FTC and U.S. DOJ Merger Enforcement Workshop, Washington, DC, February 17-19, 2004.

Concentration Indices and Market Shares in the EU Horizontal Merger Guidelines

1

EC Merger Control - Background

• ED Horizontal Merger Guidelines published on 30.01.04.
• Guidelines complement the new EC Merger Regulation (adopted on 20.01.04).
• Both texts will become applicable as of 01.05.04.
• Background: reform of the ED merger control system (in place since 1990).
• On the substantive side, the two main issues underlying this reform were:
  Scope of the existing "dominance" test (Art. 2 ECMR)?: "SLCvs. dominance: does it make a difference?"
  Role of efficiencies in merger analysis

2

Art. 2 ECMR

• Existing test: whether a merger "creates or strengthens a dominant position as a result of which effective competition would be significantly impeded"
  Perceived by some commentators as not covering all mergers that produce anti-competitive effects (e.g., mergers in oligopolistic markets where the new entity would only become the No. 2 in the market)

• New test: whether a merger "would significantly impede effective competition, in particular as a result of the creation or strengthening of a dominant position"

3

EU Merger Guidelines

• Complement the change in the test
• Set out the analytical approach
• Central question: will the merger enhance the level of market power, i.e. lead to increased prices or other harm to consumers?
• Distinction: unilateral effects and co-ordinated effects
• Unilateral effects may arise, in particular, when the merger leads to a dominant position
  In such cases, single firm dominance "typically" associated with the new entity having an appreciably larger market share than the next competitor post-merger

4

Market share indications

• Very large market shares - 50% or more - may in themselves be evidence of the existence of a dominant market position
  Further, it is noted that the Commission has in "several cases" found dominant positions with market shares in 40-50% range, and in "some cases" with shares below 40%

• Limited market share leads to presumption of compatibility. An "indication to this effect": market share below 25%. (But: does not cover co-ordinated effects)

5

HHI indications

• In addition, Commission "unlikely to identify competition concerns" when
  HHI < 1000 (such cases normally do not require extensive analysis)
  1000 < HHI < 2000 and delta < 250
  HHI > 2000 and delta < 150

• "Soft Safe Harbour" approach (also consistent with 25% market share indicator)
• HHI indications not applicable where certain special circumstances are present which make HHI less informative (see next slide)

6

HHI indications (cont.)

• Special circumstances, e.g.
  • Merger involves potential or recent entrant
  • One or more merging parties important innovators
  • Significant cross-shareholdings among market participants
  • One of merging firms a "maverick"
  • Indications of past or ongoing coordination, or facilitating practices
  • A merging party pre-merger has market share above 50%

• By using this technique, HHI indications more informative in relation to the application of the merger control standard under "normal" circumstances. List also pedagogic by itself