning the lifeline of national economy and national
security.”
26. As a contrast, the Brazilian competition law prohibits
concentrations which involve the elimination of competition in a substantial portion of the relevant market or
which would create or strengthen a dominant position, or
that can result in the dominance of the relevant market
of goods or services except if they are strictly necessary
to increase productivity or competition, to improve the
quality of goods or services or to encourage efficient
and technological or economic development where a
significant part of the transaction benefits is transferred
to consumers. Thus, the Brazilian merger law does not
include public interest provisions.
II. Merger definitions
27. If we now turn to the definition of merger transactions for the purpose of merger control, there is a surprising diversity among jurisdictions.
28. This diversity of definitions is a concern for the
business community, because it means that a transaction
which is considered a merger in some jurisdictions (and
therefore benefits from the legal security offered by ex
ante merger control) may not be considered a merger
in other jurisdictions (and therefore be subject at a later
time to the control of anticompetitive practices which
may result in either financial sanctions or even an injunction to sell off the assets initially acquired).
29. When deciding which transactions will be considered
“mergers” for the purpose of their merger control law,
countries face a trade-off similar to the trade-off they
face when they have to decide the threshold above which
“mergers” will be controllable. On the one hand, if the
definition of what is a “merger” is too wide, the competition authority may end up controlling a very large
number of transactions which have little chance to affect
competition; on the other hand, if the definition of what
is a “merger” is too narrow, some transactions likely to
affect competition may escape scrutiny.
26
30. If countries engaged in a careful analysis of this tradeoff, it is probable that the definition of mergers would
not be identical from one country to the next and would
depend, among other things, on the general size and
structure of markets. In countries characterized by very
large atomistic markets, one can presume that the risk
associated with a relatively narrow definition of merger
transactions for the purpose of merger control may be less
than in countries characterized by a large number of relatively small and concentrated markets. But the analysis of
the trade-off may also lead countries to choose different
definitions of what is a merger, even if the countries are
the same size and have the same structure of markets, if
they have very different levels of economic development
and if the resources of the competition authority are very
different. It may be more appropriate to have a narrower
definition of what is a “merger” for the purpose of the
merger control law in countries where the competition
authority has fewer resources than in countries where the
competition authority has more resources.
31. Thus one should be careful not to interpret the
diversity of merger definitions for the purpose of merger
control across jurisdictions as necessarily meaning that
there are divergences. It may be that this diversity is
consistent with the fact that there is convergence on the
principles underlying the choice of what should constitute a merger for merger control purpose.
32. The first issue is that of the threshold beyond which
the acquisition by the merging company of a part of the
capital of the target is considered to be a merger.
33. The definition of such thresholds can be based either
on quantitative criteria or on economic criteria or, in
some countries, on a combination of both.
34. Countries that have adopted quantitative criteria rely
on a threshold expressed as a percentage of the capital
of the target firm acquired by the merging firm to distinguish between merger transactions which are controllable
and those which are not.
35. Economic criteria are more difficult to interpret and
therefore more uncertain but they are more economically
relevant to distinguish between transactions which are
likely to realize a concentration in the strategic decision
making of the firms and those which are unlikely to lead
to such a result.
36. Countries which have chosen an economic criteria
focus on whether the transaction allows the acquiring firm to exercise some kind of influence (whether
“decisive” or “significant” or “material” or “competitively significant”) over a previously independent firm.
The merger control laws of the EU, Germany, Canada,
the UK, China, etc., rely on economic criteria and some
provide a fairly long list of elements to consider to assess
whether the acquiring firm exerts sufficient influence on
the target for the transaction to qualify as a merger for
the purpose of merger control.
I Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
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and advance the social and economic welfare of South
Africans; to expand opportunities for South African
participation in world markets and recognize the role of
foreign competition in the Republic; to ensure that small
and medium-sized enterprises have an equitable opportunity to participate in the economy; and to promote a
greater spread of ownership, in particular to increase the
ownership stakes of historically disadvantaged persons.
38. Finally, some countries rely on a combination of
quantitative and economic thresholds to define controllable mergers.
39. For example, in Japan, there are three quantitative
thresholds (50%, 20% or 10%) for the share held by the
acquiring firm in the capital of the target, but in the case
of a 20% interest, the holder must be the largest shareholder; in the case of a 10% interest, the holder must
be among the three largest holders of voting rights and
different other criteria, suggesting some ability of the
merging firm to influence the target must be considered.
40. Germany is another example of a country which relies
on a combination of quantitative and economic thresholds. A merger transaction exists when a firm acquires a
25% interest or 50% interest in another firm or “control”
over another firm or a significant competitive influence
over another firm or all or substantial parts of the assets
of another firm.
41. The second issue is that of the types of transactions
which may qualify as mergers if the quantitative or
economic thresholds are satisfied. For example, the legal
regime of minority shareholdings of the acquisitions of
assets and of joint ventures differs across countries.
1. Minority shareholdings
42. Following the Ryanair/Aer Lingus case in Europe,
there has been a heated debate about whether mergers
which give the merging firm only a minority of the shares
of the target should fall under European merger control.
43. This case outlined the difference in the ability of the
EU and the UK to review the acquisition of minority
shareholdings under the merger control provisions of the
competition law.
44. Under the EU merger regulation, the acquisition of a
minority shareholding is considered to be a controllable
merger (provided that the turnover thresholds are met)
only if it confers to the acquiring firm a decisive influence over the target (through, for example, the exercise
of special rights or veto rights over strategic commercial
decisions).
45. In some Member States, such as Austria, Germany
and the UK, the acquisition of a minority interest
could more easily qualify as a “merger” for the purpose
of merger control. For example, under the UK law the
acquisition of a minority interest could be considered
a controllable merger (assuming that the turnover or
share test were met) if the two enterprises cease to be
distinct—i.e. if the acquirer has a controlling interest
(de jure control), or the ability to control policy (de facto
control), or the ability to materially influence the policy
of the target. The OFT presumed that a shareholding of
more than 25% conferred material influence because it
generally enabled the holder to block special resolution.
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
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37. In the U.S. merger review regime, Section 7 of the
Clayton Act provides that “no person (…) shall acquire
(…) the whole or any part of the stock or assets of another
entity,” which is a very wide definition of merger transaction but also relies on “objective,” numerical thresholds
to limit the number of reportable merger transactions.
46. The competition concerns in the Ryanair/Aer Lingus
case centred on two risks: the risk that Ryanair would
be able to influence the policy of Aer Lingus in a way
which would lessen competition between the two airlines
and the risk that Ryanair would have an incentive to limit
competition with Aer Lingus if it held a minority interest in the latter since this would increase the value of its
stocks in Aer Lingus.9
47. Following this case (and some others), there has
been a growing concern in Europe about the fact that
a firm owning only a minority of the shares of another
competing firm may have a great deal of influence on the
business strategy and behaviour of the firm in which it
has a minority shareholding, but may also be influenced
in the setting of its own strategy by the fact that it has a
minority shareholding in a competing firm. The difficulty
resides in how to delineate the minority shareholdings
which are unlikely to create a competition problem from
those which could be problematic.
48. In countries which define mergers with respect to a
quantitative threshold for the share held by the acquiring firm in the capital of the target, the extent to which
merger control provisions apply to minority shareholdings depends on the level of the thresholds. Germany
has a 25% threshold, and Japan has thresholds of 50%,
20% and 10%, but both countries also require some
evidence that the acquiring firm will be able to exercise
some influence on the behaviour of the target company.
The Brazilian law has a more extensive reach (and one of
the most extensive reach of any law) since the acquisition
of a minority interests of at least 5% constitutes a merger
transaction if the acquiring firm and the target firm are
in a horizontal or vertical relationship.
49. In countries such as Germany or the UK, which have
an economic definition of mergers and where mergers
are defined as transactions whereby a firm acquires the
control of another firm or is in a position to exercise a
decisive influence or a material or significant influence
over another firm, the question of whether merger
control laws apply to minority shareholdings is often
hotly debated.
50. However, an OECD Competition Committee Best
Practice Roundtable10 held in 2013 on this issue observed
that even though one can theoretically conceive of cases
in which the fact that a firm holds a non-controlling
minority interest in another (competing) firm might lead
9
See Ryanair Holdings plc and Aer Lingus Group plc, A report on the
completed acquisition by Ryanair Holdings plc of a minority shareholding
in Aer Lingus Group plc, 28 August 2013.
10
OECD Competition Committee, Best Practice Roundtable, Definition of
Transaction for the Purpose of Merger Control Review, 2013.
Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment I
27
2. Acquisitions of assets
51. Transactions through which a merging firm acquires
all the assets (rather than the shares) of another firm
are typically considered to be mergers. But there is some
debate about whether the acquisition by a firm of part of
the assets of another firm should also be considered to be
a merger and, if so, what should be the characteristics of
the acquired assets.
52. In some countries, in order for the acquisition by a
firm of part of the assets of another firm to be subject to
the merger control law, the acquired assets must represent
“part of an undertaking” and have a market presence
and a clearly assigned turnover. In such countries (for
example the UK), the acquisition of a listing of customers would not be considered to be a merger transaction
controllable under the merger control law.
53. But other countries have a wider definition of a
merger and consider that the acquisition of any asset
playing an essential role in trading activities or having an
impact on the competitive process (such as the acquisition of a trademark, a store or a ship which were not
operative at the time of transaction or a domain name) is
reviewable. Particularly noticeable from that standpoint
is the U.S. Clayton Act Section 7, which provides that
“no corporation subject to the jurisdiction of the Federal
Trade Commission shall acquire the whole or any part of
the assets of another corporation.” This is a wide definition which includes the acquisition of a customer list, the
acquisition of sales routes and sales volumes, the acquisition of exclusive licenses, the acquisition of a franchise,
and the acquisition of a trademark or a patent.
3. Joint ventures
54. Joint ventures can come in many different forms.
At one end of the spectrum, a joint venture may mean
the integration of the activities of the two parents into
one single entity behaving independently and the end of
the activity of the parent companies. In all jurisdictions
the creation of such a joint venture will be considered
a “merger.” But a joint venture may also be limited to
a cooperation arrangement between the parents rather
than the integration between their activities. Thus,
some joint ventures look more like agreements between
competitors than like mergers. The conditions under
which a “cooperative” joint venture may be regarded as a
merger vary significantly across countries.
55. As the OECD noticed in 2013: “Joint ventures tend to
raise more difficult jurisdictional questions in jurisdictions
that rely on the acquisition of control/decisive influence
standards in their definitions of a merger transaction.
In these cases, there is a need to determine whether the
28
parent companies can exercise the requisite level of
‘control’ and, in most cases, whether the joint venture is a
sufficiently independent market player.”11
56. For example, in Europe the EU Merger Regulation
provides that two conditions have to be met for the joint
venture to qualify as a merger: first, at least two parents
must acquire a “decisive influence” over the joint venture;
second, the joint venture must perform on a lasting basis
all the functions of an autonomous economic entity
(so called “full-function joint ventures”). The full-functionality criterion therefore delineates the application of
the Merger Regulation for the creation of joint ventures
by the parties, irrespective of whether such a joint
venture is created as a “greenfield operation” or whether
the parties contribute assets to the joint venture which
they previously owned individually.
57. In China, the Draft Provisional Rules published by
MOFCOM included a full-function requirement for joint
ventures, but MOFCOM’s final Rules on the Notification
of Concentration between Undertakings, published in
2009, do not include a full function requirement, thus
subjecting a wider range of joint ventures to the possibility of merger review.
58. In Germany, it would be enough that two or more
parents have a stake of 25% or more in the capital of
the joint venture or have a “competitively significant”
influence over the joint venture’s activities.
III. Jurisdictional
nexus and notification
thresholds
59. Aside from the definition of what constitutes a
merger for the purpose of merger control, there is the
issue of which merger transactions may be controlled by
a national competition authority.
60. The trade-off about the jurisdictional nexus is similar to the trade-off we encountered when discussing the
definition of a merger for the purpose of merger control.
On the one hand, the jurisdictional nexus should be set in
such a way that the competition authority does not have
to review mergers which are unlikely to have a significant
anticompetitive effect on the markets in its territory;
on the other hand, the competition authority wants to
ensure that it catches all the mergers which are likely to
have an effect.
61. As stated by the OECD: “(…) the goal of jurisdictional thresholds should be to minimize the sum of costs
resulting from type I errors (notified transactions that raise
11
OECD Competition Committee, Best Practice Roundtable, Definition of
Transaction for the Purpose of Merger Control Review, Background Note,
2013.
I Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
to a weakening of competition, there is little empirical
evidence that the holding by a firm of a minority interest
in another firm frequently leads to competition problems,
so the debate may be more theoretical than practical.
62. Soon after its creation the International Competition
Network, motivated by a desire to reduce the costs for
businesses and competition authorities of merger control
in a rapidly globalizing world, focused, notably, on
the issue of the jurisdictional nexus of merger control.
It denounced inappropriate notification thresholds,
such as notification thresholds based on the worldwide
turnover of the merging parties, as the main source of
those costs.12 It issued a set of recommended practices
for merger notification procedures which suggested that
“jurisdiction should be asserted only over those transactions that have an appropriate nexus with the jurisdiction
concerned” and that “[m]erger notification thresholds
should incorporate appropriate standards of materiality as
to the level of ‘local nexus’ required for merger notification.”13
63. Quite a number of countries modified their notification thresholds following the publication of the ICN
recommendations in 2004 and there has been a fair
amount of convergence in this over the past ten years.
This movement has led a large number of countries to
increase their thresholds for notification.
64. As an example, Italy modified its thresholds in 2012
(Law No 27/2012). Previously it had alternative turnover
thresholds for all the companies involved in the merger,
on the one hand, and for the target company, on the
other hand, with the result that a firm which met the first
threshold had to notify its mergers even if it merged with
firms that had a negligible turnover in Italy.14 The 2012
law made those thresholds cumulative with the result that
the number of transactions that have to be notified to the
competition authority dropped by 90%.
65. Another example is provided by the case of Norway,
which had excessively low thresholds. Until 2013 mergers
had to be notified in Norway if the undertakings had
a combined annual turnover of €5.9 million or if only
one of the undertakings concerned had a turnover in
Norway of €2.4 million. Norway adopted new thresholds and since then mergers have to be notified only if
the combined annual turnover in Norway is more than
€120 million and if at least two of the undertakings
concerned each have a turnover of at least €12 million.
As a result, it was expected that the number of notifications would decrease by 70%, starting in January 2014.
12
International Competition Network Merger Working Group, Report on the
Costs and Burdens of Multijurisdictional Merger Review, November 2004.
13
ICN Recommended Practices for Merger Notification Procedures, 2002
14
Note that the ICN Recommended Practices for Merger Notification
Procedures included the following comment: “Notification should not
be required solely on the basis of the acquiring firm’s local activities, for
example by reference to a combined local sales or assets test which may be
satisfied by the acquiring person alone irrespective of any local activity by
the business to be acquired.”
66. In Brazil, until a recent revision of the law a merger
was notifiable if one of the parties to the transaction
had an annual turnover of 400 million reais or US$172
million (which meant that for such a party all of its
mergers, even those with extremely small firms, had to be
notified) or if the merger gave the merging firms a market
share of 20% of a relevant market. Those thresholds
resulted in the competition authority devoting most of
its resources to merger control. Furthermore, a number
of commentators considered that the 20% market share
threshold was a source of legal uncertainty as the parties
could never be sure how CADE would define the relevant
market. In 2012, the merger law was revised. A system
of pre-merger notification was introduced. The 20%
market share condition was dropped (in line with the
ICN’s Recommended Practices for Merger Notification
and Review Procedures15) and a second requirement was
added, which is that at least another party to the merger
must have a turnover in Brazil of at least 30 million reais
(US$ 12 million).16 To ensure that CADE can act against
anticompetitive mergers which would fall below the notification threshold, paragraph 7 of Article 88 of the law
gives CADE the power to request the notification of any
transaction that does not fall within the filing thresholds
of the new regulation up to one year after the implementation of the deal.
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
no competition problems), type II errors (problematic
transactions that escape merger review) and compliance
and enforcement efforts (that may increase when uncertain
or subjective criteria are used).”
67. As a last example, the notification thresholds were
increased in Japan as of 31 January 2010. The previous
thresholds were 10 billion yens and 1 billion yens and
the new thresholds are respectively 20 billion yens and
5 billion yens. As a result of this change, the number of
mergers filed decreased rapidly starting in 2010.
The convergence toward an appropriate
local nexus is far from complete,
particularly in developing countries
68. However, the convergence toward an appropriate
local nexus is far from complete, particularly in developing countries. Indeed, in those countries, filing fees
by merging firms are often a crucial contribution to the
budget of the authority, which uses them to cross-subsidizes its other activities. Thus, there is a certain amount
of pressure to ensure that a sufficient number of mergers
are notifiable so that sufficient funds will be available for
the competition authority.
69. For example, as was mentioned in the introduction,
in the COMESA merger control system filing thresholds
are very low: Zero turnover or assets thresholds apply,
which means that any merger or acquisition where at
least one party operates in two or more COMESA
States are notifiable to the COMESA Competition
15
Besides adopting a threshold based on annual revenues, the new Brazilian
law (Law 12,529/2011) adopted other measures recommended by the ICN
such as the fact that there is no deadline for pre-merger notification or the
fact that the Superintendent-General must explain his reasons when he
declares a transaction complex.
16
On May 30, 2012, however the thresholds were raised to 750 million reais
and 75 million reais respectively.
Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment I
29
70. Altogether in this area although there are no best
practices as to how determine when the thresholds reflect
an appropriate nexus17 and there is a diversity of situations, there is a clear convergence toward the elimination
of thresholds based on market shares and toward the
adoption of some threshold for the target of the acquisition, thus eliminating from the merger control acquisitions of firms which have only a negligible turnover in
the country.
IV. Market definition
71. Up to fairly recently there was not much debate across
jurisdictions about market definition.18
72. Market definition is an analytical framework widely
used to examine and evaluate the competitive constraints
(i.e. demand- and supply-side substitution) that a firm
faces and the impact of its behaviour on competition.
73. The relevant market is usually defined by applying
the hypothetical monopolist test (also known as the
SSNIP test), according to which a “market” comprises
all the products and regions for which a hypothetical
profit maximizing monopolist would impose a Small but
Significant Non-transitory Increase in Price.
17
18
30
The ICN Report to the ICN Annual Conference of the Merger Working
Group in 2008 on Setting Notification Thresholds for Merger Review stated:
“The lack of specific guidance in the Recommended Practices reflects the
fact that there has been no consensus on when thresholds reflect a ‘material
nexus’ or on what steps jurisdictions should follow to arrive at such
thresholds. When a large number of jurisdictions introduced mandatory
pre-notification systems in their merger review regimes in the 1990s, setting
thresholds involved a large degree of guesswork and experimentation, and
was characterized by a lack of transparency. The result was great variations
among merger regimes. Accordingly, very little useful information about
the factors to consider could be extracted from a comparison of thresholds
across jurisdictions. Since then, however, several jurisdictions have revised
their notification thresholds, some of them several times. In some cases, this
exercise was based on a thorough review of the existing notification system
and empirical testing of different thresholds which provided useful data as a
basis for reform and offers insight that can be useful for other jurisdictions
that plan to introduce or revise thresholds.”
See OECD Competition Committee, Best Practice Roundtable on Market
Definition, 2012.
74. The Hypothetical Monopolist Test (HMT) was
introduced as a tool for competition analysis in the U.S.
Horizontal Merger Guidelines in 1982 even though the
concept can be traced back to 1956. This method for
defining the relevant market is now employed by most
jurisdictions and after thirty years of application to many
cases, this concept has achieved a broad consensus as the
most convincing approach to market definition.
75. For example, the 2010 U.S. Horizontal Merger
Guidelines stated: “The hypothetical monopolist test
requires that a product market contain enough substitute
products so that it could be subject to post-merger exercise of market power significantly exceeding that existing
absent the merger. Specifically, the test requires that a
hypothetical profit-maximizing firm, not subject to price
regulation, that was the only present and future seller of
those products (‘hypothetical monopolist’) likely would
impose at least a small but significant and non-transitory
increase in price (‘SSNIP’) on at least one product in the
market, including at least one product sold by one of the
merging firms.” Usually, a small but significant increase
in price is considered to be an increase of 5%-10%.
76. The EU, for its part, considers whether a hypothetical monopolist could profitably increase the price by a
SSNIP of 5%. This version of the HMT could lead to a
different market definition as a price increase of 5% may
still be profitable for the hypothetical monopolist but a
profit-maximizing firm would in fact increase the price
only by 3%.
77. The hypothetical monopolist test is focused on the
demand side effects. But to properly define the relevant
market, the supply side effects should equally be taken
into consideration. There is less consensus on how those
supply substitution effects should be treated. For example, in the EU, “[s]upply-side substitutability may also be
taken into account when defining markets in those situations in which its effects are equivalent to those of demand
substitution in terms of effectiveness and immediacy.”
This approach thus treats symmetrically the competitive
constraints imposed by demand and supply substitution.
As a contrast, the U.S. Horizontal Merger Guidelines
focus only on demand substitution at the market definition stage of the analysis. Reactions of suppliers are
dealt with at later stages of the enquiry when identifying
market participants and assigning market shares. Thus
the main difference between the two approaches is the
stage of the analysis when this is done. This difference of
approach may not be so important as both approaches, if
carried out correctly, should lead to similar market shares
and measures of concentration.
78. However several problems have been identified with
the traditional approach to defining relevant markets.
– First, in several types of markets, such as differentiated markets or bidding or auction markets
or two-sided or dynamic markets, market
shares and concentration measures might overestimate or underestimate the market power of
firms and the potential competition effects.
I Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
Commission. Because of the heavy filing fees, very few
notifiable mergers were in fact filed with the COMESA
Competition Commission during its first few years of
existence. The COMESA Competition Commission has
sought to remedy the problem by changing the thresholds to ensure that the reviewable mergers have a material
nexus with the COMESA countries. Although it has
failed (as of the writing of this article), the COMESA
Competition Commission has produced guidelines
confirming that a party will only be considered to operate
in a Member State if its gross assets or annual turnover in
that Member State exceeds US$5 million during the most
recent financial year. In addition, no filing is necessary if
the target does not operate in COMESA or if two thirds
of the merging parties’ annual turnover or value of assets
is achieved within one and the same Member State.
79. Thus the reality is that in many jurisdictions claiming
to follow the hypothetical monopolist test for the definition of relevant markets, the appreciation of the contours
of the market will in fact be based on a combination of
quantitative and qualitative assessments of the substitutability of demand and supply with the result that
competition authorities continue to be widely regarded
as defining relevant markets in a somewhat arbitrary and
overly restrictive manner.
80. Recently there has been a development which has
not led to a consensus among competition authorities.
This is the proposal to dispense with the definition of the
relevant market and use other instruments as a screen for
the potential anticompetitive effect of a merger.
81. Thus, for example, the 2010 U.S. Horizontal Merger
Guidelines state that market definition is only one
of many available tools to assess harm, adopt more
sophisticated economic tools that do not rely on market
definition for certain competitive dynamics, and outline
that the analysis of competitive effects need not begin
with market definition. In the UK, the revised merger
assessment guidelines also reflect the shift from defining
the relevant market to analyzing the intensity of competition.
82. But the new screens such as the Upward Pricing
Pressure (UPP) index or the Gross Upward Price
Pressure Index (GUPPI) have turned out to have data
requirements which are as important as the traditional
method of analyzing market power and to have their own
methodological limitations. On the one hand, compared
to market definition, the new tools improve accuracy
at the expense of legal certainty; on the other hand, if
applied to cases they were not designed for, the new tools
may produce unreliable or wrong results. Furthermore, in
a number of jurisdictions the definition is a legal requirement (for example, in Germany and Mexico).
83. This explains why the new tools have not gained widespread acceptance and why most competition authorities
continue to rely, at least as a matter of principle, on
relevant market definitions to assess the competitive
constraints faced by the merging firms.
84. Altogether, market definition is a widely accepted
approach used in nearly all jurisdictions and the hypothetical monopolist test which has been applied extensively over a substantial period of time remains the
officially preferred test of most competition authorities
in the developed and the developing world, even if, in
practice, in a large number of cases, the definition of relevant markets is more based on qualitative assessments
than on the implementation of a rigorous test.
V. Substantive
standards of merger
review
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L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
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– Second, the implementation of the hypothetical monopolist test requires data that are not
frequently available (such as the competitive
price of the product, which may be different
from the observed price of the product to avoid
the cellophane fallacy, or the diversion ratio
between the products of the merging firms).
85. The ICN recommends that merger control regimes
should be transparent with respect to the substantive
review standard of merger. The insight into the substantive criteria could come either from the legislation or
from supplemental material (such as the case law, administrative guidance, etc.), but the ICN does not advocate a
particular standard of review.
86. In practice, to assess whether a merger has anticompetitive effects most competition authorities rely on one
of two tests: (i) the dominance test; and (ii) the significant
lessening of competition (SLC) test. In a few countries,
there is a hybrid test.
87. Under the dominance test, a merger is anticompetitive and can be prohibited if it strengthens or creates a
dominant position on the market.
88. Under the SLC test, a merger has anticompetitive
effects if it is likely to substantially lessen competition
on the market. In comparison with the dominance test,
the SLC test focuses on the effects of the merger on the
market and on the loss of competition among firms rather
than on threshold structural issues such as market shares.
Under the SLC test, the investigation and assessment of
a merger are more concerned with whether prices are
likely to rise after the merger is consummated.
89. The dominance test holds that a merger is anticompetitive and can be prohibited if it strengthens or creates
a dominant position in the market. The SLC test holds
that a merger has anticompetitive effects if it is likely to
substantially lessen competition in the market. Finally,
the hybrid test holds that a merger is anticompetitive
if it significantly impedes effective competition on the
market, in particular through the creation or strengthening of a dominant position. This is the test currently in
force in the EU.
90. The dominant movement in the world at the end of
the 1990s and during the first decade of the 21st century
has been a movement from a standard based on the
creation or strengthening of a dominance position to an
SLC standard. During that period, no country seems to
have moved from the SLC standard to the dominance
standard.
91. The move from the dominance test to the SLC test
was generally considered to be positive for a variety of
reasons. First, the SLC test is more directly focused on
what should be the centre of the analysis, i.e. the impact
of the merger on competition. The dominance test was
more formalistic in the sense that it did not require
an investigation on the likely impact of the merger on
competition but rather whether it created a dominant
Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment I
31
92. An additional benefit of the “substantial lessening of
competition test” is that the emphasis on market definition, which is particularly important when a competition
authority has to establish the creation or the strengthening of a dominant position, becomes less important when
the competition authority focuses on the competition
effects of the merger.
93. Two comments from the 2009 OECD Competition
Committee Roundtable on Standard for Merger Review
are worth mentioning:
– First, the countries which switched to a
“substantial lessening of competition standard”
for mergers did not experience a substantial
increase in the number of mergers challenged,
contrary to what was expected by those who
feared that the more economic based standard
would give too much discretion to competition
authorities and by those who believed that many
more mergers leading to coordinated effects
would become challengeable. This is consistent
with the idea expressed by a number of competition authorities that even if they had formerly
had a dominance standard they had applied it in
a way which was very similar to what they would
have done had they had a “substantial lessening
of competition” standard.
– Second, the view was expressed by competition
authorities19 that, based on their experience:
“diverging tests do not hamper international cooperation as shown by the fact that in the past many
mergers were reviewed by agencies under different
tests and those agencies reached similar results in
almost all cases. However, countries also emphasized
that having the same standard may simplify cooperation because it provides competition agencies with the
same frame of reference and allows them to focus
on similarities rather than differences.” Thus the
urgency of convergence on a single standard of
review may have been overblown, at least if one
believes competition authorities.
19
32
OECD Competition Committee, Roundtable on Standard for Merger
Review, Summary of discussion, 2009, p. 9.
94. It should be mentioned, however, that the upbeat
assessment of competition authorities on the fact that
convergence on substantive standards of competition
analysis was already significant even before a number of
jurisdictions moved to a “substantial lessening of competition” standard and is even more pronounced now is not
universally shared. Some commentators have taken the
view that divergences in substantive standards of review
tend to increase across the world in spite of the movement toward convergence among the largest and most
experienced jurisdictions.20
95. There are four possible reasons for this.
96. First, the convergence toward the economic standard
of “substantial lessening of competition” may actually
be a convergence toward a standard which is complex
to implement, particularly for coordinated effects, and
which gives a fair amount of discretion to competition authorities. As the summary of the discussion of
the OECD Competition Committee Roundtable on
Economic Evidence in Merger Analysis held in 2011
stated: “The conceptual economic framework for unilateral effects is clear: it relates to the loss of competition
between two firms selling substitute products and is usually
applicable to differentiated products markets. There are a
wide range of empirical techniques that can be used to test
for unilateral effects. On the other hand, economics provide
less predictive precision for coordinated effects. The exact
conditions under which the loss of a competitor will move
the market from a competitive equilibrium to a collusive
equilibrium, or from one collusive equilibrium to another,
higher priced collusive equilibrium, are difficult to predict.
The result is that there are far fewer empirical techniques
available for the assessment of coordinated effects cases.”
97. Thus, when assessing the same theory of harm
competition authorities may interpret the evidence differently and come to different conclusions.
98. Second, when applying the standard of “substantial lessening of competition,” competition authorities
may use different theories of harm. While a number of
competition authorities have published guidelines detailing the methodology that they will use to implement the
substantive standard of merger control, even these guidelines may be a source of divergence among competition
authorities.
99. To illustrate this point Larry Fullerton and
Megan Alvarez take the example of the 2010 U.S.
Horizontal Merger Guideline and they consider that
“the sections on competitive effects analysis in the 2010
Guidelines introduced new changes that may actually
contribute to increased divergence, or at least cloud an
emerging consensus among major jurisdictions.” They
are particularly concerned by a section of the guidelines
which states that “[e]nhanced market power may also
make it more likely that the merged entity can profitably
20
See, for example : L. Fullerton and M. Alvarez, Convergence in International
Merger Control, Antitrust, Vol. 26, No 2, Spring 2012.
I Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
position for the merging parties. A dominant position
is not defined in economic terms but rather in legal
terms and the definition could vary from one country
to another. Second, the SLC test can help competition
authorities block mergers which do not create a dominant position for the merging parties but strengthen an
oligopoly (and could lead to coordinated effects). If it
must be acknowledged that countries which had a dominant standard and extended the concept of dominance
to collective dominance could, however, catch some or
most of the situations where a merger could lead to coordinated effects. However, even in countries which had a
wide interpretation of the concept of dominance, some
vertical or conglomerate anticompetitive mergers could
not be blocked.
If there is a fair amount of convergence
on why some horizontal mergers should
be prohibited, there is much less consensus
about how one should analyze the effects
of vertical mergers
100. Third, if there is a fair amount of convergence on
why some horizontal mergers should be prohibited, there
is much less consensus about how one should analyze the
effects of vertical mergers. As the background note of the
OECD Competition Committee Roundtable on Vertical
Mergers22 notes: “Unlike any consensus that might exist
regarding horizontal cases—both mergers between and
agreements among competitors—there is not a consensus
regarding appropriate enforcement policy with respect to
vertical mergers. This is reflected in controversy over the
merits of cases pursued by the Federal Trade Commission
and the Department of Justice in the United States and by
the European Commission over the last decade or so; typically either the absence of official vertical merger guidelines or their apparent irrelevance to enforcement practice;
and concerns that the economics of vertical mergers is not
yet sufficiently developed to allow identification of ‘clear,
bright-line principles’ that might form a consensus and
underpin enforcement guidelines.”
101. Fourth, in the countries where the competition law
has public interest goals, the competition authorities may
be required to take into consideration specific factors
which do not belong to competition analysis. For example, in China, in addition to the competitive impact of the
merger, MOFCOM must take into account “the influence
of the concentration on the national economic development.”23 In India the CCI must take into account in its
assessment of a merger its “relative advantage, by way
of the contribution to the economic development”24 and,
in South Africa, the competition authority must, inter
alia, take into consideration the impact of the merger on
employment.25
21
U.S. Dep’t of Justice & Fed. Trade Commission Horizontal Merger
Guidelines, §§ 1, 6 (2010).
22
OECD Competition Committee, Best Practice Roundtable on Vertical
Mergers, 2007.
23
Chinese AML, Articles 1, 27(v).
24
Indian Competition Act, 2002 No 12 of 2003, § 20(4)(m).
25
South African Competition Act, § 12A(3).
VI. Merger remedies
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L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
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and effectively engage in exclusionary conduct,” and state
that adverse unilateral effects may include “exclusionary
unilateral effects.”21 They point out that neither the
merger guidelines issued by the Canadian Competition
Bureau nor the guidelines issued (after the U.S. guidelines) by the Bundeskartellamt refer to a merger theory
of harm based on exclusion and they conclude: “Thus, by
including this new theory of harm in the 2010 Guidelines,
the U.S. agencies may have actually diverged from the
consensus that was developing around focusing on unilateral and coordinated effects in horizontal merger analysis.”
102. One usually distinguishes three different types of
merger remedies: structural remedies, behavioural remedies and mixed remedies.
103. The ICN Merger Remedies Review Project Group
(ICN 2005) characterizes structural remedies as “one-off
remedies that intend to restore the competitive structure of
the market.” Structural remedies may involve the sale of
the assets necessary for the purchaser to be an effective
long-term competitor, the divestment of an existing business entity or the sale or licensing of intellectual property
rights in order to create new competitors.
104. Behavioural remedies are designed to modify or
constrain the behaviour of merging firms. They may involve
granting competitors access to infrastructure (typically
in regulated sectors such as telecommunications and
energy), firewalls, non-discriminatory mandatory licensing, transparency and anti-retaliation provisions, fair
dealing provisions, termination of exclusive agreements.
105. Competition authorities on both side of the Atlantic
have historically professed their preference for structural
remedies over behavioural remedies at least for horizontal merger cases.
106. Structural remedies are considered by competition
authorities to be superior to behavioural remedies for a
variety of reasons. First, structural remedies are of immediate and permanent effect whereas behavioural remedies
usually operate only for a period of time. Second, as the
contribution from Israel stated in a recent debate on
merger remedies at the OECD Competition Committee:
“Structural conditions are designed to solve the root of the
problem. Behavioural remedies, on the other hand, deal
with anticompetitive behaviour resulting from a change in
market structure and therefore only address the symptoms
of the anti-competitive concern that arises from the merger.”26 Third, behavioural remedies are usually considered
to require some form of monitoring and therefore tend
to be more costly to implement than structural remedies.
Fourth, structural remedies are considered to be easier
to conceive and to implement. As the DOJ Policy Guide
suggests,27 “structural remedies are relatively clean and
certain, generally avoid costly government entanglement
in the market, and are more difficult to circumvent than
behavioural remedies.”28
107. The preference for structural remedies was also
expressed by a number of countries besides the EU and
the U.S. during the aforementioned OECD roundtable.
26
OECD Competition Committee, Best Practice Roundtable on Remedies in
Merger Cases, Paris, 2011.
27
2004 DOJ Policy Guide at p. 7.
28
See also United States v. E.I. du Pont de Nemours & Co., 366 U.S. 316,
330-31 (1961): “Divestiture has been called the most important of antitrust
remedies. It is simple, relatively easy to administer, and sure. It should be in
the forefront of a court’s mind when a violation of § 7 has been found.”
Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment I
33
108. Hungary stated: “Structural remedies, especially
in the form of divestitures, are thought to be preferable,
inasmuch as they durably and permanently prevent the
competition problem and do not, moreover, require medium
or long-term monitoring measures. Indeed, in recent cases,
the HCC has shifted its decisional practice from accepting
behavioural remedies to the use of divestitures, as the main
instrument of remedial action against foreseeable competition problems (mainly of horizontal nature).”
109. Israel stated:” [T]he IAA sees a clear advantage in
using structural remedies over behavioural ones; there are
exceptional circumstances where behavioural remedies
may be appropriate, however.”
110. The UK stated: “In merger inquiries, the UK
Authorities generally prefer structural remedies, such as
divestiture or prohibition, rather than behavioural remedies
because they are likely to deal with the competition problem directly and comprehensively at its source; behavioural
remedies may create significant distortions in market
outcomes; and structural remedies do not normally require
monitoring and enforcement once implemented.”
111. Along the same lines, the French contribution to
the OECD roundtable stated: “(…) behavioural measures
consist of determining a behaviour that the parties agree to
adopt after the merger on the basis of terms, contractual or
otherwise, that the Autorité, which suffers from information
asymmetries vis-à-vis the merging parties, can only control
imperfectly. Testing commitments with market players and
the merging firms’ customers may serve as a ‘safety net’
by pointing to terms that are likely to allow the parties to
circumvent their obligations or to avoid solving competition
problems, but the Autorité is still dependent on the expertise and vigilance of third parties whose primary role is not
to preserve markets’ competitive structures; behavioural
measures require the Autorité to make a considerable
effort to monitor commitments since they force the parties
to adopt a certain behaviour over time. Unlike structural
measures, controlling the effective implementation of a
given behaviour requires making judgment calls that the
Autorité is ill equipped to make.”
34
112. However, views on the respective advantages and
disadvantages of structural and behavioural remedies for
mergers have evolved over time.
113. There are acknowledged cases in which structural
remedies are not possible or even appropriate and, even
if appropriate, not effective.
114. For example, the 2005 ICN Merger Remedies
Review Project Report identified three types of risks
to the divestiture process and three types of situations
where behavioural remedies for mergers may be more
appropriate than structural remedies.
Competition authorities on both side of
the Atlantic have historically professed
their preference for structural remedies
over behavioural remedies at least
for horizontal merger cases
115. With respect to the risks associated with the
divestiture process, the ICN classifies them under three
categories: the composition risk, the purchaser risk and
the asset risk. The composition risk arises from the fact
that the competition authority, because of information
asymmetries may not be in a position to judge whether a
divestiture package is sufficient to permit the acquirer to
become a viable and effective competitor. The purchaser
risk arises from the difficulty of finding an adequate
buyer, i.e. a buyer who will become a strong competitor to
the merging firms. One of the underlying problems here
is that the acquirer may have an incentive not to compete
too strongly with the merged firms so as not to devalue
the assets it has acquired from them. Finally, the asset
risk comes from the possibility that the merged firms will
be able to decrease the value of the assets to be divested
before the divestiture actually takes place.29
116. Further to these potential difficulties which may explain
that structural remedies are not always successful, the ICN
study identifies three types of cases where behavioural remedies may be more appropriate than structural remedies:
– when a divestiture is not feasible or subject
to unacceptable risks (e.g. absence of suitable
buyers) and prohibition is also not feasible (e.g.
due to multi-jurisdictional constraints), or
– when the competitive detriments are expected
to be limited in duration owing to fast changing
technology or other factors, or
– when the benefits of the merger are significant
(e.g. in some vertical mergers behavioural
remedies are substantially more effective than
divestitures in preserving these benefits in the
relevant case).
29
On the risk of post-merger collusion between the parties to the merger and
the acquirer of the divested assets and on how to alleviate this risk, see
M. Motta, P. Michele and H. Vasconcelos, Merger remedies in the European
union: An overview, presented at the symposium Guidelines for Merger
remedies-Prospects and Principles, École des Mines, Paris, January 2002.
I Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
For example, Canada stated: “(…) the Bureau’s general
approach to the design and implementation of merger
remedies (…) strongly favours structural remedial measures, whether alone or in conjunction with behavioural or
quasi-structural elements that complement the primary
structural remedial measure. Structural remedies are
seen as being more effective than behavioural remedies
for a number of reasons, including the cost and certainty
associated with the remedy. Generally, the terms of structural remedies are clearer, more certain and often readily
enforceable, and less costly to administer than those of
behavioural remedies. Although the divestiture of assets is
the most common form of structural remedy used by the
Bureau, alternate structural remedies include the prohibition or dissolution of a merger, which may be required
when divestiture(s) or other less intrusive remedies are
unavailable. Between 2006 and 2011, approximately 80%
of registered consent agreements contained a structural
remedy.”
118. Similarly, Germany emphasizes the necessity to find
effective remedies and states: “In principle, both structural
and behavioural remedies are possible in German merger
control proceedings. The important requirement is that
remedies must be effective. Divestments in particular
can be regarded as effective remedies if they remove the
overlap created by a merger or reduce the horizontal overlap to a degree that eliminates the competition problem.
Behavioural remedies are often more complex to design
and to implement and their success is sometimes more
uncertain. German law rules out remedies that lead to a
situation in which the Bundeskartellamt has to intervene
or to monitor the behaviour of the merging parties on a
permanent basis (Sec. 40 para. 3 Act against Restraints of
Competition, ‘ARC’). The role of the authority is normally
limited to a one-off intervention and merger control should
not create a situation in which the authority has to assume
the role of a sectoral regulator. This legal requirement is
sometimes misunderstood by commentators as ruling out
behavioural remedies altogether.”
119. The contribution from the UK also emphasized
the importance of an open mind to try to identify the
most effective remedies: “The UK Authorities consider
both structural remedies (divestiture and prohibition) and
behavioural remedies (including intellectual property remedies, enabling measures and measures to control outcomes).
The choice of remedies will reflect the circumstances of
each inquiry but the UK Authorities seek to select remedies
that effectively address the SLC and its resulting adverse
effects and that are the least costly, effective remedies.”
120. In Canada: “The Bureau will consider the use of standalone behavioural remedies only in cases where the remedy
is sufficient to eliminate the identified substantial lessening
or prevention of competition arising from a merger and
there is no appropriate structural remedy available. In such
instances, the Bureau will only agree to a standalone behavioural remedy when it is certain that the remedy will require
either no or minimal future monitoring by the Bureau and
it will be enforceable by either the Bureau or the Tribunal.
(…) An example of a case involving a standalone behavioural remedy is The Coca-Cola Company – Coca-Cola
Enterprises Inc. Competition concerns were identified with
regard to the proposed merger between The Coca-Cola
Company (‘TCCC’) and Coca-Cola Enterprises Inc.
(‘CCE’). The Bureau concluded that the transaction would
have substantially lessened competition by allowing TCCC
to access commercially and competitively sensitive information of third parties who obtain bottling services from
CCE. The Bureau and the merging parties entered into a
consent agreement that prevented the merged entity from
accessing third party commercially and competitively sensitive information outside the contract-bottling context.”
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
117. Along those lines, even in the U.S., where the
Department of Justice strongly favours structural remedies, the Antitrust Division Policy Guide to Merger
Remedies published in 2011 emphasizes the necessity
to find effective remedies whether structural or behavioural which signals a shift with the past. It states:
“The Division’s focus is on effective relief for the particular
merger presented. In certain factual circumstances, structural relief may be the best choice to preserve competition.
In a different set of circumstances, conduct relief may be
the best choice. In still other circumstances, a combination
of both conduct and structural relief may be appropriate.”
121. The French contribution to the OECD Competition
Committee Roundtable on Merger Remedies stated:
“Behavioural remedies are better suited to remedy competition impediments that result from vertical or conglomerate integration (….) Out of a group of nine decisions (…)
that raised strictly vertical or conglomerate effects, almost
all of the remedies adopted were behavioural measures;
only one decision adopted both behavioural and structural
commitments.”
122. Similarly the contributions from Finland stated:
“In some of the remedy packages approved by the FCA, the
commitments have consisted of only behavioural remedies
without any structural elements. Usually the behavioural
remedies have consisted of access requirements and fair
dealing clauses (e.g. non-discrimination). These types
of remedies have often been accepted in cases where the
competition concern in question has been related to a
vertical relationship between the acquirer and the target
company. In order to avoid harmful exclusionary market
effects resulting from the merger, the FCA has approved
behavioural remedies, if a divestiture or a prohibition of the
merger has not been considered appropriate.”
123. An important development in the debate between
structural and behavioural merger remedies has been the
publication in the early 2000 of various ex post studies of
merger remedies on both sides of the Atlantic.
124. In 1999, the FTC issued a study of its divestiture
process.30 The study tried to assess how the buyers of
the divested assets fared and whether those divestiture
remedies were effective to restore or maintain competition. It concluded that three-quarters of the divestitures
ordered in the sample had been successful at maintaining
competition; that divestitures of ongoing businesses
succeeded more frequently than divestitures of specific
assets; that having a continuing relationship with the
merged firms following the purchase of the divested assets
can disadvantage buyers, but that ongoing relationships
were necessary for some buyers to succeed; and that the
buyer’s knowledge and experience in the business is more
relevant than its size.
125. The study also pointed some of the difficulties that
could arise in divestitures, such as the fact that the buyer
has limited resources or expertise, which means it may
face difficulties in continuing the business, or the fact that
the buyer may lack information about the divested assets.
126. The EU published its own merger remedies study
in 2005.31 The study concluded that of the 85 remedies
for which the effectiveness evaluation was possible (out
30
A Study of the Commission’s Divestiture Process.
31
European Commission, DG Comp, Merger Remedies Study, October 2005.
Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment I
35
127. As noted by F. Lévêque,32 the failures of structural
remedies were due in a number of cases to numerous
obstacles and in particular to the strategic behaviour of
merging firms33 and to the failure of trustees to perform
their job properly.34 Additionally, remedies involving
intellectual property rights seem to almost always be
ineffective.
128. Because those two merger remedy studies showed
that in horizontal merger cases there could be monitoring problems the structural remedies, and that therefore
behavioural remedies could be complementary to structural remedies, they were instrumental in bringing to the
fore a slightly different perspective on the issue of structural remedies and behavioural remedies.
“ The structural/behavioural dichotomy
should not be taken to imply that the two
sorts of remedies are mutually exclusive ”
129. In any case, as the background note for the OECD
Competition Committee Discussion on Merger Remedies
notes in 2011: “The structural/behavioural dichotomy
should not be taken to imply that the two sorts of remedies are mutually exclusive. It is sometimes necessary to
use a combination drawn from both categories, and some
behavioural measures can be regarded as quasi-structural.
Some behavioural remedies, such as irrevocable licenses
in intellectual property right, may have effects that are
very similar to the effects of structural remedies. Some
competition authorities find that structural remedies in
the form of divestitures are not always more efficient and
less costly than behavioural remedies. In particular where
divestiture would be impracticable or disproportionate in
32
François Lévêque, Are merger remedies effective in the EU? CERNA
Working paper, February 2007.
33
For example, the buyer of a technology business found out that it was
unable to attract new customers because it did not have a state-of-the art
demonstration plant. A buyer was not given sufficient time to examine the
accounts and the technical processes and discovered later on that it was
missing key employees, customer documentation and other essential assets.
A buyer lost half of its customers because it remained dependent on the
seller’s network, which the seller operated negligently, offering substandard
service. In another case, during the divestiture period, the seller stopped
promoting the brands included in the divestiture package, which means that
production fell below 70% of the target set at the time of the transaction, etc.
34
36
For example, in one case a department of an investment bank was the
seller’s Merger and Acquisition advisor while another department of the
bank acted as the trustee, with the latter relying on information provided by
the former to assess the performance of the divested business.
order to remedy the adverse effects arising from a merger,
behavioural remedies might sometimes be preferable.
This will apply especially in the case of mergers with vertical elements, and where markets are quickly developing and
future developments are difficult to anticipate.”
130. Along the same line, Canada in its contribution
to the OECD Roundtable on Merger Remedies (while
emphasizing its general preference for structural remedies
whenever possible, as we saw earlier) states: “The Bureau
recognizes that the use of combination remedies, that is,
the combination of certain behavioural terms with structural relief, may help to ensure the implementation of an
effective remedy, particularly where such behavioural remedies are used during transition periods until a competitive
market structure has developed. The inclusion of behavioural elements in a remedy may contribute to the success
of a buyer of divested assets by providing the buyer with
the ability to operate effectively and as quickly as possible
in the relevant market. As with standalone behavioural
remedies, the Bureau will not agree to such behavioural
measures, unless they require minimal on-going monitoring
by the Bureau and are enforceable by either the Bureau
or the Tribunal (...) An example of the use of a combination remedy is Suncor Energy Inc. – Petro-Canada.
The Bureau concluded that the proposed merger between
Suncor Energy Inc. and Petro-Canada would be likely to
result in a substantial lessening or prevention of competition in the retail marketing of gasoline in southern Ontario
and in respect of the wholesale supply of gasoline in the
Greater Toronto Area.”35
131. In the same roundtable, the written contribution
from Hungary states: “Not inconsistent with the general
consensus of preference for structural remedies, the HCC
will, more often than not, employ a combination of structural and behavioural remedies. Indeed, the HCC’s experience has shown that certain behavioural remedies, when
complementing a core structural remedy, may be effective,
particularly if used during a transitional or bridging period,
until a competitive market structure develops. Therefore,
an effective structural remedy may require behavioural
measures for a specified period in order, for example, to
secure supplies of an essential input or service from the
merged parties to the divested unit or other rivals. Such
was the case in the ELPE/BP (…), whereby ELPE further
committed to grant access to third parties (wholesalers) to
its storage facilities/depots in Crete, under fair, reasonable
and non-discriminatory terms (FRAND).”
132. The EC Notice on acceptable remedies (2008) states:
“(…) commitments which are structural in nature, such as
the commitment to sell a business unit, are, as a rule, preferable from the point of view of the Merger Regulation’s
objective, inasmuch as such commitments prevent, durably,
35
The Canadian contribution to the OECD debate gives an example of a case
where the combination of structural and behavioural remedies was used:
“An example of the use of a combination remedy is Suncor Energy Inc.
– Petro-Canada. The Bureau concluded that the proposed merger between
Suncor Energy Inc. and Petro-Canada would likely result in a substantial
lessening or prevention of competition in the retail marketing of gasoline in
southern Ontario and in respect of the wholesale supply of gasoline in the
Greater Toronto Area.”
I Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
of 96 remedies studied), 57% (49) had been effective—
meaning that that the remedies had clearly achieved
their competition objectives—31% (26) had been only
partially effective—meaning that the remedies experienced design and implementation issues which were not
fully resolved three to five years after the divestiture and
which may have partially affected the competitiveness of
the divested business—or ineffective—meaning that the
remedies had failed to restore competition—and that
situation was unclear for 12%—meaning that the study
could not determine whether the remedy had achieved its
objective.
133. It is worth noting that within the EU there seems
to be differences between the practices of the various
national competition authorities. For example, Hoehn37
provides a comparative analysis of national merger
remedies practices in seven European countries—France,
Germany, Italy, the Netherlands, Spain, Switzerland and
the UK—over the period 2000-2008 and, by looking
at 230 national merger decisions, finds that there are
diverging trends between industries and jurisdictions.
While structural remedies tend to dominate with over
two thirds of all decisions being structural in nature, or
including a structural remedy element, there are significant differences between countries and sectors. He states
that “the seven countries have followed the preference of
the European Commission in favoring structural remedies
over behavioural ones. However, this pattern is driven by
the UK, Germany and the Netherlands, while France, Spain
and Switzerland have favored behavioural commitments
(and to a lesser extent so has Italy). Overall, this analysis
suggests that while there may be increasing harmonization
in the merger control laws and procedures across countries,
in their practice and application different NCAs take
different paths.”
Within the EU there seems to be differences
between the practices of the various
national competition authorities
134. An element which may have contributed to facilitating the adoption of behavioural remedies in some
European countries is the growing tendency of competition authorities (in Europe) and of DG Comp in the EU
to appoint monitoring trustees in cases where structural
remedies have been imposed as well as in cases when
long-term behavioural remedies were selected as the
36
Merger Remedies Study, DG Comp, European Commission, October 2005,
available at: ec.europa.eu/competition/mergers/legislation/remedies_study.pdf
37
T. Hoehn, Structure Versus Conduct – A Comparison of the National
Merger Remedies Practice in Seven European Countries, paper presented at
the Conference on the Ex-post Evaluation of Competition Policy organized
by the Centre for European Economic Research (ZEW), Mannheim, 3-4
June 2009. He states: “[T]he 234 cases in our sample (…) fall approximately
50/50 between the three northern countries (115 cases or 49%) and the five
southern countries (119 cases or 51%). In fact we observe 75 structural only
remedies cases in the North (73% of the total) and only 28 such cases in
the South (27%). This unequal distribution also holds for the cases decided
in the four network and infrastructure sectors (22 cases in the North vs.
9 cases in the South, or 71% v 29%) and compared with all the other sectors
(53 cases in the North and 19 cases only in the South, or 74% v 26%). In
other words the number of cases subject to structural remedies only are
decided to a large extent in the three countries of Germany, Netherlands
and the UK.”
most appropriate to alleviate the competition problems.
The monitoring cost, which is presumed to be the main
disadvantage of behavioural remedies vis-à-vis structural
remedies, may not be as great as usually argued since
the monitoring function can be entrusted to a trustee.
As Jonas Brueckner and Thomas Hoehn (writing in
September 2010) point out: “(…) over the last five years
91 out the 99 conditional merger cases decided by the
Commission contained a monitoring trustee provision,
and in the last two years every merger cases cleared
subject to conditions and obligations contained such a
provision.”38 When trustees are appointed in cases where
behavioural commitments have been imposed, the function of the trustee is akin to that of a regulator.
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
the competition concerns which would be raised by the
merger as notified, and do not, moreover, require medium
or long-term monitoring measures.” Data from the EU
merger remedies study of 200536 suggest that between
1996 and 2004 DG Comp published 91 merger decisions
with 227 remedies: 84% of these remedies were structural remedies (transfer of a market position or of a
stand-alone business, extensive carve-outs, transfer of a
package of assets, long term exclusive licenses, exit from
a joint venture), 10% were bahavioural (grant access) and
6% are classified as “other.”
135. We should add that contrary to the accepted
wisdom, behavioural remedies need not require longterm monitoring (for example when the condition for the
authorization of a merger is the cessation of an exclusivity contract) whereas, as we saw when discussing, the
merger studies structural remedies may require quite a lot
of monitoring of the firms during the time necessary for
the structural remedy to be implemented. So the difference of cost for the competition authorities between the
two types of remedies may be overstated.39
136. Finally, it is worth mentioning that it is possible that
the choice of remedies may be partly dependent on the
sectors in which the mergers take place. This hypothesis
is referred to by Finland in the OECD Roundtable on
Merger Remedies when it states: “The effect of each
remedy type is also dependent on the business sector in
question. For example, in the Elisa/Saunalahti case—a
horizontal merger between two telecom operators in
2006—the FCA stated that especially in the telecom sector,
the infrastructure plays a significant role and therefore the
concentration could not be accepted without structural
remedies. On the other hand, in two cases, where Finland’s
major dairy products company Valio has acquired smaller
dairy co-operatives, the commitments have consisted of
only behavioural remedies (access to raw milk supply, packaging services etc.) and this has been considered sufficient
without any structural elements.” The same hypothesis is
examined by Hoehn in the paper previously discussed.
He observes, for example, that in the seven European
countries there is a preference for structural remedies in
mergers in the retail sector, whereas there is a preference
for behavioural remedies in the form of access to content
and infrastructure in the broadcasting and communication sector or measures to ensure editorial independence.
Thus, differences in the sectors where the mergers took
place may go some way toward explaining the observed
differences in the preferences for behavioural remedies
versus structural remedies in the European countries
studied by Hoehn.
38
Monitoring Compliance with Merger Remedies – The Role of the
Monitoring Trustee, available at: www.competitionrx.com/documents/
ArticlesAndreports/ Brueckner_u_Hoehn_Role of Monitoring Trustees_
CLI_Sept_2010.pdf.
39
See P. Rey, Economic Analysis and the Choice of Remedy, in Merger
Remedies in American and European Union Competition Law, Edward
Elgar Publishing, 2012.
Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment I
37
138. It thus may be that the increase in the relative number
of technology mergers leads competition authorities to
consider the use of behavioural remedies more frequently.
139. It is also clear that even when small countries have a
preference for structural remedies they intensively resort
to behavioural remedies. There are several reasons for
this, such as the difficulty of finding investors willing
to buy divested assets on a small market, fear of losing
efficiencies benefits from the merger, etc.
140. For example the Irish contribution to the
OECD Roundtable on Merger Remedies stated:
“The Competition Authority has, to date, employed both
structural and behavioural remedies. (…) the Competition
Authority does consider behavioural remedies in appropriate circumstances, such as where: – an alternative structural remedy is not feasible or workable; – an alternative
structural remedy is not proportionate, i.e., would restrict
pro-competitive elements of the merger in question beyond
that necessary or desirable to contain the adverse SLC
effect of the merger in question; and, – where a behavioural
remedy can complement and support a structural remedy
such as when the merged entity’s behaviour will need to be
modified in order for the structural remedy to be effective.”
141. Israel in its contribution to the OECD Roundtable
on Merger Remedies provided some charts showing that
even though it affirms a strong preference for structural
remedies, it has consistently imposed far more behavioural remedies than structural remedies in its merger
control.
142. If we now consider developing countries, they tend
to be more inclined to use behavioural remedies than
structural remedies. Several factors may come into play.
First, in some developing countries, merger control
may review mergers between firms which have no assets
locally. In those cases, the competition authority of the
country is not in a position to order a structural remedy
40
38
S. Sher and K. Kemp, A Comparative Analysis of the Use of Merger
Remedies in Technology Industries, CPI Antitrust Chronicle, December
2014.
and can only impose behavioural remedies. Second, in
some countries it might be difficult to find buyers for
the divested assets either because of the small size of
the product market or because of the lack of domestic
capital. Third, in countries which have public interest
provisions in their competition law, ensuring that the
merger meets the public interest standards often require
behavioural remedies (such as hiring local people or
procuring from local suppliers, etc.).
143. It should be noted, for example, that the contribution from South Africa to the OECD Merger Remedy
Roundtable had a position which was the opposite of
that of the other delegations from developed countries in
that it stated its preference for behavioural remedies over
structural remedies or even over prohibition of anticompetitive mergers. It stated: “Behavioural and structural
remedies may have advantages or shortcomings depending
on the circumstances of a case. The Commission’s approach
is to identify the remedy which is most appropriate in
addressing the anticompetitive harm. In instances where
behavioural conditions are sufficient to address the concern,
the Commission will not insist on a structural remedy.
(…) In addition to the competition concerns potentially
remedied the authorities often impose remedies to transactions in instances where a merger cannot be justified to
be in the public interest where for example the merger will
result in significant job losses and where affected employees
are unlikely to regain alternative employment in the short
term.” As a result, the South African competition authorities tend to use behavioural remedies much more frequently
than competition authorities in developed countries.
Developing countries tend to be more
inclined to use behavioural remedies
than structural remedies
144. The preference of South Africa for behavioural
remedies has been documented by Avias Ngwenya and
Genna Robb.41 They show that over the period 20002009 structural remedies have represented 32.4% of all
the merger remedies imposed in South Africa and behavioural remedies have represented 55.4 % of all remedies.
It is interesting to note that those figures are relatively
comparable to figures for Spain found in the EC Merger
Remedies Study. Indeed, in Spain structural remedies
represented 32.4% of all the merger remedies imposed
during the same period by the Spanish competition
authority and behavioural remedies represented 50% of
all remedies. The figures for South Africa are also relatively close to those for Switzerland (where the proportion
of structural remedies was 27.3% and the proportion of
behavioural remedies was 54.5%). So, the first consideration is that the preference for behavioural remedies from
South Africa does not lead the competition authority to
behave that differently from some members of the EU
(or from eastern Europe).
41
A. Ngwenya and G. Robb, Theory and Practice in the Use of Merger
Remedies: Considering South African Experience, available at: www.
compcom.co.za/wp-content/uploads/2014/09/NgwenyaRobbMergerRemedies.pdf.
I Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
137. Scott Sher and Kellie Kemp also emphasize the
importance of the sectoral dimension in the choice of
remedies (although their analysis seems to partially
contradict the Finland’s statement quoted previously).
They state: “Antitrust regulators reviewing technology
mergers frequently are confronted with complicated issues
related to remedies. Indeed, merger remedies in technology
markets often involve regulation of the merging parties’
post-merger conduct as opposed to so-called ‘structural’
remedies such as the sale of physical assets or intellectual
property. Although structural relief historically has been
the preferred remedy to resolve anticompetitive mergers,
non-structural relief may be more appropriate in many
technology mergers that are vertical in nature, involve
transfers of intellectual property rather than accumulation of physical assets, or raise complex network effects
issues.”40
medium enterprises, funded to the value of R100 million.
In the Kansai Paint/Freeworld merger case,45 which raised
both competition and public interest concerns, the
Competition Commission imposed behavioural conditions to solve the public interest concerns relating to
employment, deindustrialisation, a reduction (in investment) in research and development and the “effect on
[the] particular sector.”
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
145. Avias Ngwenya and Genna Robb note that the
important use of behavioural remedies in South Africa
may partly be due to the fact that a substantial number of
vertical mergers were reviewed during the period under
consideration. Out of the 60 mergers examined by the
competition authority, 17 were vertical mergers and 5
were mixed mergers having both a horizontal and a vertical dimension. Thus in total 37% of the mergers examined had a vertical dimension. The use of behavioural
remedies in those cases is not out of line with practices in
the EU and in the U.S.
147. It is thus quite clear that public interest considerations account for a substantial number of the behavioural
remedies imposed in South Africa. In addition, other
factors such as the relative small size of the economy may
also play a role.
146. Another specific feature which may explain the relatively frequent recourse to behavioural remedies in South
Africa lies in the fact that in this country a merger which
does not raise a competition issue may still be prohibited or subjected to remedies because of public interest
consideration. Among the public interest considerations
that the competition authority must take into consideration are the impact of the merger on employment,
on a particular region or industry, the ability of small
businesses or firms controlled by historically disadvantaged persons to become competitive, and the ability of
national industries to compete in international markets.
According to John Oxenham, “the impact of a proposed
merger on employment has been the core public interest
consideration and has received the greatest attention from
the South African competition authorities.”42 Thus, in a
number of mergers (even if they do not raise a competition issue) behavioural commitments were imposed for
public interest reasons. Thus, for example, in the Unilever
PLC v. Competition Commission and CEPPWAWU43
case the remedies were structural for the competition
issue raised by the merger (divestiture of some assets)
but also behavioural for the public interest issue raised
by the merger (the proposed buyer of the divested assets
had to consult with the trade unions or their employees
on the issue of any job losses). In the Momentum and
Metropolitan merger case,44 the Competition Tribunal
ultimately approved the merger under the condition that
there should be no layoffs in South Africa during the two
years following the merger. In the Walmart/Massmart
case there was no competition issue but concern about
the impact of the merger on the conditions and the
volume of employment and on the local procurement
of goods. The merger was approved by the Competition
Tribunal with behavioural obligations for the merged
parties to ensure there would be no retrenchments as a
result of the merger for a period of two years, to continue
to honour existing labour agreements and to establish
a programme aimed exclusively at the development of
local South African suppliers, including small, micro and
148. China is another country where there is great
reliance on behavioural merger remedies. For example,
between 2008 and August 2013, MOFCOM reviewed
more than 600 mergers, approved 97% of them, rejected
1 and approved 18 with conditions. Of those 18 mergers,
11 (61%) were approved with behavioural remedies and 4
(22%) were approved with structural remedies, while the
3 other cases (17%) involved a combination of structural
and behavioural remedies.46 Additionally, it should be
noted that China does not hesitate to impose behavioural
remedies in cases where other competition authorities have already imposed structural remedies such as
divestiture (as in the Thermo Fisher Scientific Inc./Life
technologies or the WD/Viviti merger) or in cases where
foreign competition authorities have all unconditionally
cleared the merger (such as in the Merck/AZ Electronic
case which had been cleared in Germany, Japan, Taiwan
and the U.S.).47 China has developed its own view of its
merger remedy policy. With respect to structural condition, it differs from the western consensus by occasionally imposing divestiture of assets, production capacities
shares in affiliates or shareholders which do not constitute a standalone business.48 With respect to behavioural
remedies, MOFCOM imposes a combination of standard
behavioural remedies (such as opening up commitments,
non-discrimination terms, termination of exclusive
contracts) and “creative” behavioural remedies such as
commitment to supply (in the Uralkali/Silvinit case or the
Xstrata/Glencore merger), prohibition of market expansion (in the InBev/Busch merger, the Mitsubishi/Lucite
merger or the Novartis/Alcan merger), hold separate
(in the Seagate/Samsung Hard Disk Drive Business, the
Western Digital/Hitachi Global Storage Technologies, the
Marubeni/Gavilon or MediaTek/MStar cases), obligation
to invest (in the Seagate/Samsung merger) or finally the
prohibition of certain market behaviour (in the Walmart/
HavenHolding merger case).
42
J. Oxenham, Balancing Public Interest Merger Consideration before
Sub-Saharan African Competition Jurisdictions with the Quest for MultiJurisdictional Merger Control Certainty, US-China Law Review, June 2012,
Vol. 9, pp. 211-227.
45
Kansai Paint Co LTD and Freeworld Coatings Limited, Competition
Commission, November 4, 2011
46
43
Unilever Plc, Unifoods, a division of Unilever South Africa (Pty) Ltd., Hudson
& Knight, a division of Unilever South Africa (Pty) Ltd., Robertsons Foods (Pty)
Ltd., Robertsons Foodservice (Pty) Ltd. and The Competition Commission of
South Africa, CEPPWAWU, FAWU, NUFBWSAW (55/LM/Sep01).
See S. Chan, J. Tsai, E. Xiao-Ru Wang, Merger Remedies with Chinese
Characteristics, CPI Antitrust Chronicle, August 26 2013
47
See J. Ratliff and F. Louis, International Merger Remedies, in I. Gotts (ed.),
Merger Control Review, 5th ed., chapter 46.
44
Metropolitan Holdings Limited and Momentum Group Limited (41/LM/
Jul10).
48
S. Ning, H. Yin, Z. Zhend, K. Ji, Review of Merger Control and Merger
Remedies Regime in China: From 2008-2013, Antitrust and Competition,
China Law Insight, King & Wood Mallesons
Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment I
39
149. The desire to ensure access to key commodities and
to protect key industries seems to have had an important
impact on the remedies chosen in the Uralkali/Silvinit
merger (access to potash at favourable conditions) and
the Marubeni/Gavilon merger, the Xstrata/Glencore
merger (access to minerals and ore), and the MediaTek/
MStar merger (access to an important input for Chinese
manufacturers).
150. In a number of those cases, the merging firms were
asked to engage an independent supervision trustee.
151. In Brazil, the law allows CADE to take whatever
measures are deemed necessary to remedy damages
caused by a transaction, including behavioural obligations and/or partial or full divestments or even the
dissolution or break-up of a company. CADE may order
partial divestitures, such as of brands, production facilities or distribution networks, or full divestiture of all the
assets acquired.
152. CADE is not shy about blocking anticompetitive
mergers and therefore does not favour remedies over
prohibition. For example, it blocked the acquisition of
Garoto by Nestlé in the chocolate topping market; in
2007 it ordered Companhia Vale do Rio Doce (CVRD),
a mining company which had acquired seven smaller
mining companies, to sell Ferteco and it blocked the
acquisition of Saint-Gobain’s glass fibre business by
Owens Corning.
40
plants, the sale of brands, the sale of stores in specific
geographic areas, the sharing of production facilities, or
the granting of access to exclusive distribution networks
as remedies tailored to the specific circumstances of the
market.
154. Structural remedies were imposed in the Nestlé/
Garoto case, in the Brahma/Antarctica case, in the
Petrobras/Agip case and in the Bompreço/Royal Ahold/
GBarbosa supermarket case.
155. In the case of the acquisition of Matte Leão by
Coca-Cola, a tea market merger in Brazil, CADE
approved the merger under the condition that Coca-Cola
would cease the production and distribution of Nestea
ice tea (which it produced and commercialized in a joint
venture with Nestlé).
156. In a number of horizontal mergers CADE has
adopted hybrid or conduct-based remedies.50 In the
Videolar/Innova case concerning the market for polyethylene and plastic resins, CADE imposed the following
behavioural remedies: (i) maintaining the same pre-merger
output level, (ii) investing in research and development to
foster competition in the market, and (iii) licensing for
free and on a non-exclusively basis the relevant patents
for a 5-year period. In the Oxiteno/American Chemical
deal, in the market for sodium laureth sulfate, CADE
requested that the merged firms charge a specific range
of prices for the five years following the clearance. In the
KPMG/BDO case, in the market for auditing services,
CADE requested a 24-month ban on KPMG from
engaging in other transactions through which it would
gain access to clients with over BRL300 million turnover.
153. When it does not block mergers, CADE professes to
prefer structural remedies to behavioural remedies, and it
is widely acknowledged that CADE “has been influenced
by the trend prevailing in competition authorities around
the world, based on the acknowledgement that it is more
effective to divest a functioning on-going business unit
rather than gathering bits and pieces that will have to be
made to work together in a mix-and-match approach.”49
But CADE’s approach is also described as reasonable
and pragmatic. For example, in the previously mentioned
paper, Marcelo Calliari and Joana Cianfarani state:
“CADE attempts to identify what are the main issues to
address in order to solve the competition problems raised
in each particular case. If it considers that brands are an
important element, it may order the divestment of a brand.
If it considers that production facilities are important for
entry, it may determine that the sale of the brand should
be coupled with the sale of a plant or, depending on the
actual physical assets available, with toll-production for
competitors. If distribution is seen as a barrier to entry,
CADE may impose the sale or sharing of a distribution
network (though the latter would be a last resort choice for
the authority, as it demands close communication between
competitors).” CADE has thus ordered the divestment of
157. In the DirecTV/Sky transaction, which created a
single satellite TV player in Brazil and raised both horizontal and vertical concerns, CADE imposed various
obligations. To solve the vertical concerns, it imposed
obligations not to discriminate in the sale of content to
other paid TV operators and not to acquire the transmission rights related to the most important sports events
on an exclusive basis. To solve the vertical problems, it
conditioned its approval to the fact that in areas where
the merged firm would have a monopoly it would have to
offer consumers the same prices and conditions it offered
in the areas where competition with cable was available.
49
50
M. Calliari and J. Cianfarani, Remedies in the Brazilian Antitrust
Experience: Issues in Structure and Incentives
158. Finally in the Telefónica/Telecom Italia case in the
mobile telephone services market, CADE imposed a mix
of structural and behavioural remedies, which consisted
in eliminating participation and voting rights of interlocking officers, while behavioural remedies comprised
those aimed at avoiding the exchange of competitive
sensitive information.
159. While CADE imposes behavioural remedies in a
large number of cases, it should be noted that there is
hardly any criticism of CADE for imposing such remedies
A. P. Martinez and M. Tavares de Araujo, Transnational Mergers: When
Less is More, CPI Antitrust Chronicle, December 2014(1).
I Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
China has developed its own view
of its merger remedy policy
Conclusion
160. These developments suggest a few final comments.
– First, two simultaneous movements may have
given opposite impressions about convergence
in competition law in general and merger
control in particular. On the one hand, among
countries which have had a long experience in
competition law enforcement there is clearly a
tendency to converge. But, on the other hand,
there has been a rapid increase in the number
of countries which have adopted a competition
law. The process of adopting a competition law
often implies trade-offs between the goal of
efficiency and either other economic goals or
socio-political goals which must be integrated
in the design of the competition law to make it
relevant locally. Thus there are more competition law regimes and some of the new regimes
may markedly differ from the older ones.
– Second, in the 1990s and the early 2000s
there has been a fair amount of convergence
on market definition or on the substantive
standards of analysis used to evaluate the
competitive implications of mergers over the
last twenty years. But, as competition authorities moved toward the “substantial lessening of
competition” standard they also moved toward
a standard which is more complex to implement
because it is economics based. The “substantial
lessening of competition” standard generally
provides less legal predictability, because many
different theories of harm can be articulated by
competition authorities to establish unilateral
anticompetitive effects and because economic
analysis is not very predictive, at least when it
comes to coordinated effects.
– Third, some of the differences among merger
control laws, for example with respect to the
definition of mergers which can be controlled,
may be explained by the economic specificities
of the countries considered. Some of those
differences, for example when it comes to the
merger review thresholds, tend to disappear
over time as competition laws are being revised,
or ICN or OECD best practices are adopted.
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
or any complaint about the fact that CADE is engaging
in “industrial policy.” There may be two reasons for this:
the first one is that unlike the case of China, the Brazilian
competition law does not include public benefit provisions and therefore CADE is not requested to take into
consideration goals other than economic efficiency in its
decisions. The second is that, as mentioned previously,
CADE has a pragmatic approach to merger remedies,
which are usually negotiated with the merging parties in
order for CADE to try to find the most appropriate remedies to meet the competition concern it has identified in
cases where blocking a merger would be disproportional.
– Fourth, the use of behavioural remedies is
not limited to developing countries and such
remedies are not necessarily more costly to
monitor than structural remedies, but the
use of such remedies in countries which have
public interest provisions in their laws can lead
the competition authorities of those countries
to impose constraints on the behaviour of
merging firms which are far removed from or
even inconsistent with what could be justified
from an economic efficiency point of view.
– Fifth, a large part of the remaining divergences
on substantive issues in merger control are due
to differences in the goals of national competition law or to the differing economic characteristics of countries rather than to the lack of
experience of “young” competition agencies or
their “strategic” implementation of the competition law of their country.
161. When differences on the substance of merger reviews
are grounded in differences about what the goals of
competition laws, competition authorities, which have to
implement their national laws whether they like them or
not, may not have a great deal of freedom to “converge”
with other jurisdictions.
162. Thus, over and beyond what is usefully done to
promote best practices among competition authorities
and to provide technical assistance to newly formed
competition authorities, if it wants to promote international convergence, the competition community should
focus on the best ways to make competition laws and
competition law enforcement more friendly to growth
and development. Indeed it is only if governments are
convinced that competition laws are useful tools for
economic growth and development that they will not feel
compelled to make them “more legitimate” by assigning
them public interest goals. n
Concurrences N° 1-2015 I Law & Economics I Frédéric Jenny I Substantive convergence in merger control: An assessment I
41
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