Association of Competition Economics, 18 November 2011 Session 3b: Merger control – local vs. national markets (Norway) Norwegian retail mergers Harald K. Selte Senior Economist Bugge, Arentz-Hansen & Rasmussen law firm, Oslo 18 November 2011 #2452413<i> 1. Norwegian merger control 2. Three Norwegian retail mergers 3. Conclusions 2 Norwegian merger control – some highlights • Very low notification thresholds in Norway ◦ From 1.5.2004 – 31.12.2006 • Combined > NOK 20m (~ EUR 2.5m) • At least two parties > NOK 5m (~ EUR 0.6m) ◦ From 1.1.2007 • Combined > NOK 50m (~ EUR 6m) • At least two parties > NOK 20m (~ EUR 2.5m) • Still significantly lower than our neighbours • Norway one of the “usual suspects” when screening jurisdictions • +/– 400 notifications annually ◦ Protection of competition in local or narrow markets clearly stated as a background for the low thresholds • However no interventions in “pure” local concentrations so far ◦ If EU dimension: Norway covered by the Commission’s jurisdiction • Objective test ◦ “Create or strengthen a significant restriction of competition” • Deviates from SIEC/SLC test in that (it may be argued that) it should be intervened even in marginal changes in concentration where competition is found to be significantly restricted pre-merger ◦ Total welfare standard – at least in principle • Active enforcement ◦ 16 interventions and 6 prohibitions by the NCA since the current law came into force in 2004 3 1. Norwegian merger control 2. Three Norwegian retail mergers 3. Conclusions 4 3 recent retail mergers (and 1 asphalt merger) • Daily consumer goods: REMA 1000 Norge / Lidl Norge • Acquisition of Lidl’s entire business in Norway following Lidl’s decision to withdraw from the Norwegian market • Retail sales of consumer goods • Book retailers: Norli / Libris • Merger between two major specialist retail book chains • Vertically integrated • Retail fuel sales: Norske Shell / assets of YX Energi Norge • Long-term lease agreement regarding infrastructure for retail fuel sale at a number of YX’ sites in Norway • Store sales not included in transaction • Notified also in Sweden and Denmark; no intervention • Asphalt merger: Lemminkäinen / Mesta Industri • Focus on the retail mergers 5 Some issues to consider • Micro-focus on local markets ◦ No general method of market definition, each local market defined according to local characteristics ◦ Effects on competition analysed in detail in each market ◦ In contrast to the European Commission’s approach in similar markets • National markets • Aggregation of effects in a range of local markets to effect on national market • Wide range of theories of harm applied in local markets ◦ Unilateral effects • Dominance (even if term not used) • Unilateral effects below dominance, closest competitor within defined local market ◦ Coordinated effects • In context of multi-market contact ◦ In contrast to the Commission approach • General approach to unilateral effects based on cross section studies • No attempts to analyse each affected local (sub-) market in detail • Mild remedies ◦ In contrast to Commission approach 6 Daily consumer goods merger: REMA 1000 / Lidl Norge (2008) • Lidl entered Norwegian market for daily consumer goods in 2004 ◦ 50 stores operating at time of transaction ◦ Hard discount profile • Generally not considered as a success at the time of the transaction ◦ Exit • Lidl remaining in the market was not the alternative situation • The transaction ◦ REMA 1000 acquired all Lidl stores + warehouse facilities • REMA 1000 established in the soft retail segment; the largest chain in the Norwegian market • REMA 1000 (also) part of Reitangruppen ◦ Lidl brand phased out quickly after completion • Stores rebranded to REMA 1000 or used for other purposes • No dispute regarding product market ◦ Notification: • Daily consumer goods • All segments from mini markets to hyper stores in the same segment • Convenience retailing (where Reitangruppen is a leading player) not part of the market ◦ NCA agreed 7 Daily consumer goods merger: REMA 1000 and Lidl close substitutes within product market? • The discount segment is relatively large in Norway ◦ Not as clear-cut as the hard discount profile of Lidl • Branded products • More SKUs • Increasing focus on fresh food • REMA 1000: REMA 1000 and Lidl were not each others closest competitors ◦ Other soft discount chains closer competitors to REMA than Lidl ◦ Nielsen’s consumer survey: • High general preference for REMA 1000; number 2, among super markets • REMA 1000 best score among discount chains on parameters like quality, choice and service • REMA 1000 and the discount chains in general are challenging the supermarkets ◦ Fresh food ◦ Service ◦ Big shopping • Lidl scored substantially worse than REMA on most parameters, also on price ◦ Relevance given Lidl’s decision to leave Norway? 8 Daily consumer goods merger: Geographic market definition • Notification: ◦ Market has both a national and a local dimension ◦ National market: • Competition between chains • Strategy, concept development, advertising • National pricing • National price comparisons in media • Knock on-effect ◦ Local market for the single consumer ◦ Not necessary to define market • No negative effects to competition under any possible market definition • NCA ◦ Local markets • Refers to ◦ UK: CC Market investigation 2008 ◦ Commission: REWE/Delvita (COMP/M.4590) • No general definition of the size of the local market; must be assessed in each case • Acknowledges possible “national dimension” in market definition, but no further investigations • Market data for national, regional and local level presented during the NCA’s investigation ◦ Modest market shares at national and regional level 9 Daily consumer goods merger: Daily consumer goods: Umbrella chains and concepts Lidl; 1,5 % Smart Club; 0,8 % Coop Marked 3,6 % REMA 1000 Coop Coop Obs! 5,2 % REMA 1000 17,3 % 23,8 % 17,3 % Coop Prix 7,3 % Coop Mega 7,7 % Kiwi 11,5 % ICA Maxi ICA Super 3,9 % Meny 8,6 % ICA Nær NorgesGruppen 3,9 % 39,2 % ICA Norge Rimi 6,9 % Spar 17,4 % 6,7 % Bunn- Andre Joker pris Ultra 3,1 % 3,3 % Source: ACNielsen 10 Daily consumer goods merger: Modest concentration by county 40 % Incl. Smart Club Råde 30 % 27 % 26 % 20 % 10 % 0 % REMA 1000 Other (Smart Club, Lidl) Source: ACNielsen, dagligvarerapporten 2008 11 Daily consumer goods merger: Local markets: Some markets with high combined market shares • Iterative process: ◦ Scope of investigation narrows as NCA “closes” markets where there are no concerns – lots of maps presented to the NCA, e.g. 15 min driving from Lidl site ◦ Only two markets with combined market share > 40% within 15 min driving ◦ Only two markets where only 3 players present post merger within 15 min driving ◦ Remedies offered early ◦ Most expedient merger decision with intervention ever in Norway • NCA: Intervention related to one local market: Nordfjordeid ◦ Post-merger market share [45-55%], HHI 3873 ◦ Access to suitable premises significant barrier to entry ◦ No buyer power ◦ Effects in other local markets not discussed • NCA (normally) only presents its analysis when it intervenes • Norfjordeid a small and isolated area ◦ Population within 15 min driving about 5000 – no knock-on • Remedy: ◦ Offer one of the two properties in Nordfjordeid to a competitor not present in the local market at market conditions by sale or lease ◦ The competitor given the offer was not interested; property remained with REMA 1000 ◦ One of the stores subsequently closed, currently only one REMA 1000 in Nordfjordeid 12 Daily consumer goods merger: Contrast: REWE/Meinl (IV/M.1221), REWE/ADEG (COMP/M.5047) • In both REWE/Meinl and REWE /ADEG the commission defined national markets for daily consumer goods in Austria ◦ Local markets (20-30 min) but knock-on effect ◦ In contrast to Czech Republic where the Commission defined local markets (20-30 min driving) in REWE/Delvita (COMP/M.4590) • Competition analysis in REWE/ADEG still at local level ◦ No direct negative effects at national level found • Merger simulation presented by competitor Spar showed only marginal upwards pressure on prices and dismissed by the Commission ◦ Effects in national market still found through aggregation of local effects into national level • Necessary to look at effects in local market to see if these aggregates into negative effects in the national market • The Parties’ market position in 121 local political districts examined ◦ Not assumed to approximate local geographic markets • 24 “critical areas” identified: ◦ Pre-merger market share > 45% and increase ◦ Pre-merger market share 35-45% and increase > 5% • Divestment remedy related to critical areas • Clearance decision brought into General Court by competitor Spar (case T405/08); still pending 13 Book shop merger: Norli / Libris (2011) • Merger between two of the major Norwegian book shop chains ◦ Norli, owned by publisher Aschehoug ◦ Libris, owned by daily consumer goods giant NorgesGruppen • Narrow markets defined ◦ Product market • Specialist bookshops only ◦ Distant sales (book clubs, Internet) excluded ◦ Alternative retail channels (e.g. supermarkets) excluded ◦ Niche retailers (e.g. academic, religious) excluded ◦ Geographic market • Both national and local market defined • Local market from a demand point of view • National market: ◦ Market largely organised in national chains ◦ Pricing, selection and service level partly determined on national level – differs between the chains • Local market inspired by OFT and CC in HMV/Ottakar (2006) ◦ 1 mile