COMPETITION • FRENCH 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 market power of merged undertakings i.e. their power to raise prices by reducing quantities produced. Even without actually creating or strengthening a dominant position for the benefit of the merged entity, a horizontal merger can undermine competition by eliminating competition between the parties. The acquisition or the strengthening of market power due to a merger must be assessed in the light of its effects on price competition but also more generally in relation to the capacity of the new entity to profitably increase prices, reduce output, choice or quality of goods and services, innovation or exercise, in some other way, an influence on the factors of competition. Often such transactions are only authorized subject to commitments with a view to limiting the effects on prices or conditions of access to the market concerned.

The supervisory authorities assess the implications of the transaction for the participating undertakings i.e. whether it will lead to unilateral effects due to a monopoly power or to the acquisition or consolidation of a dominant position due to the addition of market shares. There is no market threshold in excess of which a concentration will be declared “anticompetitive” in principle.

Market shares of more than 50% may give rise to a presumption of harmful effects on competition, but this presumption is rebuttable. In a contestable market, or in the presence of strong competitive constraints, market shares of 50%, 75% or even 98% are acceptable. Similarly, extremely small market shares (less than 2%) do not lead to competitive harm if they do not reinforce an existing strong position. However, according to the Competition Authority, it is unlikely that competition will be restricted when the market share of the new entity is less than 25%.

The nature of competition in the relevant market is an essential criterion in the analysis of the non-coordinated effects of a merger. Significant horizontal effects can thus result from the similarity of the parties’ product offering. The Competition Authority checks if the concentration will create a relative disproportion between the size of the new entity and that of its competitors or lead to the elimination of a competitor or a relationship of competition between two operators. It  also evaluates the ability of actual competitors to react to the situation arising from the concentration and their interest in doing so and determines whether the barriers to entry on the market concerned (e.g., ownership of patents or well-known brands, specific know-how, quality certification, vertical integration, technological lead, etc.) are not of such a level as to prohibit any effective competitive action on the part of actual or potential competitors of the merging undertakings. The regulatory authorities also take into account factors that may amplify its anticompetitive impact (e.g. regulatory barriers, limited resources or capacities, low elasticity of supply or demand).

Where the same concentration involves groups with various activities it can have horizontal, vertical and conglomerate effects at the same time. In this case, a merger does not entail any risk for competition insofar as it does not significantly strengthen the purchasing power of the acquiring group.

A merger in one market may have a leverage or spillover effect on a second market, located upstream or downstream, where the two markets are closely interrelated, but the anticompetitive effect of a horizontal merger can also be perceived directly in the affected market.