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Mergers in the Czech Republic: The Substantive Test and Competition Enforcement

This article discusses the Czech experience with the substantive test for analyzing mergers, focusing on the SIEC test and relevant cases. It also explores mergers in times of crisis and provides conclusions on the effectiveness of the test.

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Mergers in the Czech Republic: The Substantive Test and Competition Enforcement

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  1. The Substantive Test for the analysis of mergers - the Czech experience Barbora BednářováCompetition Enforcement in the Recently Acceded Member StatesBrno, 23 April 2010

  2. Overview • Past experience • SIEC test • Cases • Mergers in Times of Crisis • Conclusions

  3. Past experience • Act No 63/1991 Coll. on the Protection of Competition • „public interest“ test • § 8a (2) • Act No 143/2001 Coll. on the Protection of Competition • dominance test • § 16 (2)

  4. SIEC test • Introduced by the 4thamendment of the Act No 143/2001 Coll. on the Protection of Competition in 2005 • § 17 (3) „The Office shall not approve a concentration provided it would result in asubstantial distortion of competition in the relevant market particularly because it would result in or would strengthen a dominant position of the undertakings concerned…” • Same as EC Merger Reg.

  5. Cases - Karlovarské minerální vody/PoděbradkaI. • Decision of the Office of 6.3.2002, No. R 18/2001 • Merger between main suppliers of natural and mineral water • Relevant market defined narrowly as i) market for packaged natural and mineral water and ii) market for packaged flavored natural and mineral water • Prohibition decision, behavioral remedies found insufficient

  6. Cases - Karlovarské minerální vody/Poděbradka II. • Decision of the Office of 29.5.2006, No. S 64/05 • First decision of approval of a previously prohibited merger • Does not constitute rei iudicatae • Relevant market defined more broadly as: i) market for packaged natural and mineral water and ii) market for packaged flavored soft drinks based on drinking water • Re-assessment of market conditions and analysis of their changes that led to the original prohibition decision • Decreasing market shares of merging parties • Change in market concentration and increasing volume of the market • Increased imports • New competing products, private labels • Lower barriers to entry (lower prices of production technology) • Increasing position of the discount chains • Decrease of loyalty to established brand

  7. Cases – Agrofert/Agropol • Decision of the Office of 19.3. 2009, No. S 293/2008 • Merger between two main groups of undertakings in the area of agricultural sector • April 2009 - the Office has cleared the transaction subject to conditions after an in-debt five months investigation • Horizontal merger, many overlaps, competition concerns identified • Structural remedies – divestitures • The difference of the approach between the dominance test and the SIEC test • The Office required commitments concerning also the relevant markets, where the merged entity had no dominant position • Main concern: merger would eliminate an important competitive force in case where the economic and financial power of the other competitors was not comparable to those of the merging parties

  8. Mergers in Times of Crisis: „Business as Usual“ • Authorities madeclear that the standard would not be relaxed in light of the crisis • Number of notified transactions decreased • 2009: 38 • 2008: 56 • 2007: 61 • Spring ´09 - Office adopted "crisis soft law package“ • 1. Notice on the prohibition of implementation of concentrations prior to the approval and exemptions thereof; and • 2. Notice on the application of the failing firm defence concept in the assessment of concentrations of undertakings • However, has not been invoked or used by the Office

  9. Conclusions • SIEC is not a substantive change from the dominance test as the dominance criterion still remains one of the main criteria • However -  SIEC provides more scope for application of economic assessment in merger control • Limited impact as to the “enforcement gap”– the Office has not so far dealt with this issue in its decisional practice • Crisis has affected the number of notified transactions • Increasing role of economics • Parties to provide sufficient evidence that the efficiencies generated by the merger • benefit consumers • are merger-specific and • are verifiable • Office to focus on detailed market investigations

  10. Thank you for your attention! For further information: Barbora Bednářová bednarova@becker-poliakoff.cz Becker & Poliakoff, s.r.o. U Prašné brány 1078/1 110 00 Praha 1 Tel.:(+420) 224 900 028 www.becker-poliakoff.cz

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