Guidelines for Merger Analysis Adopted by the Competition and Consumer Protection Commission on 31 October 2014 Merger Guidelines_CCPC TABLE OF CONTENTS 1. Elements of Merger Review ............................................................. 1 Introduction .......................................................................................... 1 Substantial Lessening of Competition ........................................................ 1 The Counterfactual ................................................................................. 3 Actual and Potential Competition .............................................................. 3 Market Definition .................................................................................... 4 Evidence ............................................................................................... 4 2. Market Definition ........................................................................... 6 Introduction .......................................................................................... 6 Product Market Definition ........................................................................ 7 Demand-side Substitution ....................................................................... 7 Supply-side Substitution ......................................................................... 9 Geographic Market Definition .................................................................. 10 3. Market Concentration .................................................................... 12 Introduction ......................................................................................... 12 Market Shares ...................................................................................... 12 Herfindahl-Hirschman Index (“HHI”) ........................................................ 13 4. Horizontal Mergers ........................................................................ 15 Introduction ......................................................................................... 15 Unilateral Effects ................................................................................... 16 Homogeneous Product Markets ............................................................... 17 Differentiated Product Markets ................................................................ 17 Mavericks ............................................................................................. 18 Coordinated Effects ............................................................................... 19 Conditions Conducive to Coordinated Effects ............................................. 19 Incentives for Coordination ..................................................................... 20 Constraints on Coordination .................................................................... 21 Merger with Potential Competitor ............................................................ 22 Monopsony ........................................................................................... 22 Number of Competitors – Bidding Markets ................................................ 23 5. Non-Horizontal Mergers ................................................................. 24 Introduction ......................................................................................... 24 Vertical Mergers .................................................................................... 25 Unilateral Effects ................................................................................... 25 Coordinated Effects ............................................................................... 27 Conglomerate Mergers ........................................................................... 28 6. Barriers to Entry and Expansion ...................................................... 29 Guidelines for Merger Analysis adopted by the Competiton and Consumer Protection i Commission on 31 October 2014 Introduction ......................................................................................... 29 Timeliness of Entry ................................................................................ 29 Likelihood of Entry ................................................................................ 30 Sufficiency of Entry ............................................................................... 30 Barriers to Entry ................................................................................... 30 Legal or Regulatory Barriers ................................................................... 31 Structural Barriers ................................................................................. 31 Strategic Barriers .................................................................................. 32 Other Types of Entry Barriers ................................................................. 32 Evidence for Assessing Entry .................................................................. 32 Barriers to Expansion ............................................................................. 33 7. Countervailing Buyer Power ........................................................... 35 Introduction ......................................................................................... 35 Buyer Power and SLC ............................................................................ 35 Evidence for Assessing Countervailing Buyer Power ................................... 37 8. Efficiencies ................................................................................... 38 Introduction ......................................................................................... 38 Supply-Side Efficiencies ......................................................................... 38 Demand-Side Efficiencies ....................................................................... 38 Dynamic Efficiencies .............................................................................. 39 Evaluation of Efficiencies ........................................................................ 39 Merger Specificity .................................................................................. 39 Evidence for Efficiency Claims ................................................................. 39 Benefits to Consumers ........................................................................... 40 9. Failing Firms and Exiting Assets ...................................................... 42 Introduction ......................................................................................... 42 Failing Firm Test ................................................................................... 42 Evidence and Analysis ............................................................................ 43 Failing Division ...................................................................................... 44 Failing Acquirer(s) and Target(s) ............................................................. 44 Guidelines for Merger Analysis adopted by the Competiton and Consumer Protection ii Commission on 31 October 2014 1. ELEMENTS OF MERGER REVIEW Introduction 1.1 The merger review function of the Competition and Consumer Protection Commission (“Commission”) covers mergers notified to it under section 18 of the Competition Act 2002, as amended (the “Act”).1 The word “merger” is used in these Guidelines to mean a merger or acquisition as defined in the Act (section 16(1)). The relevant test for the Commission’s merger review function is the substantial lessening of competition (“SLC”) test. 1.2 The remainder of this chapter sets out key elements of the Commission’s merger review function, including the SLC test, the relevant counterfactual, and the evidence necessary for the Commission to perform its merger review function. Subsequent chapters elaborate further and cover: (a) Market Definition. (b) Market Concentration. (c) Horizontal Mergers. (d) Non-Horizontal Mergers. (e) Barriers to Entry and Expansion. (f) Countervailing Buyer Power. (g) Efficiencies. (h) Failing Firms and Exiting Assets. 1.3 These guidelines 2 are intended to be accessible to specialists and non-specialists alike so wherever possible everyday language is used. Substantial Lessening of Competition 1.4 Competition in the context of these Guidelines means rivalry between businesses to sell goods and/or services to 1 Section 4 and/or section 5 of the Act can apply to mergers that are not notified to the Commission. Section 19(2) provides that a notified (or notifiable) merger that is put into effect without waiting for any required review and approval is void. 2 This document replaces the “Guidelines for Merger Analysis” document that was published by the Competition Authority in December 2013 (Competition Authority Notice N/13/001, 20 December 2014). Note that while the present document has been adopted by the Commission and re-published as a Commission document it does not contain any amendments to the Guidelines for Merger Analysis published by the Competition Authority in December 2013 (other than the substitution of references to the Commission for references to the Competition Authority and the making of minor amendments to legislative references). The present Guidelines are published by the Commission as a notice pursuant to section 10(1)(e) of the Competition and Consumer Protection Act 2014. Guidelines for Merger Analysis adopted by the Competiton and Consumer Protection 1 Commission on 31 October 2014 consumers. 3 Rivalry between businesses,