Draft Guidelines on Non-Horizontal Mergers

The Commission is about to adopt guidelines on non-horizontal mergers. Though most would admit that these mergers only create problems in limited circumstances, the Commission once again manifests its desire to (i) come up with another set of soft-law prescriptions and (ii) replicate what has been done in the past by the US agencies.

A quick review of the text: besides the coverage of upstream/downstream foreclosure, coordinated effects are for once mentioned as an area of concern when it comes to vertical mergers.

I am more puzzled by the silence of the Commission on the interface between the ECMR and Article  82 EC. If my recollections are good, the Court mentioned in Tetra Laval that the assessment of the risk of conglomerate (and by extension vertical) competitive harm should factor in the fact that Article 82 EC applies ex post to conglomerate and vertical exclusionary conducts.

No doubt stakeholders will flood the Commission with comments. No doubts either that the stakeholder's consultation process will trigger its usual lot of Commission bashing...

The image above is about the AOL/Time Warner merger, a classic example of non-horizontal (vertical) transaction. I found it extremely funny.

Comments

[KNeefs]

If I recall correctly, Tetra Laval indeed mentions the ex post application of article 82 EC to conglomerate and vertical exclusionary conducts (as it would to horizontal mergers as well). But was it really more than imposing a duty of diligence on the Commission by raising the standard of proof in the economic appraisal of non-horizontal mergers?

This of course implies some minor "intrusion" by 82CE, but in my view the significant distinction between the ECMR and 82CE remains: the ECMR will block the acquisition of a dominant position which was not attained by competition "by the merits", whilst article 82 CE sanctions only abuse of such a position, once acquired.

I doubt the Commission has not taken the Tetra Laval decision into account, but not so much as a true interaction between these regimes, but more as a warning that blocking conglomeral and vertical mergers requires solid argumentation. What are your thoughts?

[Nico]

Kristoff, thanks for the interesting comment. Quickly, my interpretation of Tetra Laval is that behavioural theories of harm (e.g. input foreclosure, tying strategies) that only arise of vertical/conglomerate mergers should be assessed in light of the fact that 82 may come into play and bring a decent answer to these issues. In turn, this affects the market player's incentives to adopt such conduct. So, when assessing a merger, the Commission must not jump to easily to the conclusion that the merged entity will seek to foreclose its rivals, or tie its product to leverage its position.

Now, this is completely difft for horizontal mergers, where the typical theory of harm is in a way less behavioural (or conduct-oriented): the main area of concern is that the merged entity will increase its prices on the market, that's it. And 82 cannot do much about this as only excessive pricing can be deemed abusive... and we all know the intricacies of bringing such cases.

[Marco Slotboom]

See para. 44 of the draft which gives expression to para. 74 of Tetra Pak.

[Nico]

Thanks Marco, I will have a look.

Nicolas