EU ANTITRUST: HOT TOPICS & NEXT STEPS

Prague, Czechia

EU ANTITRUST: HOT TOPICS & NEXT STEPS 2022

raise prices after the merger. Close relations between competitors may constitute the decisive criterion in the merger control procedure, especially if the parties involved are undertakings with a high market share. The lack of close relations can be demonstrated when the merger does not lead to a significant limitation of effective competition. When close relationships between competitors are a good indicator of potential harmful effects on competition, the question arises as to how such proximity between competitors should be established. A comparison of the physical similarity of the products is insufficient to assess competition between products. However, apart from assessing the subsidiarity of products, there is no proper method of measuring close relationships between competitors. Economic methods of assessing close relationships between competitors include mixed demand elasticity, diversification opportunities, market growth, as well as gains and losses, and procurement market pricing (European Commission, 2004). The most important factor is the mixed elasticity of demand used by the European Commission when determining the relevant market. It is used to define the range of products that are perceived by consumers as substitutes. It needs to check whether customers will immediately switch to available substitutes, or to services of suppliers located elsewhere, in response to a hypothetical small (in the range of 5–10%), non-transitional increase in relative prices of products and areas under consideration. If the substitution was sufficient to prevent any benefit from a price increase due to a drop in sales, additional substitutes and areas are brought into the relevant market. If two products are close substitutes, customers will buy more of the latter if the price of the former increases. The importance of mixed elasticity comes down to the fact that an increase in the price of one product results in an increase in demand for another. Low elasticity means that the products are not close substitutes. The mixed elasticity of demand shows, therefore, the extent to which products are substitutable (Johensen, 2013). When two competitors exert strong competitive pressure on each other, they also exert price pressure on each other. In assessing the proximity of competitors, the supply side is also important. If competitors of the combined companies were unable to increase their supply, the combined entity could reduce the volume of supply and thus lead to higher prices in the market. The European Commission indicated in the Horizontal Merger Guidelines that where market conditions were such that rivals had sufficient production capacity and found it profitable to expand production, The European Commission was unlikely to be inclined to argue that the concentration strengthened a dominant position or significantly impeded effective competition (European Commission, 2004). Therefore, when competitors have the resources to invest and expand their businesses – even if these competitors are currently small – there is less risk to competition. This is the case where there is an opportunity to increase efficiency

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