Day Two Session One Competitive Effects Andreas Bardong

Day Two, Session One Competitive Effects Andreas Bardong Head of Section Merger Policy, Bundeskartellamt, Germany

Outline Day Two Session One ICN Merger Workshop Taipei 10 -11 March 2009 2 Brief Overview on competitive effects analysis, guidance from: Ø ICN Recommended Practices for Merger Analysis Ø ICN Merger Guidelines Workbook Role Play: Ø Interviews of competition official with competitor Ø Interview with customer Your turn: Ø Analysis of Information provided in interviews in Break out session

Competitive Harm ICN Merger Workshop Taipei 10 -11 March 2009 3 Will the merger lead to competitive harm? Price increase Negative effect on quality and variety Competitive Harm Limitation of output Negative effect on innovation

Counterfactual ICN Merger Workshop Taipei 10 -11 March 2009 4 How does the merger change the situation on the market? Situation pre-merger Likely situation post-merger Situation without the merger (Counterfactual)

Competitive Effects ICN Merger Workshop Taipei 10 -11 March 2009 5 Mainstream theories of competitive harm? Competitive Effects Unilateral Effects Coordinated Effects

Types of Mergers ICN Merger Workshop Taipei 10 -11 March 2009 6 Negative competitive effects can occur as a result of different types of mergers Typical case: Also possible: vertical mergers Horizontal Merger Conglomerate mergers

Competitive Effects (II) 7 ICN Merger Workshop Taipei 10 -11 March 2009 Unilateral Effects Coordinated Effects § Non-coordinated action by market participants § Coordination of behaviour between companies in a market (not necessarily collusion). § In particular: Merging firms are able to excercise market power, e. g. raise price, limit output or quality § Merging parties and some competitors coordinate on price, output, or customer/market allocation. § Merger eliminates competition between merging parties § Merger increases the liklihood of coordination or strengthens existing coordination.

Coordinated Effects ICN Merger Workshop Taipei 10 -11 March 2009 8 Is coordination stable? Does merger change situation? Ability to identify terms of coordination Costly to cheat (other must be able to detect and punish cheating) Competitive constraints from outside must be weak (other competitors, buyer-power, entry)

Coordinated Effects (II) 9 ICN Merger Workshop Taipei 10 -11 March 2009 § Relevant factors include: Market transparency Product homogeneity Structural links between companies Maverick firms spare capacity of non. Participating competitors, barriers to entrys Multimarket contacts Buyer power and symmetry