ISSN 1178–2560 Decision Series Project no. 11.04/PRJ0028587 Public version Determination Trade Me Limited and Limelight Software Limited [2018] NZCC 1 The Commission: Dr Mark Berry Anna Rawlings Dr Jill Walker Summary of application: An application by Trade Me Limited for clearance to acquire, directly or indirectly, 100% of the shares in Limelight Software Limited, trading as Motorcentral. Determination: Under section 66(3)(b) of the Commerce Act 1986, the Commerce Commission determines to decline to give clearance for the acquisition. Date of determination: 8 March 2018 2 Confidential material in this report has been removed. Its location in the document is denoted by [ ]. 3 CONTENTS EXECUTIVE SUMMARY ................................................................................................................4 HORIZONTAL EFFECTS OF THE ACQUISITION ................................................................................ 5 VERTICAL EFFECTS OF THE ACQUISITION ...................................................................................... 5 THE ACQUISITION .......................................................................................................................8 SUMMARY OF THE ACQUISITION .................................................................................................. 8 THE APPLICANT’S RATIONALE FOR THE ACQUISITION .................................................................. 8 OUR DECISION ............................................................................................................................... 8 OUR FRAMEWORK ......................................................................................................................8 PARTIES .................................................................................................................................... 10 TRADE ME .................................................................................................................................... 10 MOTORCENTRAL ......................................................................................................................... 11 INDUSTRY BACKGROUND .......................................................................................................... 11 MOTOR VEHICLE SELLERS ............................................................................................................ 11 MOTOR VEHICLE ADVERTISING ................................................................................................... 12 DMSS ........................................................................................................................................... 16 OTHER PARTIES ........................................................................................................................... 22 MARKET DEFINITION ................................................................................................................. 23 OUR APPROACH TO MARKET DEFINITION .................................................................................. 23 ADVERTISING MARKET ................................................................................................................ 23 DMS MARKET .............................................................................................................................. 32 CONCLUSION ............................................................................................................................... 36 CURRENT STATE OF COMPETITION ............................................................................................ 36 ADVERTISING MARKET ................................................................................................................ 36 DMS MARKET .............................................................................................................................. 43 ROLE DMSS PLAY IN COMPETITION BETWEEN LISTINGS PLATFORMS ....................................... 50 WITH AND WITHOUT SCENARIOS .............................................................................................. 55 OUR APPROACH TO DECIDING WHAT IS LIKELY WITHOUT THE ACQUISITION ........................... 56 WITH THE ACQUISITION .............................................................................................................. 56 WITHOUT THE ACQUISITION ....................................................................................................... 57 DIFFERENCE BETWEEN THE FACTUAL AND COUNTERFACTUAL ................................................. 70 HOW THE ACQUISITION COULD SUBSTANTIALLY LESSEN COMPETITION ..................................... 71 HORIZONTAL EFFECTS IN THE ADVERTISING MARKET ................................................................. 72 LOSS OF COMPETITION BETWEEN TRADE ME AND NEED-A-CAR ............................................... 72 CONCLUSION ............................................................................................................................... 74 HORIZONTAL EFFECTS IN THE DMS MARKET .............................................................................. 75 LOSS OF COMPETITION BETWEEN DEALERBASE AND MOTORCENTRAL .................................... 75 POTENTIAL COMPETITION .......................................................................................................... 77 COUNTERVAILING POWER .......................................................................................................... 79 CONCLUSION ............................................................................................................................... 80 VERTICAL EFFECTS ARISING FROM THE INTEGRATION OF TRADE ME AND MOTORCENTRAL ........ 80 FRAMEWORK FOR ASSESSMENT ................................................................................................. 80 ABILITY TO FORECLOSE................................................................................................................ 82 INCENTIVE TO FORECLOSE .......................................................................................................... 91 EFFECT ON COMPETITION ......................................................................................................... 100 CONCLUSION .......................................................................................................................... 109 DETERMINATION ON NOTICE OF CLEARANCE........................................................................... 111 4 Executive summary X1. The Commission declines to give clearance for Trade Me Limited (Trade Me) to acquire, either directly or indirectly, 100% of the shares in Limelight Software Limited, trading as Motorcentral (Motorcentral) (the acquisition). The Commission is not satisfied that the acquisition will not have, or would not be likely to have, the effect of substantially lessening competition in markets for the supply of: (a) online motor vehicle classified advertising to motor vehicle dealers (the advertising market); and (b) dealer management system (DMS) software to independent motor vehicle dealers (the DMS market). X2. Specifically, the Commission is concerned about the loss of direct competition between Trade Me and Motorcentral in the DMS market and that Trade Me’s acquisition of market power in the DMS market, in addition to its existing market power in the advertising market, would give it the ability and incentive to foreclose existing and potential competitors in both the advertising and DMS markets. X3. The acquisition would result in the same company owning Trade Me Motors, the leading provider of online motor vehicle classified advertising in New Zealand, and Motorcentral, the leading provider of DMS software to independent motor vehicle dealers. Motorcentral serves much of the DMS market, with its existing main rivals having a combined market share of only about [ ]% of independent dealers, and the remaining approximately [ ]% of independent dealers either use DealerBase or do not use a DMS. This share is declining over time as Motorcentral grows. X4. DMS software is the main tool that dealers use to upload and manage motor vehicle listings data on online classified advertising platforms such as Trade Me Motors. 1 With the acquisition, Trade Me would have a market share of approximately [ ]% of the advertising market and would control DMSs holding almost [ ]% of the total dealer listings on its platform, with approximately [ ]%-[ ]% of independent dealer listings. These figures would likely grow after the acquisition. The remaining supply of dealer listings is fragmented, with the only other significant source being a supplier of a software product to franchise dealers, which accounts for about [ ]% of Trade Me’s total dealer listings. X5. Competition between Trade Me and Motorcentral in each other’s primary markets would be lost with the acquisition: a. Trade Me has been developing its own software tool, DealerBase, [ ] and absent the acquisition would be likely to continue investing in it to make it more competitive. b. Motorcentral also recently launched Need-a-Car, an online classified advertising platform for motor vehicles. Motorcentral is likely to continue to expand Need-a-Car absent the acquisition. 1 We also refer to online classified advertising platforms as “listings platforms” in these reasons. 5 X6. In order to grant clearance, the Commission must be satisfied that, despite the competition effects of the acquisition that we have identified, the acquisition will not