COMPETITION • EUROPEAN LAW • MERGERS
A merger may significantly impede effective competition in a market by removing important competitive constraints on one or more sellers, who consequently have increased market power. The most direct effect of the merger will be the loss of competition between the merging firms. Non-merging firms in the same market can also benefit from the reduction of competitive pressure that results from the merger, since the merging firms’ price increase may switch some demand to the rival firms, which, in turn, may find it profitable to increase their prices. The reduction in these competitive constraints could lead to significant price increases in the relevant market. Generally, a merger giving rise to such non-coordinated effects would significantly impede effective competition by creating or strengthening the dominant position of a single firm, where it has an appreciably larger market share than the next competitor post-merger.
A number of factors may influence whether significant non-coordinated effects are likely to result from a merger such as large market shares, the fact that the parties are close competitors, the impossibility or difficulty for customers to switch suppliers, the fact that parties’ competitors are unlikely to significantly increase output in the event of a price increase, the elimination of potential competition or of a significant competitive force.
While vertical concentrations are less damaging to competition than horizontal concentrations, they may nevertheless lead to foreclosure, if current or potential competitors are reduced or denied access to sources of supply (input foreclosure) or to markets (customer foreclosure) or to privileged information. Vertical mergers can lead to the creation or strengthening of a situation of buyer power or economic dependence. Conglomerate mergers can lead to leverage from one market to another through tying or bundling.
