Entry and Expansion in UK Merger Cases: an Ex-Post Evaluation
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Entry and expansion in UK merger cases An ex-post evaluation KPMG LLP April 2017 © 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. For full details of our professional regulation please refer to ‘Regulatory Information’ at www.kpmg.com/uk Entry and expansion in UK merger cases An ex-post evaluation KPMG LLP Contents Important notice 4 Executive Summary 5 1 Introduction 12 1.2 Evaluating the Authorities’ predictions on entry and expansion 13 1.3 Formulating recommendations 14 1.4 Evidence reviewed in our study 15 1.5 Structure of this report 16 A. Case-by-case review 17 2 Sheffield City Taxis/ Mercury Taxis 17 2.1 Summary of the CMA’s decision 17 2.2 Research questions and evidence gathering 18 2.3 Findings on entry/ expansion in Sheffield post-merger from our ex-post review 18 2.4 Findings on timeliness and sufficiency of entry / expansion in Sheffield post-merger 20 2.5 Findings on the impact of regulation 22 2.6 The impact of Uber in different local markets 23 2.7 Sheffield City Taxis/ Mercury Taxis: conclusions from the ex-post analysis 23 3 CooperVision/ Sauflon 24 3.1 Summary of the CMA’s decision 24 3.2 Research questions and evidence gathering 25 3.3 Findings on entry/ expansion 26 3.4 Findings on timeliness and sufficiency of entry / expansion 28 3.5 CooperVision/ Sauflon: conclusions from the ex-post analysis 30 4 Ballyclare/ LHD 30 4.1 Summary of the CMA’s decision 30 4.2 Research questions and evidence gathering 31 4.3 Findings on entry/ expansion and competition 31 4.4 Ballyclare/ LHD: conclusions from the ex-post analysis 33 5 Cineworld/ City Screen 33 5.1 Summary of the CC’s decision 33 5.2 Research questions and evidence gathering 34 5.3 Findings on entry and exit post-merger in overlap local areas 35 5.4 Findings on expansion by existing operators in overlap local areas 39 5.5 Findings on outcomes post-merger in overlap local areas 40 5.6 Findings on other national trends 43 5.7 Cineworld/ City Screen: conclusions from the ex-post analysis 44 6 WRI/ Hostelbookers 45 1 ABCD Entry and expansion in UK merger cases An ex-post evaluation KPMG LLP 6.1 Summary of the OFT’s decision 45 6.2 Research questions and evidence gathering 46 6.3 Findings on entry/ expansion of established OTAs 47 6.4 Findings on timeliness and sufficiency of entry and expansion post-merger 49 6.5 Findings on competition with suppliers with different business models 50 6.6 Findings on whether the market has reached a ‘tipping point’ 52 6.7 Other impacts on the merger parties of competition with OTAs 52 6.8 WRI/ Hostelbookers.com: conclusions from the ex-post analysis 53 7 Zipcar/ Streetcar 53 7.1 Summary of the CC’s decision 53 7.2 Research questions and evidence gathering 54 7.3 Findings on entry/ expansion 55 7.4 Findings on the timeliness and sufficiency of entry and expansion 59 7.5 Findings on barriers to entry and expansion 62 7.6 Zipcar/ Streetcar: conclusions from the ex-post analysis 66 8 Cartonplast/ Demes 67 8.1 Summary of the OFT’s decision 67 8.2 Research questions and evidence gathering 67 8.3 Findings on entry/ expansion and competition 68 8.4 Cartonplast/ Demes: conclusions from the ex-post analysis 70 9 NBTY/ Julian Graves 70 9.1 Summary of the CC’s decision 70 9.2 Research questions and evidence gathering 71 9.3 Findings on entry and exit post-merger 72 9.4 Findings on outcomes post-merger 73 9.5 NBTY/ Julian Graves: conclusions from the ex-post analysis 78 B. Conclusions from the ex-post analysis 79 10 Findings on the Authorities’ decisions 79 10.1 Introduction 79 10.2 Were the Authorities’ predictions on entry and expansion realised? 79 10.3 Was there a difference across Phase I and Phase II decisions? 82 10.4 Where the Authorities’ predictions were not realised, was this ‘foreseeable’? 82 10.5 Where the Authorities’ predictions were not realised, are there patterns in why that was the case? 84 11 Recommendations 85 11.1 Introduction 85 11.2 Recommendations on assessing likely forms of entry or expansion 85 11.3 Lessons and recommendations on the treatment of the likelihood of expansion compared to entry 88 2 Entry and expansion in UK merger cases An ex-post evaluation KPMG LLP 11.4 Recommendations on local regulation as a barrier to entry or expansion 89 11.5 Recommendations for future ex-post analysis 90 Appendixes 93 1 CooperVision/ Sauflon 93 1.1 Analysis of market entry and expansion 93 1.2 Analysis of price outcomes 94 2 Cineworld/ City Screen 95 2.1 Market shares for local areas of interest 95 2.2 National market shares 97 3 Cineworld/ City Screen: analysis of price outcomes 99 3.1 Introduction 99 3.2 Methodology overview 99 3.3 Methodology for analysis with comparator local areas 101 3.4 Data 103 3.5 Results 105 4 WRI/ Hostelbookers 109 4.1 Analysis of market coverage 109 4.2 Analysis of prices pre- and post-merger 111 5 Zipcar/ Streetcar 113 5.1 Analysis of prices pre- and post-merger 113 6 NBTY/ Julian Graves 116 6.1 Analysis of prices pre- and post-merger 116 6.2 Methodology 116 6.3 Data 118 6.4 Results 120 3 ABCD Entry and expansion in UK merger cases An ex-post evaluation KPMG LLP Important notice This report, presenting our ex-post evaluation of some recent merger decisions, has been prepared by KPMG LLP (“KPMG”) solely for the Competition and Markets Authority (“CMA” or “the Client”) in accordance with terms of engagement agreed by the CMA with KPMG. This report should not therefore be regarded as suitable to be used or relied on by any other person for any purpose. This report is issued on the basis that it is for information purposes only. Should anyone choose to rely on this report, they do so at their own risk. Without prejudice to KPMG’s liability to the CMA subject to and in accordance with the terms of engagement agreed between them, KPMG will accordingly accept no responsibility or liability in respect of this report to any person. This report does not give rise to a client relationship between KPMG and any person (other than the CMA). KPMG’s work for the CMA, on which this report is based, was conducted between 25th October 2016 and 24th March 2017, and the scope of work undertaken is outlined in section 1 below. KPMG does not provide any assurance as to the appropriateness or accuracy of sources of information relied upon and KPMG does not accept any responsibility for the underlying data used in this report. For this report the CMA has not engaged KPMG to perform an assurance engagement conducted in accordance with any generally accepted assurance standards and consequently no assurance opinion is expressed. The opinions and conclusions expressed in this report are (subject to the foregoing) those of KPMG and do not necessarily align with those of the CMA. 4 Entry and expansion in UK merger cases An ex-post evaluation KPMG LLP Executive Summary Scope and aims of the study 1 The Competition and Markets Authority (CMA) has commissioned KPMG (“us” or “we”) to conduct an external evaluation of some past CMA, Competition Commission (CC) and Office of Fair Trading (OFT) merger decisions. The focus of the study is to draw lessons about the CMA’s assessment of entry and expansion in merger control. In particular, the aim of the study is to assess whether the CMA/ CC/ OFT (together, the “Authorities”) has correctly assessed the propensity and impact of entry and expansion; whether the Authorities have been consistent across cases in assessing entry and expansion; and what types of evidence and market features are the best predictors of entry and expansion. 2 Rather than conducting an in-depth study of a small number of decisions (as it had done in previous ex-post evaluations), in this case the CMA wished to consider the issues set out above across a larger number of cases. We therefore conducted an ex-post evaluation of eight merger cases: ■ Sheffield City Taxis/ Mercury Taxis (CMA Phase I, 13th October 2015) ■ CooperVision/ Sauflon (CMA Phase I, 4th December 2014) ■ Ballyclare/ LHD (CMA Phase I, 26th August 2014) ■ Cineworld/ City Screen (CC Phase II, 8th October 2013) ■ Web Reservations International (WRI)/ Hostelbookers (OFT Phase I, 2nd August 2013) ■ Zipcar/ Streetcar (CC Phase II, 22nd December 2010) ■ Cartonplast/ Demes (OFT Phase I, 23rd March 2010) ■ NBTY/ Julian Graves (CC Phase II, 20th August 2009) 3 These cases were all clearance decisions where entry or expansion was an important factor in that clearance. Clearance decisions were chosen as they give clear testable propositions about whether the entry and expansion predicted by the Authorities occurred. We recognise, however, that focussing on clearance decisions limits our ability to test whether the Authorities may have over-enforced or under predicted entry or expansion. Selecting these clearance decisions also means we are focussing on cases of expected or failed entry, and may be less likely to observe entry that was unexpected. 4 These cases were chosen from a list of 15 clearance decisions since October 2008, drawn up by the CMA, where entry or expansion was a relevant factor in the clearance.