Transcript Behavioural Remedies in EC Merger Control – Theory and

Behavioural Remedies in EC Merger Control –
Theory and Practice
Dr Ariel Ezrachi, Slaughter and May Lecturer in Competition Law, The University of Oxford
Oxford Competition Academy
Friday, 8 July 2005
CCLP (S) 07/05 1
Behavioural Remedies in EC Merger Control –
Theory and Practice
I.
II.
III.
IV.
V.
VI.
Classification & sub classification
Policy considerations – benefits and drawbacks
Under subscribing behavioural remedies?
Behavioural remedies in EC Merger Control
Designing, monitoring and enforcing
Concluding remarks
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I. Classification & Sub Classification
Classification
• Traditional classification:
– Structural remedies
– Behavioural remedies
• DOJ Policy Guidelines on Merger Remedies
• UK Competition Commission Guidelines
• ICN Merger Remedies Review Project
Sub Classification
• ICN Merger Remedies Review Project
• The International Chamber of Commerce
• Parker and Balto
‘Categorisation of a proposed commitment as behavioural or structural is … immaterial.’
(Gencor v Commission, Para 319)
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ICN MERGER REMEDIES REVIEW PROJECT
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II. Policy Considerations – Drawbacks & Benefits
Drawbacks
– Disparities of incentives
– Information asymmetries – risk of under fixing
– Operating costs
• Monitoring
• Enforcement
– Indirect costs
• Evading the spirit of the remedy – crawling compliance
• Distortion of competition
Benefits
–
–
–
–
Facilitates or replaces divestitures
Access rights
New and changing markets
Flexibility & fine tuning
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III. Under Subscribing Behavioural Remedies?
• The competition authority
– Type I error
– Type II error
• Ex-ante / ex-post regulation
• Over fixing  favour structural or wide behavioural remedies
• Disparity of bargaining powers
• Over fixing is rarely challenged …
 Sufficient capacity?
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IV. Behavioural Remedies in EC Merger Control
• The Merger Regulation
• The Notice on Remedies
– Structural remedies are preferred
– Other remedies may be accepted
• Termination of existing agreements
• Remedies facilitating market entry
• Licensing agreements
– ‘Commitments that would amount merely to a promise to behave in a certain
way, for example a commitment not to abuse a dominant position …, are as
such not considered suitable to render the concentration compatible with the
common market.’
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Gencor v Commission (CFI)
‘… where the Commission concludes that the concentration is such as to create or
strengthen a dominant position, it is required to prohibit it, even if the undertakings
concerned by the proposed concentration pledge themselves vis-à-vis the Commission
not to abuse that position.’ (Para 316)
The Notice on Remedies – Wide interpretation of Gencor v Commission
Tetra Laval/Sidel (Commission) – Wide interpretation of Gencor v Commission
… consideration of behavioural commitments, to refrain from acting in a certain manner,
is ruled out where the merger appears likely to create or strengthen a dominant
position…
ARD v Commission (CFI)
The issue is ‘not whether the obligations resulting from the commitments allegedly stem
from Article 82 EC, but rather whether those commitments are capable of resolving the
problems caused by the merger’.
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Commission v Tetra Laval
(ECJ)
‘The situation in the Gencor case was entirely different from that addressed in the contested
decision.’
‘… the Court of First Instance was right to hold, in paragraph 161 of the judgment under
appeal, that the fact that Tetra had, in the present case, offered commitments relating to its
future conduct was a factor which the Commission had to take into account when assessing
the likelihood that the merged entity would act in such a way as to make it possible to create
a dominant position on one or more of the relevant markets for PET equipment.’ (para 85)
‘Contrary to what the Commission claims, it is not apparent from that judgment [Gencor v
Commission] that the Court of First Instance ruled out consideration of behavioural
commitments.’
 Type I error?
 The position after Tetra
 The effect on conglomerate transactions and leveraging theories
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V. Designing, Monitoring and Enforcing
• Market access
–
–
–
–
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Bayer/Aventis
BSkyB/KirchPayTV
Newscorp/Telepiu
Daimler Chrysler/DeutscheTelekom
GE/Instrumentarium
• Long term supply contracts
– Astra/Zenca
– AGFA Gevaert/DuPont
• Fire wall
– AREVA/Urenco
– Mitsui/CVRD/Caemi
• Fair dealing & Price caps
–
–
–
–
Piaggio/Aprilia
Bayer/Aventis
Verbund/Energie Allianz
Air France/KLM
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Designing, Monitoring and Enforcing
Increased capacity?
• Monitoring
– Monitoring Trustees
– Third parties
• Enforcement
– The Commission
– Dispute resolution
– Complaints
• Flexibility
– Adjustments
– Crown Jewel
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Dispute Resolution
• Drawbacks:
–
–
–
–
–
–
Requires a sophisticated, non-dependant third party
Direct and indirect cost for the complainant
loopholes
Public value?
Potential for conflict
Limited use
• Increased capacity
–
–
–
–
–
Fast track
Interventionist approach
Commission can make submission to the arbitrator
Commission provides interpretation in case of doubt
Commission’s powers of enforcement are not affected
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‘Crown Jewel’
•
Alternative remedies may prevent over fixing
•
Nestlé/Ralston Purina (Phase I)
1. Exclusive licensing
2. Divestiture of assets
•
Criticism
-
•
Uncertainty may delay integration
… Less than effective relief at the outset or more than is necessary to
remedy the competitive problem … (US DOJ Guidelines)
Room for manipulation (US DOJ Guidelines)
Confidentiality (Bayer/Aventis (US FTC, European Commission))
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VI. Concluding Remarks
Suitable for
•
•
•
•
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New emerging markets
Small national markets
Access
Lowering barriers to entry
Ancillary role
Under perform
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•
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Complex arrangements
Blank promises
Price caps
Fair dealing
New entrant
 EC Merger Remedies Study
 The need to increase Commission’s capacity to monitor and enforce
 Policy considerations - minimal intrusion?
 Who decides?
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