COMPETITION • FRENCH LAW • MERGERS
A concentration is of a conglomerate nature where the new entity extends or consolidates its presence on a related market that is neither upstream nor downstream of it. Conglomerate mergers promote the combining or extending of product ranges or brand portfolios. As a general rule, this type of merger produces positive effects due to the pro-competitive synergies arising from this consolidation, with the reduction in costs leading to a reduction in prices for the final consumer.
The new entity may, however, have an incentive to exploit its position by leverage effect by means of tying or bundling practices that can reduce competitive pressure. The risk of a leverage effect is low where, on the relevant markets, there are very high entry barriers or where the products do not fulfill the same functions.
As with vertical mergers, it is unlikely that a conglomerate merger will produce any anticompetitive effect where there is a market share of below 30% and a post-merger HHI of below 2000. A competitive advantage is likely to benefit the new entity, and the operation may produce conglomerate effects where there is access to privileged information. Market power can however also be strengthened through range effects due to the addition of products or portfolios of brands, or network effects in the event of control of a technology, e.g. an encoding system able to block access to the market.
A range effect may be decisive where: the undertaking holds a strong position on one of the markets, products have a high degree of complementarity, its competitors are unable to offer such a comprehensive range of products and a comprehensive range of products is a decisive purchasing factor for customers. A merger transaction may be prohibited even though it will not incur a significant increase of market share for the merged entity if it enables the purchaser to add to its portfolio of brands another portfolio of well-known or must-have products. However, the expansion of a range is not likely to distort competition when it is not such as to change the commercial negotiating practices on the relevant market.
Bundling effects can take different forms: technical bundling, where sales are tied based on an exclusive interoperability of products; mixed bundling, where separate purchase is possible but is more expensive that a bundled purchase, and pure bundling consisting of a simultaneous offer of products at a fixed proportion. The analysis of a risk of a bundling effect is carried out in three stages: the Authority examines i) whether the new entity has the ability to foreclose its competitors, ii) if it has an economic interest to do so and, iii) whether a market foreclosure strategy would have a negative impact on competition to the detriment of consumers.
