COMPETITION • EUROPEAN LAW • MERGERS
Vertical mergers may result in customer foreclosure when they block competitors of the merged entity from gaining access to market opportunities e.g a merger bringing together one of the two leading manufacturers in the market and a customer of the competing manufacturer with whom the latter achieves a substantial share of its sales.
Customer foreclosure may take various forms. It can result in the new entity adopting a preferential, exclusive, even speculative purchasing policy which allows the manufacturer to win contracts which it would not have obtained without the merger, in attempts to remove interoperability of its production platform with competing products or using its certification power as leverage for the sale of its own products. Where the merger enables the new entity to achieve economies of scale, customer foreclosure is likely to deter the entry of potential competitors on the upstream market, the attractiveness of which will be limited in terms of revenue. Foreclosure may raise competition concerns only if the concentration concerns a customer which has a substantial market power on the downstream market. Further, competition is not significantly impeded when competitors have a sufficiently large customer base.
