Keywords
Summary

Keywords

1. Competition – Concentrations – Assessment of compatibility with the common market – Creation or strengthening of a dominant position – Prospective analysis

(Council Regulation No 139/2004, Arts 2(3) and 8(3))

2. Competition – Concentrations – Examination by the Commission – Commitments by the undertakings concerned capable of rendering the notified transaction compatible with the common market – Obligation on the part of the Commission to examine the concentration as amended by the commitments

(Council Regulation No 139/2004)

3. Competition – Concentrations – Examination by the Commission – Economic assessments – Discretion – Judicial review – Limits

(Council Regulation No 139/2004, Art. 2)

4. Competition – Concentrations – Assessment of compatibility with the common market – Concentration of two airlines

(Council Regulation No 139/2004)

5. Competition – Concentrations – Assessment of compatibility with the common market – Creation or strengthening of a dominant position – Evidence – High market shares – Concentration of two airlines

(Council Regulation No 139/2004)

6. Competition – Concentrations – Examination by the Commission – Definition of the market in question – Concentration of two airlines

(Council Regulation No 139/2004)

7. Competition – Concentrations – Assessment of compatibility with the common market – Criteria – Overall assessment – Assessment based on evidence

(Council Regulation No 139/2004)

8. Competition – Concentrations – Assessment of compatibility with the common market – Taking into account of actual and potential competition – Existence of barriers to entry on the market

(Council Regulation No 139/2004)

9. Competition – Concentrations – Assessment of compatibility with the common market – Taking into account of actual and potential competition – Existence of barriers to entry on the market

(Commission Notice 2004/C 31/03, para. 74)

10. Competition – Concentrations – Assessment of compatibility with the common market – Creation or strengthening of a dominant position – Taking into account of efficiency gains – Criteria – Cumulative nature

(Council Regulation No 139/2004, recital 29; Commission Notice 2004/C 31/03, para. 78)

11. Competition – Concentrations – Assessment of compatibility with the common market – Creation or strengthening of a dominant position – Taking into account of efficiency gains – Criteria – Verifiability

(Council Regulation No 139/2004; Commission Notice 2004/C 31/03, para. 86)

12. Competition – Concentrations – Assessment of compatibility with the common market – Creation or strengthening of a dominant position – Taking into account of efficiency gains – Criteria – Merger specificity

(Council Regulation No 139/2004; Commission Notice 2004/C 31/03, para. 85)

13. Competition – Concentrations – Assessment of compatibility with the common market – Creation or strengthening of a dominant position – Taking into account of efficiency gains – Criteria – Consumer benefit

(Council Regulation No 139/2004; Commission Notice 2004/C 31/03, paras 79, 80 and 84)

14. Competition – Concentrations – Examination by the Commission – Commitments by the undertakings concerned capable of rendering the notified transaction compatible with the common market – Taking into account of commitments given after the deadline – Conditions

(Council Regulation No 139/2004, Arts 2(2), 6(2), 8(2) and 18(3); Commission Notice on remedies acceptable under Regulations Nos 4064/89 and 447/98, para. 43)

15. Competition – Concentrations – Examination by the Commission – Commitments by the undertakings concerned capable of rendering the notified transaction compatible with the common market – Criteria

(Council Regulation No 139/2004)

Summary

1. To declare a concentration incompatible with the common market, the Commission has to prove, in accordance with Article 2(3) of Regulation No 139/2004 on the control of concentrations between undertakings, that the implementation of the notified concentration would significantly impede effective competition in the common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position.

Such a decision, adopted on the basis of Article 8(3) of the merger regulation, is based on the outcome of a prospective analysis carried out by the Commission. That prospective analysis consists of an examination of how the notified concentration might alter the factors determining the state of competition on a given market in order to establish whether it would give rise to a serious impediment to effective competition. Such an analysis makes it necessary to envisage various chains of cause and effect with a view to ascertaining which of them are the most likely.

(see paras 26-27)

2. Where commitments have been validly proposed by the parties to a concentration during the administrative procedure in order to obtain a decision that the concentration is compatible with the common market, the Commission is required to examine the concentration as modified by those commitments. It is then for the Commission to demonstrate that those commitments do not render the concentration, as modified by the commitments, compatible with the common market.

(see para. 28)

3. The basic provisions of Regulation No 139/2004 on the control of concentrations between undertakings, in particular Article 2, confer on the Commission a certain discretion, especially with respect to assessments of an economic nature. Consequently, review by the Courts of the European Union of the exercise of that discretion, which is essential for defining the rules on concentrations, must take account of the margin of discretion implicit in the provisions of an economic nature which form part of the rules on concentrations.

Whilst the Courts of the European Union recognise that the Commission has a margin of discretion with regard to economic matters, that does not mean that they must refrain from reviewing the Commission’s interpretation of information of an economic nature. Not only must they establish, in particular, whether the evidence relied on is factually accurate, reliable and consistent but also whether that evidence contains all the information which must be taken into account in order to assess a complex situation and whether it is capable of substantiating the conclusions drawn from it.

(see paras 29-30)

4. In order to analyse the competitive relationship between two airlines which are parties to a concentration, one providing a low-cost and no-frills service and the other providing a ‘mid-frills’ service, the Commission may take the view that those two companies are, of all the competitors operating on the various routes affected by the concentration, ‘closest competitors’, even though their operating costs and the prices they charge are different, since their operating costs and prices are beginning to resemble each other, and can be differentiated from those of network airlines in the market for those routes.

The fact that they have the same base airport enables these two airlines, inter alia, to benefit from similar advantages and may therefore corroborate the finding that the two companies are ‘closest competitors’.

The Commission is also able to rely on the existence of similar yield management systems, on the monitoring of the competitive behaviour of competitors, on the reactions of one of the parties to the concentration to the promotions carried out by the other or on the monitoring of the competitive behaviour of one party by the other. The Commission is entitled to take that evidence into account in the set of factors which it uses to evaluate the competitive situation.

(see paras 35, 79, 83, 85, 94, 124, 133)

5. Although the importance of market shares may vary from one market to another, the view may legitimately be taken that very large market shares are in themselves, save in exceptional circumstances, evidence of the existence of a dominant position. That may be the situation where there is a market share of 50% or more.

Where the Commission finds that the implementation of a concentration results in very high market shares on a large number of markets affected and a high concentration level, it does not therefore fail to have regard to the burden of proof in finding that such market shares constitute, in themselves, evidence of a dominant position. Such evidence may be dismissed if there are circumstances which might exclude a dominant position despite the high market shares.

As regards a concentration between two airlines, the Commission may decide, by carrying out an analysis of the effects of the concentration on each route affected, that the transaction would significantly impede effective competition as a result of the creation of a dominant position on a number of routes. As those positions are monopolistic, quasi monopolistic or very significant, they are sufficient, in themselves, subject to the analysis of possible commitments and efficiency gains, for a finding that the merger should be declared incompatible with the common market.

(see paras 41, 53-56, 336, 383-385, 445)

6. The Commission does not exceed the limits of its power of appraisal by defining, for the purposes of examining a concentration between two airlines, the markets for passenger air transport on the basis of air routes between two cities or bundles of air routes to the extent that there is substitutability between them according to the specific features of the transaction, and by using different criteria to characterise the substitutability of the routes, inter alia distances and travelling times between airports, the estimated proportion of ‘leisure’ passengers on a route, the so-called ‘airport system’ and the marketing practices of one of the parties to the concentration, analysed with the aid of the technique of bundling evidence.

Such a technique may, of course, include positive and negative factors. The conclusion which the Commission arrives at cannot therefore be called into question simply because a negative factor emerges from its investigation when that factor is duly noted and taken into account in its decision and is not distorted.

In particular, as regards the distances and travelling times between airports, the Commission cannot be criticised for having used a ‘rule’ the approximate nature of which it expressly acknowledges, according to which an airport’s catchment area may be defined as the area within either 100 kilometres or within a one hour drive from the airport, and it states at the same time that that is merely a first “proxy” and that the catchment area may be different due to the specificities of the respective airport.

Likewise, an empirical analysis of price correlation is a factor which, although it does not in itself prove that two airports fall within the same market, constitutes, together with others, a relevant factor which the Commission may take into consideration for the purpose of defining the markets at issue.

(see paras 99, 102-103, 108, 110, 112-113, 115-117, 119)

7. In monitoring a concentration, the Commission may use a set of indicative factors to evaluate the competitive situation and it is the Commission’s task to make an overall assessment of what is shown by such a set of indicative factors. It is possible, in that regard, for certain items of evidence to be prioritised and other evidence to be discounted. In that regard, there is no need to establish a hierarchy between ‘technical evidence’ and ‘non-technical evidence’. The assertion that ‘non-technical evidence’ cannot be taken into account unless it is supported by ‘technical evidence’ cannot therefore be upheld.

That examination and the associated reasoning are subject to a review of legality which the Court carries out in relation to Commission decisions on concentrations.

(see paras 133, 136)

8. When, after assessing the competition between the parties to a concentration and the effects of the concentration on that competition and finding that the merged entity would eliminate competition between the parties to the detriment of customers, the Commission examines the issue of the entrance of new competitors onto the relevant markets, it takes as the starting point the situation where the new entrant is seeking to access the market on which the merged entity would be present. It therefore examines whether the entry of new competitors may be regarded as a competitive constraint which is sufficient to prevent or thwart the potential anti-competitive effects of the concentration.

In order to challenge the Commission’s analysis, what counts is the prospect of an entrant which offsets the anti-competitive effects specifically established. Consequently, the mere ‘threat’ of an entry by a competitor is not sufficient. The argument that the absence of entrants is explained by the current efficiency of one of the parties to the concentration on the relevant markets and by customer satisfaction, which rule out any prospect of an entrant being profitable on those markets, can also not be accepted.

Similarly, the assertion that one of the parties to the concentration does not envisage charging prices higher than required to remain competitive following the implementation of the concentration cannot cast doubt on the Commission’s analysis of the barriers to entry. The control of concentrations differs from the control of the abuse of a dominant position in that it focuses on the control of market structures and not on the control of companies’ conduct. The control of concentrations aims, on the basis of a prospective analysis of the market structures, to prevent the implementation of a transaction which would significantly impede effective competition in the common market or a substantial part thereof, in particular by the creation or strengthening of a dominant position. As regards prices, the relevant criterion is thus whether the entry onto the market of a new competitor is capable of preventing prices increasing above their level prior to the concentration. The price criterion is not the only one which may be taken into consideration, since the implementation of the concentration may also affect available capacity, choice, quality of service and innovation.

(see paras 237-239, 248-250, 279)

9. In analysing the compatibility of a concentration with the common market, the assessment of the barriers to entry on the market depends on the characteristics of that market and the capabilities of the potential entrants. In relation to timeliness of entry, in point 74 of the Guidelines on the assessment of horizontal mergers, the Commission refers to a period which should not normally exceed 2 years. However, that time-limit depends on the situation being examined. In any event, the Commission is, in those guidelines, merely providing an analytical framework which it may apply, further develop and refine in individual cases.

(see paras 293-295)

10. Recital 29 in the preamble to Regulation No 139/2004 on the control of concentrations between undertakings provides that in order to determine the impact of a concentration on competition in the common market, it is appropriate to take account of any substantiated and likely efficiencies put forward by the undertakings concerned. It is possible that the efficiencies brought about by the concentration counteract the effects on competition, and in particular the potential harm to consumers, that it might otherwise have and that, as a consequence, the concentration would not significantly impede effective competition, in the common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position. Point 78 of the Guidelines on the assessment of horizontal mergers adopted by the Commission states that for the Commission to take account of efficiency claims in its assessment of the concentration and be in a position to reach the conclusion that, as a consequence of efficiencies, there are no gr ounds for declaring the merger to be incompatible with the common market, the efficiencies have to benefit consumers, be merger-specific and be verifiable. These conditions are cumulative.

It is incumbent upon the notifying parties to provide evidence of the fact that the efficiencies claimed are capable of counteracting the negative effects that the transaction could otherwise have on competition.

(see paras 386-387, 412)

11. It is apparent from point 86 of the Guidelines on the assessment of horizontal mergers adopted by the Commission that efficiencies have to be verifiable so that the Commission can be reasonably certain that the efficiencies are likely to materialise and be substantial enough to counteract a merger’s potential harm to consumers. The more precise and convincing the efficiency claims are, the better the Commission can evaluate the claims. Where reasonably possible, efficiencies and the resulting benefit to consumers should therefore be quantified and, when the necessary data are not available to allow for a precise quantitative analysis, it must be possible to foresee a clearly identifiable positive impact on consumers, not a marginal one.

The condition relating to the verifiability of efficiencies does not therefore require the notifying party to provide data capable of being independently verified by a third party or documents, dated pre-merger, which serve to objectively and independently assess the scope for efficiency gains generated by the acquisition.

It is apparent from those guidelines that most of the information allowing the Commission to assess efficiencies is solely in the possession of the parties to the concentration and that it is, therefore, incumbent upon the notifying parties to provide in due time the relevant information. Similarly, the non-exhaustive list of evidence relevant to the assessment of efficiency claims includes evidence of various kinds, and does not stress that it must be capable of being independently verified or dated pre-merger.

An undertaking which is a party to a concentration is therefore entitled to submit to the Commission its own data about the efficiencies expected from the merger, without necessarily having to rely on an assessment capable of being independently verified by a third party or carried out before the merger was announced. Business life does not always allow such documents to be produced in due time and, in particular, the documents used by an undertaking to initiate a public bid, whether they come from that undertaking or from its advisers, are by nature likely to be of some relevance as regards substantiating efficiency claims.

(see paras 406-408, 410)

12. It is apparent from point 85 of the Guidelines on the assessment of horizontal mergers adopted by the Commission that efficiencies are relevant to the competitive assessment when they are a direct consequence of the notified concentration and cannot be achieved to a similar extent by less anti-competitive alternatives. In those circumstances, the Commission deems the efficiencies to be caused by the concentration and thus to be merger-specific. It is for the parties to the concentration to provide in due time all the relevant information necessary to demonstrate that there are no less anti-competitive, realistic and attainable alternatives than the notified concentration. The Commission only considers alternatives that are reasonably practical in the business situation faced by the parties to the concentration having regard to established business practices in the industry concerned.

(see para. 427)

13. As regards consumer benefit, it is apparent from point 79 of the Guidelines on the assessment of horizontal mergers adopted by the Commission that the relevant benchmark in assessing efficiency claims is that consumers will not be worse off as a result of the merger. For that purpose, efficiencies should be substantial and timely, and should, in principle, benefit consumers in those relevant markets where it is otherwise likely that competition concerns would occur. Mergers may bring about various types of efficiency gains that can lead to lower prices or other benefits to consumers. For example, cost savings in production or distribution may give the merged entity the ability and incentive to charge lower prices following the merger. In line with the need to ascertain whether efficiencies will lead to a net benefit to consumers, cost efficiencies that lead to reductions in variable or marginal costs are more likely to be relevant to the assessment of efficiencies than reductions in fixed costs; the former are, in principle, more likely to result in lower prices for consumers. Cost reductions which merely result from anti-competitive reductions in output cannot be considered to be efficiencies benefiting consumers.

Furthermore, the incentive on the part of the merged entity to pass efficiency gains on to consumers is often related to the existence of competitive pressure from the remaining firms in the market and from potential entry. The greater the possible negative effects on competition, the more the Commission has to be sure that the claimed efficiencies are substantial, likely to be realised, and to be passed on, to a sufficient degree, to the consumer. As regards that point, the Guidelines state that it is highly unlikely that a merger leading to a market position approaching that of a monopoly, or leading to a similar level of market power, can be declared compatible with the common market on the ground that efficiency gains would be sufficient to counteract its potential anti-competitive effects.

(see paras 434-436)

14. As part of the arrangements for control of a concentration, the undertakings concerned may submit commitments to the Commission in order to obtain a decision finding their concentration to be compatible with the common market. Depending on the stage which the administrative procedure has reached, the commitments proposed must allow the Commission either to form the view that the notified concentration does not raise serious doubts as to its compatibility with the common market at the stage of the preliminary examination or to respond to the objections sustained during the detailed investigation. Those commitments therefore make it possible to avoid the initiation of a detailed investigation phase or a subsequent decision declaring that the concentration is incompatible with the common market. Article 8(2) of Regulation No 139/2004 on the control of concentrations between undertakings allows the Commission to attach to a decision declaring a concentration compatible with the common market in accordance with the criterion laid down in Article 2(2) of the regulation conditions and obligations intended to ensure that the undertakings concerned comply with the commitments they have entered into vis-à-vis the Commission with a view to rendering the concentration compatible with the common market.

Having regard both to the significance of the financial interests and industrial or commercial stakes inherent in that type of transaction and to the powers available to the Commission in the field, it is in the interest of the undertakings concerned to facilitate the work of the administration. For the same reasons, the Commission must display the utmost diligence in performing its supervisory duties in the field of concentrations.

As regards commitments which are submitted out of time, it is apparent from the Commission Notice on remedies acceptable under Regulation No 4064/89 and under Regulation No 447/98, whose approach may be adopted by the Commission as regards Regulation No 139/2004 and Regulation No 802/2004, that the parties to a notified concentration may have such commitments taken into account subject to two cumulative conditions, namely, first, that those commitments clearly and without the need for further investigation resolve the competition concerns previously identified and, secondly, that there is sufficient time to consult the Member States on those commitments.

(see paras 448-451, 455)

15. In the context of Regulation No 139/2004 on the control of concentrations between undertakings, the Commission has power to accept only such commitments as are capable of rendering the notified transaction compatible with the common market. In that regard, commitments proposed by one of the parties to a merger will meet that condition only in so far as the Commission is able to conclude, with certainty, that it will be possible to implement them and that the remedies resulting from them will be sufficiently workable and lasting to ensure that the creation or strengthening of a dominant position, or the impairment of effective competition, which the commitments are intended to prevent, will not be likely to materialise in the relatively near future.

(see paras 452-453)