COMPETITION • EUROPEAN LAW • MERGERS
Potential competition is one of the criteria used to measure the restrictive or non-restrictive effect of a concentration on the market concerned. Thus, according to the Commission, in order to assess the competitive behavior of undertakings on the market, two main competitive constraints must be considered: i) demand-side; and ii) supply-side substitution. However, a third source of competitive pressure i.e. potential competition, can influence an operator’s behavior. The difference between potential competition and supply-substitution lies in the fact that supply-side substitution responds quickly to a price increase whereas it takes longer for potential entrants to start to supply the market.
Thus, in the absence of potential competition in the short term, the concentration that makes the merged entity the sole supplier in the market necessarily leads to the creation of a dominant position. The concentration which leads to the elimination of a potential competitor – a significant disciplining force between the parties who are each other’s closest competitors due to the size and scope of their respective margin pools, membership and know-how – is likely to distort competition. On the other hand, a merger does not create or strengthen a collective dominant position when the new entity faces potential competition.
