Administration in International Organizations PUBLIC COMPETITION LAW Class VI , 17th Nov 2014

1. Administration in International OrganizationsPUBLIC COMPETITION LAWClass VI, 17thNov 2014 Krzysztof Rokita

2. Merger Control • Why do firms merge? • Advantages/disadvantages/risks? • Why would competition law be concerned with mergers?

3. Merger Control Theoriesof competitive(orconsumer) harm • Non-coordinated (unilateral) effects – as a result of mergerthe merged entity (and sometimesalsootherfirms)will possess such high degree of market power that it will be able to unilaterally exercise the market power to the detriment of consumers • Coordinated effects– arise where, under certain market conditions (e.g., market transparency, product homogeneity etc.), the merger increases the probability that, post-merger, merging parties and their competitors will successfully be able to coordinate their behaviour in an anti-competitive way

4. EU Merger Control • Articles 101 and 102 TFEU wereutilizedso as to preventanti-competitivemergers (SeeContinental Can - C-6/72) • The original merger control regulation was Council Regulation 4064/89 of 21 December 1989 (Repealed); • Currently in force: Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (hereafterthe EUMerger Regulation)

5. EU Merger Regulation - Jurisdiction • The EUMR applies to concentrations with EU dimension

6. EU Merger Regulation - Jurisdiction Mergers • two or more independent undertakings amalgamate into a new undertaking and cease to exist as separate legal entities • an undertaking is absorbed by another, the latter retaining its legal identity while the former ceases to exist as a legal entity • the combining of the activities of previously independent undertakings results in the creation of a single economic unit (e.g. twoundertakingsestablishcommon management)

7. EU Merger Regulation - Jurisdiction Acquisitionof control • occurswhere there is a change in control of an undertaking • Control may be acquired by an undertaking acting alone (sole control) or by a number of undertakings acting jointly (joint control); • Controlrelates to the possibility of exercising decisive influence over an undertaking on the basis of rights, contracts or other means; • Decisive influence in turn means the power to determine the strategic commercial behavior of an undertaking

8. EU Merger Regulation - Jurisdiction Sole control • one undertaking (or person controlling one or more undertakings) alone can exercise decisive influence on another undertaking • De jurecontrol, e.g. shareholdingwhichgives the majority of the votingrights; • De factocontrol, e.g. shareholderdoes not have the majority of the votingrights, but due to factualcircumstances (dispersedownership of the remainingshares) mayneverthelessexercisedecisive influence • Encompassespositive and negativecontrol

9. EU Merger Regulation - Jurisdiction Joint control • exists where two or more undertakings or persons have the possibility of exercising decisive influence over another undertaking; • in practice, itextends to allthoseundertakingsorpersonswhocanblockstrategiccommercialdecisions

10. EU Merger Regulation - Jurisdiction Changes in the quality of control: • a change between sole and joint control • in joint controlscenarios (an increase in the number or a change in the identity of controlling shareholders);

11. EU Merger Regulation - Jurisdiction The creation of a full-function joint ventures • a JV must perform the usual functions of an undertaking operating on a particular market (ithasa management, access to sufficient resourcesand assets to be able to conduct its business activity); • aJV cannot be regarded as full-function if it is only assigned one specific function within its parents’ commercial activities without having access to the marketplace; • Duration of a JV isalsorelevant

12. EU Merger Regulation - Jurisdiction The EUMR aims to apply to concentrations with EU dimension (Article 1(2) and 1(3) of the EUMR)

13. EU Merger Regulation - Procedure • Notification • Suspension of the implementation of concentrations • Phase I (decisions: • concentration does not fall within the scope of the EUMR; • concentrationisapprovedeither unconditionally or conditionally; • whenconcentrationraisesseriousdoubts as to itscompatibility with the internal market, a decisioninitiatingPhase II isissued) • Phase II (decisions: • concentration is compatible with the internal market; • concentration is compatible with the internalmarket but after a modification; • concentration isincompatible with the internalmarket [prohibition])

14. EU Merger Regulation - Substantive appraisal The Commission must make a prospective determination of whether a concentration would significantly impede effective competition in particular as a result of the creation or strengthening of a dominant position -the SIEC test.

15. EU Merger Regulation - Substantive appraisal Horizontalmergers • occurs between undertakings operating at the same level of economy; • Market shares and concentration levels (Herfindahl-Hirschman Index - HHI); • Non-coordinated effects: merger removes competitive constraints onone or more firm on the market which consequently have increased market power • Coordinated effects: Mergers in highly concentrated markets (oligopolistic markets) may impede competition through the creation of collective dominant positionoreven by makingcoordinationeasier

16. EU Merger Regulation - Substantive appraisal Verticalmergers • concluded between firms at different levels of production in the economy (but in the same chain of production) • Input foreclosure • Customerforeclosure

17. EU Merger Regulation - Substantive appraisal Conglomeratemergers • occur when merging entities have no horizontal or vertical links, so they operate in different branches of economy; • veryunlikely to bringanti-competitiveconcerns; • mayresult in practicessuch as tying and bundling

18. EU Merger Regulation - Substantive appraisal Undertakingsmayclaimthateventhoughsomeanti-competitiveeffectsmayoccur, theywill be outweighted by otherconsiderations. Examples: Efficiencies: • must benefit consumers, be merger specific, and verifiable Failing firm defence: • The failing firm would in the near future be forced out of the relevant market because of financial difficulties, if not taken by another undertaking; • There is no less anti-competitive alternative to the transaction in question; • In the absence of the merger, the assets of the failing firm would inevitably exit the market.

19. EU Merger Regulation - Substantive appraisal Commitments (remedies)to enable clearance • must be proportionateto, and entirely eliminate, the competition problem identified during the course of the administrative proceedings; • Structural remedies (e.g. divestiture of assets) • Behavioral remedies (obligation to undertake a particularaction)