COmpetition • French Law • Mergers
Vertical mergers may result in customer foreclosure when they close off competitors of the merged entity from access to market opportunities. This is the case for a merger that leads the downstream branch of the integrated undertaking to refuse to purchase or distribute the products of independent upstream manufacturers. To determine whether such foreclosure exists, the Merger Guidelines invite the Competition Authority to examine whether the new entity has the possibility of foreclosing the market, whether it has the incentive to do so and whether the foreclosure strategy produces a restrictive effect on the relevant markets.
The analysis of the market power of the undertaking resulting from the transaction constitutes a decisive factor. This involves verifying the significance of the outlets for the undertakings located upstream. The ability of competitors to react, which depends on their own level of integration, is also a factor of assessment. The presence of vertically integrated competitors with internal sales outlets eliminates the risk of foreclosure. Over and above the characteristics of the market, the Competition Authority looks into the possibility of the new entity adopting foreclosure strategies. The merged undertaking may have an incentive to foreclose the market when it is likely, in the long term, to benefit from the discontinuation of its supply of inputs from its upstream competitors. Finally, the merger must result in foreclosure of the upstream market to current or potential competitors, who will no longer have access to a sufficient customer base.