Substantial Lessening Of Competition Research Articles

Media plurality assessment as a public interest concern in UK merger control

In the UK, following the enactment of the Communications Act 2003, amending the Enterprise Act 2002, the assessment of mergers involving broadcaster and/or newspaper enterprises is subject to – alongside the regular competition standard under the ‘substantial lessening of competition’ (SLC) test – a public interest standard. Under this standard, certain media mergers need to be assessed pursuant to the following considerations: media plurality, broadcasting standard objectives and free expression of opinion grounds. While the statute defines these terms ambiguously, it does provide guidance to the Secretary of State, the competition authority and the courts to decide how the statute is intended to be applied consistently. The paper will analyse how the media plurality test has been applied, some of the considerations of the CMA and OFCOM, and in doing so it will touch on the discretion of the decision making stakeholders.

Effective Merger Review: A Question for Australian Courts?

There is increasing global concern about the effectiveness of merger control in competition law. Globally, concerns about rising market concentration and in particular, the effect of consolidation by digital platform businesses, have prompted numerous inquiries and articles exploring whether competition laws are effective in addressing concerns about their anticompetitive impact in relation to mergers. Australia’s approach to merger control makes it an outlier in a number of ways. Its major approval procedure, informal clearance, is outside the scope of the Competition and Consumer Act 2010 (Cth). Formal decisions are generally heard in courts. Of note, under the current “likely substantial lessening of competition” test which became operative in 1993, the Australian Competition and Consumer Commission (ACCC) has not successfully proven in court that a merger would be likely to infringe the law. This article examines the methodology of Australian courts in applying this test, including the judicial approach to acceptance and assessment of economic and noneconomic evidence. It suggests approaches to enable consideration of the best evidence available. This analysis is in the context of amendments to the merger system recently proposed by the ACCC. We conclude that there are significant challenges in determining whether a merger is anticompetitive and that changes to the relevant methodology are necessary. This might be done by adopting the ACCC proposals or by a reconsideration of the merger factors and the approach to applying them.

A Tale of Two Sides: Sabre/Farelogix in the United States and the UK

On 14 November 2018, Sabre Corporation announced that it had reached agreement to acquire Farelogix Inc. for $360 million. On 20 August 2019, the US Department of Justice (‘DOJ’) filed a civil antitrust lawsuit seeking to block the transaction.1 At this time, the UK’s Competition and Markets Authority (‘CMA’) continued its review of the proposed transaction. Following a two-week trial in January and February 2020, the United States District Court for the District of Delaware (the ‘US Court’) issued its Opinion on 7 April 2020, denying the DOJ’s request to block the merger, stating that ‘DOJ has failed to meet its burden of proof’.2 Shortly thereafter, on April 9, the CMA issued its final report, detailing its decision to prohibit the deal and concluding that it ‘may be expected to result in a substantial lessening of competition’.3 The parties abandoned the deal on 1...

Grab–Uber merger in Southeast Asia: the Singapore approach

The Competition and Consumer Commission of Singapore (CCCS) issued an infringement decision in October 2018 after finding that the sale of Uber’s Southeast Asian business to Grab for a 27.5 per cent stake in Grab was in breach of the Competition Act (the ‘Act’).1 The CCCS found that the transaction resulted in a substantial lessening of competition in the provision of ride-hailing platform services in Singapore in breach of section 54 of the Act. A financial penalty of $6,582,055 was imposed on Uber, and a financial penalty of $6,419,647 was imposed on Grab. Other Directions were made. This was the first time that the CCCS had investigated and penalized an unnotified merger (although notification is not compulsory). This followed the imposition of earlier Interim Measures Directions (IMDs) aimed at lessening the impact of the transaction on drivers and riders, while the investigation continued following the failure of the parties to notify the CCCS prior to completion. The published decision contains a detailed analysis of the merger and its surrounding circumstances under the Act. It is heavily redacted in parts to maintain commercial confidentiality, so some of the commercial issues are more difficult to assess. Nevertheless, the CCCS took a particularly strong position in rejecting the arguments of the parties and ultimately imposed the financial penalties and extensive Directions to redress the anticompetitive outcomes arising from the merger which had been completed. The transaction allowed Uber to exit the jurisdiction and the region but left it with a significant shareholding in Grab and a board position in that company. This has been a pattern of behaviour for Uber in earlier transactions, which raises some issues about the true nature and impact of the transactions on competition in the region.

Merger control in dynamic markets

This article considers, with reference to recent cases, the approach of the Competition and Markets Authority in investigating mergers in dynamic markets. It examines the CMA's jurisdictional and substantive tools, sources of evidence, the use of counterfactuals, the assessment of when a merger may result in a substantial lessening of competition and appropriate remedies. The article concludes with a brief discussion on whether existing merger control tools are likely to be sufficient to ensure that merger control is able to continue to adequately protect consumers in dynamic markets in the future.

European Union Competition Law Developments in the Aviation Sector: July to December 2019

The second half of 2019 continues to highlight the rapidly-changing aviation sector, with a number of key developments. This article summarizes the main developments over the past six months and provides the reader with greater detail of each of these developments. The Competition and Markets Authority (the ‘CMA’) in the United Kingdom has launched an in-depth Phase 2 investigation into the proposed acquisition of Farelogix by Sabre, after rejecting the parties’ initial remedies. As part of the Phase 2 review, the CMA inquiry group has stated that it intends to review whether the CMA has jurisdiction to investigate the transaction. This type of jurisdictional assessment is not commonly undertaken during Phase 2 investigations. The Parties are accusing the CMA of merging the substantive assessment of whether the transaction would lead to a substantial lessening of competition, with the jurisdictional issue of whether the transaction is one which qualifies for review by the CMA. A number of the airline addressees of the European Commission’s (the ‘Commission’) air cargo cartel decision have argued their respective appeals against the re-adopted 2017 decision. This marks the latest development in the long-running saga, which started with the Commission carrying out a number of unannounced inspections in 2006 (so-called dawn raids) before reaching its first decision in 2010. Following a successful appeal of the 2010 decision, the Commission re-adopted its decision in 2017, which is the focus of the current appeals. The airlines have raised arguments based on, inter alia, lack of evidence, statute of limitation, equality of treatment, the role played by regulators outside of the European Economic Area (‘EEA’), etc. The recent collapse of the Thomas Cook Group has spurned a number of competitionrelated developments. The German competition regulator has cleared an acquisition by Signa of 106 branches as well as the online travel business of Thomas Cook. The German regulator similarly cleared a separate transaction by Anex Tour of the Bucher Reisen & Öger Tours business. The collapse also caused financial difficulties for Condor Airlines (part of the Thomas Cook Group), as it was forced to write off a number of claims against other group companies. This led Germany to grant temporary rescue aid of EUR 380m to the airline, which has subsequently been approved by the Commission. Aviation, airline, regulation, competition and anti-trust

Can Antitrust Enforcement Improve Privacy Protection? Privacy as a Parameter of Competition in Merger Reviews

This Article describes how merger reviews under current competition law are able to treat privacy as a dimension of competition. It illustrates this possibility through an examination of the European Commission’s reviews of the Facebook/WhatsApp merger and the Microsoft/LinkedIn merger. This Article examines the legal, factual and practical considerations that collectively amount to large and potentially insurmountable obstacles to this effort to improve privacy protection through merger review. These obstacles include the inability to apply or extend privacy law directly, the unresolved conceptual knots in clarifying the notion of privacy competition, the empirical difficulties in determining the existence and extent of privacy competition, and the requirement to show that any post-merger failure to satisfy privacy preferences results from a substantial lessening of competition, rather than from independent business judgements or the proper operation of competitive forces. This Article concludes that merger reviews are not likely to improve privacy very much. it would be better to turn to other aspects of antitrust law or to privacy law itself to vindicate privacy rights.

Changing South Africa's Competition Law Regime: A Populist Departure from International Best Practices†

Key Points: The Amendment Bill alters key provisions of the South African Competition Act focusing specifically on the redistribution of wealth and transformation of ownership in lieu of pursuing traditional antitrust goals. The Bill provides for greater ministerial intervention at the initial stage of a merger (based on national security), during the merger investigation (based on public-interest grounds) and broadens the right of appeals to parties outside the merger control review. The Bill lowers the standard that the South African Competition Commission must meet to prosecute cases and foreshadows a risk of increased third-party interventionism more generally. The departure from a traditional substantial lessening of competition (SLC) test to an adverse effects-based test, which takes public interests considerations into account, is likely to result in the injection of greater subjectivity into the decision-making process and parties’ increased difficulty in self-assessment of conduct particularly in relation to dominant firms.

Postal Services: Survey of Competition Law Developments

This article summarises the most significant competition law development in the postal services sector in the last 12 months, at EU level (II.–IV.) and at national level in France, Germany, the Netherlands and the UK (V.).1 The last 12 months have seen a European Commission merger control decision in the parcel delivery services sector in the Fedex/TNT Express case (II.) and a judgement of the Court of Justice of the EU (‘CJEU’) upholding the European General Court judgement in the Slovenská Pošta2 case (III.). In the State aid area, the European General Court has allowed an appeal by Deutsche Post against the 2012 decision of the Commission finding that the public financing of pensions constituted unlawful State aid, and the Commission has approved Italian State aid funding for Poste Italiane's universal service obligation (IV.). In January 2016, the European Commission approved the acquisition of TNT Express by Fedex following a phase 2 investigation.3 TNT Express and Fedex are two of the four ‘integrators’ operating in the small package delivery sector in the EU. Integrators are delivery service companies that control a comprehensive air and road delivery network for purposes of providing a range of reliable delivery services. The other integrators are DHL (owned by Deutsche Post) and UPS (of the USA). In 2013, the European Commission prohibited the acquisition of TNT Express by UPS because it would have resulted in a substantial lessening of competition in the EU, with a reduction of competitors from three to two in some EEA countries, because Fedex is not active in all EU member states.4 At this stage, the full decision of the Commission has not yet been published, but the main reason was explained in a Commission press release.5

Does Merger Policy Converge after the 2004 European Union Reforms

With almost ten years of experience with the reformed European merger policy, sufficient data has been accumulated to explore the impact of the reform on the difference between the European Union (EU) and the United States (US) merger policy. We expect the EU 2004 reform that established a “significant impediment to effective competition” standard close to the US “substantial lessening of competition” standard would lead to some convergence. We start by identifying changes in the EU regime and verifying the consistency in the US regime. We detect a weaker EU policy for clear dominance and monopoly cases and some changes in its collusion policy after the reform. The incidence of collusion cases falls while EU’s policy, conditional on collusion being the theory of harm, appears stronger. Limited data precludes detailed analysis for the non-dominance unilateral concerns, although the EU data implies stability in the challenge probability associated with that type of case. The US results remain stable over time. Decompositions show some convergence in policy for unilateral cases and non-parametric analysis shows further convergence occurs in unilateral effects analysis. Matching analysis is attempted, but fails to generate any results, because even adjusted, the two sample distributions are not sufficiently balanced, so we must rely on the structural form assumptions of our logit models.

Focal point pricing: A challenge to the successful implementation of Section 10a (introduced by the Competition Amendment Act)

The Competition Amendment Act introduced section 10A, which provides the Competition Commission with the powers to investigate complex monopoly conduct in a market and allows the Competition Tribunal, under certain conditions, to prohibit such behaviour. Although more than five years have elapsed since the Competition Amendment Act was promulgated, this provision has yet to come into force. However, when it eventually does so, it will mark a significant change in South African competition law, as it seeks to regulate firms’ consciously parallel conduct. This is coordinated conduct that occurs without communication or agreement, but results in the prevention or substantial lessening of competition. Examples of horizontal tacit coordination practices include price leadership and facilitating practices, such as information exchanges and price signaling. The successful implementation of the amendment poses problems for the competition authorities in assessing the competitive effects of complex monopoly conduct and in providing effective remedies. Oligopoly markets result in mutual interdependent decision-making by firms, which can lead to market outcomes similar to explicit collusion. However, a further and little noticed issue is that firms in oligopolistic markets have opportunities to use focal points to determine coordinated strategies. This paper explores the nature and role of focal point pricing, which can lead to prices that are above competitive levels. The South African banking industry is used as an example. We find that focal point pricing is difficult to control, making the successful implementation of section 10A even more problematic. Moreover, the proposed amendment provides scope for the imposition of structural remedies by the Competition Tribunal, a function that the Competition Tribunal is ill-suited to perform.

Re-Aligning Prospective Hospital Merger Guidance: Moving Beyond Concentration to More Meaningful Approaches

Mergers and acquisitions play a key role in industries facing disruptive change and the need to restructure effectively to meet future needs; transactions provide potential opportunities for substantial benefits. Significant realignment of the U.S. healthcare delivery system is underway, driven by economic, policy, and demographic factors, with many hospitals, particularly stand-alone hospitals, financially challenged. The effects of these trends are most visible in smaller metro areas, which often have greater hospital capacity than required to meet demand. Over 500 hospital transactions have occurred in recent years; about half involved stand-alone hospitals, many in smaller communities. An anticipated increase in hospital transactions in the near term suggests the importance of clear agency guidance on the factors that will distinguish transactions that are likely to be challenged.Agency guidance about future enforcement on hospital mergers contrasts with actual enforcement practice. Guidance emphasizes concentration and Merger Guidelines thresholds, even though the vast majority of past hospital mergers, including most of those that exceeded Guidelines thresholds, went unchallenged. Academic price-concentration studies play a uniquely prominent role in statements of enforcement intentions in the healthcare industry, even though those studies are largely dated and mixed in their findings. Limited clarity exists on factors that mattered to competitive effects analysis in concentrated markets with closely reviewed yet unchallenged mergers. Moreover, the modeling used in hospital merger review may not account for current and evolving market realities of healthcare delivery and purchasing. This paper reviews healthcare delivery trends in the context of recommendations for competitive effects analyses and guidance in industries characterized by dynamic change, differentiated products, large numbers of mergers, and low incidence of actual challenges. It shows that, where concentration thresholds are poor predictors of competitive effects, greater clarity is required of the specific factors other than structure that yielded assessments that mergers in highly concentrated markets were unlikely to result in a substantial lessening of competition. The many changes in healthcare markets necessitate closer scrutiny of economic models to assure they are robust and reflect market realities, including the responsiveness of rivals and payors. Given the substantial reliance on academic studies for guidance, we review the oft-cited concentration-price literature and find that it does not support the claimed systematic quantitative relationship. We undertook independently to address these issues empirically by updating a major study using a comprehensive and current commercial claims database covering 380 metropolitan areas. We found no systematic quantifiable relationship; instead myriad market and firm specific factors account for price variation. Finally, we present some suggestions for review of future transactions.

Focal point pricing: A challenge to the successful implementation of Section 10A (introduced by the Competition Amendment Act)

The Competition Amendment Act introduced section 10A, which provides the Competition Commission with the powers to investigate complex monopoly conduct in a market and allows the Competition Tribunal, under certain conditions, to prohibit such behaviour. Although more than five years have elapsed since the Competition Amendment Act was promulgated, this provision has yet to come into force. However, when it eventually does so, it will mark a significant change in South African competition law, as it seeks to regulate firms’ consciously parallel conduct. This is coordinated conduct that occurs without communication or agreement, but results in the prevention or substantial lessening of competition. Examples of horizontal tacit coordination practices include price leadership and facilitating practices, such as information exchanges and price signaling. The successful implementation of the amendment poses problems for the competition authorities in assessing the competitive effects of complex monopoly conduct and in providing effective remedies. Oligopoly markets result in mutual interdependent decision-making by firms, which can lead to market outcomes similar to explicit collusion. However, a further and little noticed issue is that firms in oligopolistic markets have opportunities to use focal points to determine coordinated strategies. This paper explores the nature and role of focal point pricing, which can lead to prices that are above competitive levels. The South African banking industry is used as an example. We find that focal point pricing is difficult to control, making the successful implementation of section 10A even more problematic. Moreover, the proposed amendment provides scope for the imposition of structural remedies by the Competition Tribunal, a function that the Competition Tribunal is ill-suited to perform.

Merger Litigation in the United Kingdom

Although the number of challenges to merger decisions is low, the jurisprudence of the Competition Appeal Tribunal (CAT) and the Court of Appeal has contributed significantly to the United Kingdom's administrative system of merger control. This article outlines the structure of merger control in the United Kingdom, including the jurisdiction, functions, procedures, and responsibilities of the Office of Fair Trading and the Competition Commission, as well as the application of the substantive “substantial lessening of competition” test. It also summarizes the specific assessment of the limited number of mergers that may raise public interest issues. This article then examines in detail the judicial supervision by the CAT and Court of Appeal, the nature of judicial review, and an in-depth assessment of key judgments in merger cases.

Safe Harbours in Merger Guidelines: What Should They Be?

Safe harbours in mergers and acquisitions guidelines define post-merger market concentration or concentration change thresholds below which proposed mergers are unlikely to pose competition concerns. Their role is to screen out competitively benign mergers, thereby allowing competition agencies to focus on the more contentious cases. Yet despite the almost universal adoption of the “substantial lessening of competition” test, agencies use significantly different safe harbours. This may reflect the lack of strong theoretical bases for alternative specifications. We attempt to fill this gap by using the PCAIDS and other merger simulation models to run many merger simulations involving a wide range of market structure settings and merger-induced aggregations. By estimating the post-merger unilateral price increases in each scenario, we can gauge what the safe harbours should be using a 5% (or, alternatively, a 3%) price increase threshold of anti-competitiveness. Our simulation results suggest that the safe harbours commonly based on market HHI, merged entity market share and HHI-increase thresholds are typically too restrictive, in that they fail to screen out mergers that are almost certain to be competitively benign.

Safe Harbours in Merger Guidelines: What Should They Be?

Safe harbours in merger guidelines define post-merger market concentration or concentration change thresholds below which proposed mergers are unlikely to be anti-competitive; anti-competitiveness is usually measured as a ‘substantial lessening of competition’. Yet competition agencies have different safe harbours. We used merger models to run many simulations involving a wide range of market structures and merger-induced aggregations. The post-merger unilateral price increases in these scenarios were used to gauge what the safe harbours should be to keep price increases below a specified threshold. The safe harbour thresholds commonly used were found typically to be too restrictive, in that they failed to screen out mergers that were almost certainly competitively benign.

Analysis of the FTC's Decision Not to Block Google’s Acquisition of AdMob

On May 21, 2010, after months of investigation, the Federal Trade Commission (FTC) announced that it would not challenge Google’s $750 million acquisition of AdMob, a mobile advertising network and mobile ad solutions and services provider. In this white paper, we present AAI’s analysis of the FTC’s decision.The FTC found that, but for recent developments concerning Apple, the acquisition “appeared likely to lead to a substantial lessening of competition in violation of Section 7 of the Clayton Act.” According to the FTC, Google and AdMob “currently are the two leading mobile advertising networks, and the Commission was concerned about the loss of head-to-head competition between them.” The companies “generate the most revenue among mobile advertising networks, and both companies are particularly strong in ... performance ad networks,” i.e. those networks that sell advertising by auction on a “per click” or other direct response basis. Without necessarily defining a relevant market, the Commission apparently saw a likelihood of unilateral anticompetitive effects, as it found “each of the merging parties viewed the other as its primary competitor, and that each firm made business decisions in direct response to this perceived competitive threat.”Yet, Apple’s acquisition of the third largest mobile ad network, Quattro Wireless, in December 2009, and its introduction of its own mobile advertising network, iAd, as part of its iPhone applications package, convinced the FTC that the anticompetitive effects of the acquisition “should [be] mitigate[d].” The Commission “ha[d] reason to believe that Apple quickly will become a strong mobile advertising network competitor” because of its relationships with applications developers and users, and ability to offer targeted ads “by leveraging proprietary user data gleaned from users of Apple mobile devices.” Indeed, the FTC concluded that “Apple’s ownership of the iPhone software development tools, and its control over the developers’ license agreement, gives Apple the unique ability to define how competition among ad networks on the iPhone will occur and evolve.” As result, AdMob’s current market share, which is derived largely from the iPhone platform, was “unlikely to be an accurate predictor of [its] competitive significance going forward.”The FTC’s decision not to challenge Google’s acquisition of AdMob is understandable given the nascent and changing nature of the mobile advertising market and Apple’s emergence as a likely formidable competitor in this market. The FTC’s conclusion is well taken that, particularly as a result of Apple’s recent actions, current market shares are unlikely to be an accurate predictor of future market shares or whether the Google/AdMob combination will be able to exercise market power.However, it is not clear that Apple’s emergence will mitigate competitive concerns with respect to advertising on mobile web sites, as opposed to advertising on mobile applications, which is iAd’s exclusive focus. Moreover, a market dominated by two mobile advertising networks – Google and Apple – is unlikely to provide adequate competition to protect application developers and advertisers, particularly insofar as those networks hold mutually exclusive “inventory.” The Commission apparently believes that other advertising networks may emerge, including self-supplied networks created by other mobile platform providers. We hope the Commission is correct, but there are reasons to be skeptical. Certainly, smaller mobile advertising networks do exist, some of which are controlled by well-established companies. But, if application inventory on the iPhone platform cannot be sold using non-Apple ad networks, then other ad networks may be deterred from entering the market or expanding.It is not clear how deeply the FTC investigated the possibility that Apple’s license agreements with developers may unreasonably foreclose rival ad networks. Presumably, Apple will be a formidable competitor with or without such restrictions. But Apple should not be permitted to dominate advertising on the iPhone through exclusionary means, and nothing in the FTC’s Google/AdMob decision precludes a review by the FTC (or DOJ) of Apple’s conduct.

The new EU merger regulation: Implications for EU‐U.S. merger strategies

AbstractThis article examines the implications of the new EU merger regulation (EU 139/2004) on international merger strategies. Important changes in the new regulation on both a substantive and procedural level are analyzed in the comparative context of EU and U.S. merger‐control policies. In particular, the article evaluates whether the “substantial impediment to effective competition” (SIEC) test in the new regulation implies convergence with the U.S. “substantial lessening of competition” (SLC) benchmark. In this context, the article develops scenarios for convergence between EU and U.S. merger‐control policies. The EU merger process has emerged against a background of significant political and institutional development in the European Union, and this is an important explanatory element in the development of competition policy in general and for the new merger regulation in particular. It also has implications for merger strategies examined at the end of the article. © 2006 Wiley Periodicals, Inc.

Substantial Lessening of Competition–The Section 7 Standard

This article addresses anticompetitive effects in the context of the “substantial lessening of competition” standard found in Section 7 of the Clayton Act. Two recent judicial merger decisions–the decision in the Arch Coal case and the decision in the Oracle were brought by federal enforcers–the FTC in the Arch Coal case and the DOJ’s Antitrust Division in the Oracle case. Each was a high-profile battle, and in both cases the defendants won and the government lost. The Arch Coal and Oracle decisions have sparked musings by antitrust commentators regarding everything from the continuing viability of the government’s theories of anticompetitive effects (e.g., can unilateral effects arguments succeed?) to the government’s litigation strategy (e.g., does customer testimony matter, and if so, how?), to the evidence that plaintiffs may have to present in order to prevail (e.g., is econometric analysis essential?). This article addresses a larger policy question posed by a few commentators–specifically, whether the Arch Coal and Oracle decisions suggest that something might be wrong with the government’s Section 7 enforcement efforts, and, if so, whether a major shift in enforcement policy or practice may be needed. Although the government did lose two recent merger cases in district court– three if one includes 2001’s SunGard case –those losses should be kept in perspective. When one considers how very rarely merger cases are brought before judges, the government’s overall win/loss record including consent decrees and abandoned transactions is actually quite strong. Importantly, defendants tend to litigate only those merger cases that they think they are most likely to win. Given this “adverse selection bias,” and the uncertainty inherent in any court proceeding, it should not come as a surprise if on occasion the government loses a case. This article respectfully suggests that the Division’s case against Oracle’s acquisition of PeopleSoft falls squarely within this framework. The Division continues to believe that it presented evidence sufficient to prove that the transaction is anti-competitive and that another district court judge faced with the same record of the case could well have decided to enjoin the transaction.

Application of the public benefit test to the air New Zealand/Qantas case

The proposed cartel between Air New Zealand was rejected by the NZ Commerce Commission, supported on appeal by the High Court. The case was an important and interesting application of the Net Public Benefit test in competition policy, under which the assessed costs or detriments of a determined substantial lessening of competition (SLC) are weighed against any offsetting benefits, for the purposes of authorisation. In this paper quantification of the detriments is shown to depend on the identity of those affected – consumers/producers; New Zealand/Australian/foreign. Impacts on the long‐run performance of markets and on related markets were claimed and are evaluated. The basic legitimacy of the public benefit test in this context is assessed, in terms both of the purpose of the NZ anti‐trust legislation and of the economics of long‐term market performance. The much simpler traditional SLC‐focussed implementation of anti‐trust might perform better overall.