Cover – option 3
Oligopolies
and structural remedies
under the EUMR
20th St. Gallen ICF 2013
Presentation by Dr. Frank Montag, 5 April 2013
Freshfields Bruckhaus Deringer LLP
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Overview
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Scope of presentation
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•  Focus on remedies in oligopoly merger cases (as opposed to single firm
dominance cases)
•  To what extent does the Commission’s policy of requiring structural (as
opposed to behavioural) remedies also make sense oligopoly cases?
Structure of presentation
•  Structural remedies to address coordinated effects
-  Firms consider it possible and economically ration to sell at increased prices
by coordinating their behaviour without entering into an agreement or
resorting to a concerted practice (“tacit collusion”)
•  Structural remedies to address oligopolistic non-coordinated effects (“gap”
cases)
-  Merged firm has the ability to unilaterally raise price without being dominant
•  Conclusion: structural versus behavioural remedies in oligopoly cases
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Coordinated effects: Conditions for Tacit Collusion
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Airtours citeria
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•  Ability to establish terms of coordination (focal point)
•  Monitoring mechanisms
•  Credible deterrent mechanisms (punishing deviations)
•  Outside competition insufficient to undermine coordination
Examples
•  Horizontal mergers
-  Merger increases symmetry of the oligopoly
-  Joint venture creates structural links between oligopolistic suppliers
-  Merger eliminates “maverick” competitor
•  Vertical mergers
-  Acquisition of customer with access to competitors’ pricing information leads
to increased transparency
-  Merged firm becomes a crucial supplier or customer thus enhancing its ability
to punish deviations from the coordinated behaviour
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Coordinated effects: Remedies (1)
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European Commission Practice since 1991
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•  35 cases with remedies where the theory of harm was based on coordinated
effects (joint dominance)
•  Remedies Notice silent on which type of remedy is suited in a coordinated
effects case to remove the competition concern
-  Remedies must be designed to change at least one of the four Airtours
conditions
-  Theoretically both structural and behavioural remedies are possible to
achieve this goal
-  Structural: divestment of assets, granting of a licence
-  Behavioural: e.g. reduce cooperation between members of oligopoly,
restrict information flows
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Coordinated effects: Remedies (2)
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Divestment remedies
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Effect of divestment
•  Create, strengthen or preserve oligopoly outsider (4th Airtours criterion)
•  Avoid reduction of number of players active on market (1st Airtours criterion)
Examples
•  M.4980 – ABF/GBI Business: divestment prevented reduction of number of
players from 3 to 2; acquirer expected to introduce a “destabilizing element”
•  M.5467 – RWE/Essent: sale of controlling stake in small oligopoly outsider to
independent third party
Potential issues with divestment remedies
•  Divestment to other oligopolist may raise new competition concerns
•  Divestment to small outside competitor: possibility that competitor joins
coordination post-divestment as a result of increased scale?
•  Divestment to new entrant: sufficient resources and experience to become
viable competitor?
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Coordinated effects: Remedies (3)
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Remedies other than divestitures
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Effect of remedies
•  Modifying conditions of competition as between the oligopolists (1st, 2nd and
3rd Airtours criteria)
Examples
•  M.3099 – Areva/Urenco/ETC: JV between oligopolists; commitment to remove
veto rights regarding JV’s capacity expansions / “firewalls” to limit information
flow between JV and parents
•  M.3863 – TUI/CP Ships: commitment to withdraw from liner conference
•  M.3765 – Amer/Salomon: commitment to modify (not terminate!) cooperation
agreement with competitor of merged entity
ð commitments to sever commercial links between competitors are (almost) as
frequent in coordinated effects cases as divestment remedies
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Non-coordinated effects in oligopolies:
Conditions for unilateral effects in gap cases
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Typical examples of “gap” cases
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•  Homogeneous product market: all but the merging firms are capacity
constrained
•  (Highly) differentiated product market: merging parties are particularly close
competitors
•  Target is a “maverick” competitor
Recent “gap” cases: H3G/Orange, UPS/TNT
•  Merging parties were neither “particularly” close, nor was the target a
“maverick” or were the remaining competitors capacity constrained
•  Increasing reliance on UPP/GUPPI test and economic modelling
Comparison with coordinated effects cases
•  Effects of “gap case” mergers do not necessarily remain inter partes: “feedback
effects” on other competitors possible (para. 24 Horizontal Merger Guidelines)
•  Feedback effects can also arise in markets without monitoring/punishment
mechanisms
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Non-coordinated effects in oligopolies:
Remedies
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Effect of remedies
•  Replacing competitive constraints which are lost through the merger, typically
via divestment
•  Commitment to sever links between competitors normally unsuitable in “gap”
cases, as “feedback effects” can arise in the absence of coordination, i.e.
without effective monitoring / deterrent mechanisms
Examples
•  M.3916 – T-Mobile Austria/tele.ring: spectrum divestment to small competitor
who on that basis was expected to take over the “maverick” role from the target
•  M.5355 – BASF/CIBA: divestment of BASF’s “DMA3” business to an
independent third party prevented reduction of number of players from 3 to 2
•  M.6497 – Hutchinson 3G Austria/Orange Austria: MVNOs are granted
wholesale access to H3G’s network; spectrum divestment to new entrant
conditional on such new entrant acquiring spectrum at upcoming frequency
auction
•  Oracle/Sun Microsystems (atypical case): no formal remedy; Oracle’s “promise”
to maintain open source character of Sun’s software MySQL was taken into
account as a fact
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Conclusion: Structural versus behavioural remedies
in oligopoly merger cases
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Commission general policy (Remedies Notice, para. 15)
•  Structural remedies “as a rule” preferable
Limitations / exceptions
•  ECJ C-12/03 - Tetra Laval: behavioural remedies must also be considered
•  Purely behavioural “remedy” was taken into account as a fact (Oracle/Sun
Microsystems)
•  Term “structural” open to interpretation
-  Commission accepted behavioural elements in a number of remedy
solutions: commitments to sever links with competitors (e.g. Areva/Urenco);
access remedy in H3G/Orange
-  Requirements for structural remedies:
-  “No ongoing monitoring“ – can often be achieved through “self-executing”
mechanisms (e.g. fast-track dispute resolution)
-  “Durably preventing competition concerns” – clear-cut structural remedy
required in the presence of particularly strong concerns; where
Commission‘s case is less strong, Commission may be prepared to accept
remedy with certain behavioural elements
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Disclaimer
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Thank you for your attention
BRU4600775
This material is for general information only and is not intended to provide legal advice.
© Freshfields Bruckhaus Deringer LLP 2013
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