COmpetition • French Law • Mergers
Vertical mergers are likely to lead to input foreclosure when they result in the merged undertaking refusing to sell an input – a product or service, access to infrastructure or intellectual property rights – to downstream undertakings or imposing high prices on them. To determine whether such foreclosure exists, the Competition Authority examines whether the new entity has the ability and incentive to foreclose, and whether the foreclosure strategy has a restrictive effect on the relevant markets.
The market power of the merged entity and the ability of competitors to react are important factors of assessment. In addition to the characteristics of the market, the Competition Authority examines the possibility of the new entity to adopt foreclosure strategies. The merged undertaking may have an incentive to foreclose the market when it is likely, in the long run, to benefit from lower input sales to downstream competitors. Conversely, this risk may be eliminated when the losses incurred by the merged entity in a market where it achieves high margins cannot be offset by the development of market share in a sector where margins are low, when the merged entity is unable to absorb demand that has diverted away from competitors, when the market is characterized by diverse product lines, or when the merged entity does not have sufficient capacity to sell competitors’ share of production.
