Portfolio Effects in Conglomerate Mergers 2001 The OECD Competition Committee debated portfolio effects in conglomerate mergers in October 2001. This document includes an executive summary and the documents from the meeting: an analytical note by Mr. Gary Hewitt for the OECD, written submissions from Australia, Canada, the European Commission, Finland, Germany, Hungary, Ireland, Japan, Korea, the Netherlands, Spain, Switzerland, the United Kingdom, the United States, as well as an aide-memoire of the discussion. In the context of conglomerate merger review, portfolio effects refer to the pro- and anti-competitive effects possibly arising when: the parties enjoy market power but not necessarily dominance; and the products joined are complementary or have analogous properties. When complementary products are merged, there is a potential for considerable synergies that could benefit buyers. There is also an increased potential for forced tying, pure bundling, or analogous practices (e.g. full line forcing) that could restrict buyer choice but also lower prices. Under certain strict conditions, consumers could gain in the short run but suffer long term harm from such practices if they eventually result in a sufficient reduction of competitors and capacity in a market. The hypothetical nature of such harm has led some to conclude that instead of prohibiting mergers having potentially harmful portfolio effects, competition agencies should instead take a wait and see attitude. That would involve using abuse of dominance or monopolisation prohibitions to control negative effects should they actually materialise. OECD Council Recommendation on Merger Review (2005) Merger Review in Emerging High Innovation Markets (2003) Unclassified DAFFE/COMP(2002)5 Organisation de Coopération et de Développement Economiques Organisation for Economic Co-operation and Development 24-Jan-2002 ___________________________________________________________________________________________ English/French DIRECTORATE FOR FINANCIAL, FISCAL AND ENTERPRISE AFFAIRS COMPETITION COMMITTEE Unclassified DAFFE/COMP(2002)5 PORTFOLIO EFFECTS IN CONGLOMERATE MERGERS English/French JT00119854 Document complet disponible sur OLIS dans son format d’origine Complete document available on OLIS in its original format DAFFE/COMP(2002)5 FOREWORD This document comprises proceedings in the original languages of a Roundtable on Portfolio Effects in Conglomerate Mergers, which was held by the Competition Committee in October 2001. It is published under the responsibility of the Secretary General of the OECD to bring information on this topic to the attention of a wider audience. This compilation is one of several published in a series entitled "Competition Policy Roundtables". PRÉFACE Ce document rassemble la documentation dans la langue d’origine dans laquelle elle a été soumise, relative à une table ronde sur les effets de portefeuille dans les fusions conglomérales, qui s'est tenue en octobre 2001 dans le cadre du Comité de la concurrence. Il est publié sous la responsabilité du Secrétaire général de l'OCDE, afin de porter à la connaissance d'un large public les éléments d'information qui ont été réunis à cette occasion. Cette compilation fait partie de la série intitulée "Les tables rondes sur la politique de la concurrence". Visit our Internet Site -- Consultez notre site Internet http://www.oecd.org 2 DAFFE/COMP(2002)5 OTHER TITLES SERIES ROUNDTABLES ON COMPETITION POLICY 1. Competition Policy and Environment OCDE/GD(96)22 2. Failing Firm Defence OCDE/GD(96)23 3. Competition Policy and Film Distribution OCDE/GD(96)60 4. Competition Policy and Efficiency Claims in Horizontal Agreements OCDE/GD(96)65 5. The Essential Facilities Concept OCDE/GD(96)113 6. Competition in Telecommunications OCDE/GD(96)114 7. The Reform of International Satellite Organisations OCDE/GD(96)123 8. Abuse of Dominance and Monopolisation OCDE/GD(96)131 9. Application of Competition Policy to High Tech Markets OCDE/GD(97)44 10. General Cartel Bans: Criteria for Exemption for Small and Medium-sized Enterprises OCDE/GD(97)53 11. Competition Issues related to Sports OCDE/GD(97)128 12. Application of Competition Policy to the Electricity Sector OCDE/GD(97)132 13. Judicial Enforcement of Competition Law OCDE/GD(97)200 14. Resale Price Maintenance OCDE/GD(97)229 15. Railways: Structure, Regulation and Competition Policy DAFFE/CLP(98)1 16. Competition Policy and International Airport Services DAFFE/CLP(98)3 17. Enhancing the Role of Competition in the Regulation of Banks DAFFE/CLP(98)16 18. Competitition Policy and Intellectual Property Rights DAFFE/CLP(98)18 19. Competition and Related Regulation Issues in the Insurance Industry DAFFE/CLP(98)20 20. Competition Policy and Procurement Markets DAFFE/CLP(99)3 21. Regulation and Competition Issues in Broadcasting in the light of Convergence DAFFE/CLP(99)1 3 DAFFE/COMP(2002)5 22. Relationship between Regulators and Competition Authorities DAFFE/CLP(99)8 23. Buying Power of Multiproduct Retailers DAFFE/CLP(99)21 24. Promoting Competition in Potal Services DAFFE/CLP(99)22 25. Oligopoly DAFFE/CLP(99)25 26. Airline Mergers and Alliances DAFFE/CLP(2000)1 28. Competition in Local Services DAFFE/CLP(2000)13 (Roundtable in October 1999, published in July 2000) 29. Mergers in Financial Services DAFFE/CLP(2000)17 (Roundtable in June 2000, published in July 2000) 30. Promoting Competition in the Natural Gas Industry DAFFE/CLP(2000)18 (Roundtable in February 2000) 31. Competition Issues in Electronic Commerce DAFFE/CLP(2000)32 (Roundtable in October 2000) 32. Competition and Regulation Issues in the Pharmaceutical Industry DAFFE/CLP(2000)29 (Roundtable in June 2000) 33. Competition Issues in Joint Ventures DAFFE/CLP(2000)33 (Roundtable in October 2000) 34. Competition Issues in Road Transport DAFFE/CLP(2001)10 (Roundtable in October 2000) 35. Price Transparency DAFFE/CLP(2001)22 (Roundtable in June 2001) 36. Competition Policy in Subsidies and State Aid DAFFE/CLP(2001)24 4 DAFFE/COMP(2002)5 TABLE OF CONTENTS EXECUTIVE SUMMARY .......................................................................................................................... 7 SYNTHÈSE................................................................................................................................................ 13 BACKGROUND NOTE............................................................................................................................. 19 NOTE DE RÉFÉRENCE............................................................................................................................ 65 QUESTIONNAIRE SUBMITTED BY THE SECRETARIAT ............................................................... 115 QUESTIONNAIRE SOUMIS PAR LE SECRÉTARIAT........................................................................ 119 NATIONAL CONTRIBUTIONS Australia .................................................................................................................................... 123 Canada....................................................................................................................................... 129 Finland....................................................................................................................................... 139 Germany .................................................................................................................................... 143 Hungary..................................................................................................................................... 155 Ireland ....................................................................................................................................... 159 Japan ....................................................................................................................................... 163 Korea ....................................................................................................................................... 165 Spain ....................................................................................................................................... 181 Switzerland................................................................................................................................ 191 The Netherlands ........................................................................................................................ 195 United Kingdom........................................................................................................................ 201 United States Department of Justice.......................................................................................... 213 European Commission .............................................................................................................. 239 AIDE-MEMOIRE OF THE DISCUSSION ............................................................................................. 245 AIDE-MÉMOIRE DE LA DISCUSSION................................................................................................ 269 5 DAFFE/COMP(2002)5 6 DAFFE/COMP(2002)5 EXECUTIVE SUMMARY by the Secretariat Considering the discussion at the roundtable, the delegate submissions, and the background paper, a number of key points emerge: (1) Portfolio effects in conglomerate mergers include potential pro- and anti-competitive effects that might arise due to a merger uniting complementary products in which one or more parties enjoy significant market power. The