COMPETITION • FRENCH LAW • MERGERS
In its Merger Guidelines, the Competition Authority states that “the reality of trade flows, the distance actually traveled by suppliers or buyers to the point where supply and demand meet, the availability of the goods in question for consumers in a geographical area, the transport costs or price differences from one area to another” can be the basis for market distinctions in geographical terms. In order to delineate markets geographically, different characteristics may be taken into account by the Authority.
The relevant geographic market is characterized by the homogeneity of the conditions of competition that prevail in the market, which distinguishes it from neighboring geographic areas. The catchment area of a regional airport thus corresponds to a radius of 100 km, the geographic market being defined according to the size and density of the population, the level of wealth and the economic and industrial fabric around this infrastructure. The geographic definition of the market may also be the result of a regulatory barrier, a technical constraint, the cost of transportation, the time required to access the site in question, the nature of the product concerned or the structure of supply or demand. The definition of the geographic market may vary depending on the level of the economic process at which one is located. In the large-scale retail distribution sector, a distinction must be made between the upstream market of supplier/distributor relations, which is regional or national depending on the type of stores and products, and the downstream market of retail sales of consumer goods, which is local, each catchment area being defined according to the travel time of customers, taking into account the place of residence, the size of the point of sale, the commercial infrastructures, the communication routes and the quality of their service. In the case of significant overlap of catchment areas, it is therefore possible to examine the effects of a merger on all of these areas, in addition to an area-by-area analysis. In this hypothesis, when operator A lowers its prices, its geographically close competitor B is led to reduce its prices, and given the density of the sales network, this price reduction by B forces a third operator C, geographically distant from A but relatively close to B, to also lower its prices. Groupings of catchment areas can be made in case of overlapping areas. Via B, operators A and C – although geographically distant from each other – are in competition with each other. The term “substitutability chain” describes the market constituted by the agglomeration of the catchment areas of A, B and C, in which operators relatively distant from each other manage to constrain each other. Generally using the method known as ” actual footprints”, the Competition Authority defines a local market on the basis of the actual behavior of consumers in a given area thanks to the information collected by the points of sale on the location of their customers, and generally limits the market to the area that accounts for 80% of the sales or 80% of the store’s customers, the percentage of consumers not retained being assimilated to an insignificant one-off clientele. The Authority sometimes weighs the actual footprints method, taking into account the terms and conditions of the distribution system concerned. For example, it has decided that the 20% restriction corresponding to an insignificant customer base should not be applied to LPG sold in small bulk, since in this market the customer does not go to the depot but the distributor transports the product, so that the footprints must be calculated on the basis of the location of all the customers of each depot. The Authority can even completely rule out the actual footprint method calculated from the buyers’ homes, for determining catchment areas inside the city of Paris since many Parisian customers make their purchases close to their work and not to their homes, and since the capital is an attractive leisure area for many Parisians and tourists who make their purchases of brown and white goods far from their homes. The size of the market may also vary depending on whether or not there are language barriers: their importance tends to give the internet or IT services markets a national dimension, whereas the mobile video game market is European due to their small size.
The geographical market in which the position of the undertakings concerned is assessed is in principle the national market or, by analogy with the rules on dominance referred to in Article L. 430-6 of the Commercial Code, a substantial part of it. A dominant position may be found on a sub-national geographic market. A regional market, or even a purely local market, is likely to constitute a substantial part of the national market, the substantial nature of a geographical sub-market being deduced from its economic importance in relation to the national market as a whole. Sometimes, on the contrary, the supervisory authorities go beyond the national framework to select a European or even global market.