COMPETITION • EUROPEAN LAW • MERGERS
Horizontal mergers refer to those mergers taking place between existing or potential competitors on the same market. Such mergers are harmful to competition insofar as they increase the parties’ market power i.e. their power to raise prices by reducing the diversity of products and services available. The market power of the merged entity will vary according to the combined market shares of the parties and the structure of the market in which the merger takes place.
To assess the compatibility of the transaction with the internal market, the Commission must take account of the “market position of the undertakings concerned and their economic and financial power”: a market share greater than 50% may in itself be evidence of a dominant position. Conversely, a merger that results in the new group holding a market share of less than 25% is presumed to be compatible with the internal market.
However, in principle, there is no market share threshold beyond or below which a merger is necessarily found to be compatible or incompatible. According to the Commission, the holding of even a considerable market share by the merged entity on markets of small value does not appropriately reflect its market power: market shares above 80% on a contestable market or in presence of strong competitive constraints may be accepted where they do not allow the merged entity to act independently of competitors on the market.
Apart from the significance of the market share controlled by the parties, the EU authorities also assess the effect of the transaction on the structure of the market as a whole. A concentration may result in the ousting of an operator or in a gap being created between market operators: the size of competitors whether or not they are part of large groups, the availability of resources, all play a role in determining the ability of undertakings to exercise a countervailing power in respect of the new entity. The disproportion in size between the new entity and its competitors on the market may also be a strong indication of the creation or strengthening of a dominant position. In addition, barriers to entry or to mobility faced by market entrants or by competitors of the merged entity already operating in the market are likely to reinforce the anticompetitive impact of a transaction. Financial power, a technological lead, know-how, qualification, approval or accreditation processes, capacity or advertising investments, range or portfolio effects, the existence of exclusive agreements or agreements entered into on a long-term basis, the holding of patents, widely known brands, or exclusive rights, privileged access to resources constitute for the new entity competitive advantages likely to make it more difficult for competitors to enter the market. Independently of the advantages that the merging parties have, the supervisory authorities take into account all factors likely to amplify its anticompetitive impact such as regulatory barriers, the maturity or transparency of the market, the inelasticity of supply or demand and, increasingly, the degree of market concentration.
