Commission Decision

of 14 March 2000

declaring a concentration to be incompatible with the common market and the functioning of the EEA Agreement

(Case No COMP/M.1672 Volvo/Scania)

(notified under document number C(2000) 681)

(Only the English text is authentic)

(Text with EEA relevance)

(2001/403/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community,

Having regard to the Agreement on the European Economic Area, and in particular Article 57 thereof,

Having regard to Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings(1), as amended by Regulation (EC) No 1310/97(2), and in particular Article 8(3) thereof,

Having regard to the Commission Decision of 25 October 1999 to initiative proceedings in this case,

Having given the undertakings concerned the opportunity to make known their views on the objections raised by the Commission,

Having regard to the opinion of the Advisory Committee on Concentrations(3),

Whereas:

(1) On 22 September 1999, the Commission received notification of a proposed concentration pursuant to Article 4 of Council Regulation (EEC) No 4064/89 ("Merger Regulation") by which AB Volvo ("Volvo") proposes to acquire control of the whole of Scania AB ("Scania") by way of purchase of shares, within the meaning of Article 3(1)(b) of the Merger Regulation.

(2) After examining the notification, the Commission concluded that the notified operation falls within the scope of the Merger Regulation and raises serious doubts as to its compatibility with the common market, because it could create or strengthen a dominant position as a result of which effective competition would be significantly impeded in the common market or in a substantial part of it and in the territory covered by the EEA Agreement. Therefore, on 25 October 1999, the Commission decided to initiate proceedings pursuant to Article 6(1)(c) of the Merger Regulation.

(3) On 9 December 1999, the Commission adopted decisions pursuant to Article 11(5) of the Merger regulation, because Volvo and Scania had failed to reply within the period fixed to a request for information relating to their competitive position on the markets for heavy trucks and buses. They had been asked to supply that information by 7 December 1999. The parties supplied the requested information on 20 December 1999. Therefore, pursuant to Article 9 of Commission Regulation (EC) No 447/98 of 1 March 1998 on the notifications, time limits and hearings provided for in Council Regulation (EEC) No 4064/89 on the control of concentrations between undertakings(4), the time periods referred to in Article 10(1) and (3) of the Merger Regulation were suspended for a total of 13 days.

I. THE PARTIES

(4) Volvo is registered in Sweden. Through its shareholdings in companies in the Volvo group, Volvo is primarily active in the manufacture and sale of trucks, buses construction equipment, marine and industrial engines, as well as aerospace components. Volvo's principal business units include (a) trucks (manufacture of heavy trucks weighing more than 16 tonnes as well as medium-heavy trucks, between 7 and 16 tonnes, and a range of related services and financing); (b) buses (manufacture of buses and bus chassis for city, intercity and tourist purposes); (c) marine and industrial engines (through Volvo Penta corporation, a wholly-owned subsidiary, Volvo develops, manufactures, and markets drive systems for marine and industrial applications); (d) construction equipment (manufacture and sale of a variety of construction equipment); (e) aero (development, production and maintenance of military aircraft, primarily for the Swedish Air Force, as well as production of components).

(5) Scania is a Swedish company that, through its shareholdings in companies in the Scania group, is mainly active in the manufacture and sale of heavy trucks, buses, and marine and industrial engines. Scania also holds 50 % of Svenska Volkswagen AB, which imports, markets, and distributes passenger cars and light commercial vehicles in Sweden. Scania also owns the Swedish passenger car dealer Din Bil, which accounts for 40 % of Svenska Volkswagen's deliveries.

(6) On 1 March 1999, Ford Motor Co. signed an agreement to acquire Volvo's automobile business, which accounted for about 52 % of Volvo's total 1997 turnover. Volvo's decision to sell the automobile division reflects Volvo's determination to concentrate on its trucks, buses and engines businesses. According to Volvo, the proposed acquisition is particularly important for Volvo's efforts to compete in large, emerging markets for heavy trucks and buses in Asia, central Europe, the former Soviet Republics, and in South America. As a result of the sale of its automobile business, Volvo's truck business represents 57 % of Volvo's turnover, the bus business approximately 13 % and the marine and industrial engines sector approximately 4 %. For Scania, trucks represent 60 % of its 1998 total sales revenues, buses 8 %, industrial and marine engines 1 %.

(7) Volvo has explained that the rationale for the proposed concentration is to support Volvo's efforts to compete in large, emerging markets for heavy trucks and buses in Asia, central Europe, the former Soviet Republics, and in South America. According to Volvo, substantial investments will be required to take advantage of opportunities in these regions. Volvo's ability to expand in those emerging markets is stated to be a critical requirement if it is to operate efficiently and remain competitive with the world's leading truck and bus manufacturers, and, particularly, with DaimlerChrysler and the large North American engine producers.

II. THE OPERATION AND THE CONCENTRATION

(8) The proposed concentration involves the acquisition by Volvo of a controlling stake in Scania. On 6 August 1999, Volvo reached an agreement to acquire all of Investor AB's shares in Scania. Concurrently, the Volvo board of directors decided to make a public offer for all remaining shares in Scania.

(9) The agreement between Volvo and Investor AB provides that the latter will receive payment solely in cash or a combination of cash and newly issued Volvo shares. Investor AB currently owns 54061380 series A shares and 1508693 series B shares in Scania. Investor AB will receive a cash payment of SEK 315 per share for 60 % of its holding. For the remaining 40 %, Investor AB will receive, at its discretion, either SEK 315 in cash per share or newly issued shares in Volvo in the proportion of six Volvo shares for each five Scania shares. If Investor AB chooses to receive solely a cash payment, it has stated its intention to acquire Volvo shares on the market for an amount corresponding to 40 % of the payment received. Currently, Volvo owns 25290660 series A shares and 60993759 series B shares in Scania. After the acquisition of Investor AB's shares in Scania, Volvo will own 79352040 series A shares and 62502452 series B shares in Scania, which corresponds to 77,8 % of the voting rights and 70,9 % of the share capital.

(10) On the basis of the foregoing, the Commission concludes that the proposed acquisition, whereby Volvo would acquire sole control over Scania, constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

III. COMMUNITY DIMENSION

(11) Volvo and Scania had a combined aggregate worldwide turnover in excess of EUR 5000 million in 1998 (Volvo, EUR 12,9 billion and Scania, EUR 5,1 billion). Each of them had a Community-wide turnover in excess of EUR 250 million in 1998 (Volvo, EUR 6,4 billion and Scania, EUR 3,1 billion), but they do not achieve more than two thirds of their aggregate Community-wide turnover within one and the same Member State. The operation constitutes a cooperation case with the EFTA Surveillance Authority under Article 57 of the EEA Agreement in conjunction with Article 2(1)(c) of Protocol 24 to that Agreement.

IV. COMPATIBILITY WITH THE COMMON MARKET

(12) The proposed operation would affect two main areas: trucks (heavy trucks in particular) and buses (city buses, intercity buses and touring coaches). The investigation has confirmed that the proposed concentration would not lead to the creation or strengthening of a dominant position in the field of diesel engines (industrial and marine). Consequently, the markets for diesel engines will not be further discussed in this decision.

(i) TRUCKS

A. RELEVANT PRODUCT MARKET

(13) The proposed concentration would create Europe's largest producer of heavy trucks (over 16 tonnes).

(14) The notifying party relies on a previous Commission Decision (Case No IV/M.004 - Renault/Volvo) to identify three market segments according to the truck's gross vehicle weight: the light-duty segment (below 5 tonnes), the medium-duty segment (5 to 16 tonnes), and the heavy-duty segment (above 16 tonnes).

Heavy-duty trucks versus medium-duty and light-duty trucks

(15) The market investigation carried out by the Commission in this respect broadly confirms the submission of the notifying party. Indeed, both competitors and customers have indicated that the distinction in paragraph 14 is correct and corresponds to the industry standard. In addition, a number of elements suggest that that distinction is appropriate.

(16) The technical configuration of trucks of tonnage lower than 16 tonnes and trucks above 16 tonnes (the upper range) is very different as regards the key components such as the type of engine and the number of axles in particular. The technical aspects of the upper range are more sophisticated because the requirements of durability (length of life) and operating costs are greater than for the other ranges. Trucks above 16 tonnes are vehicles, which are used in transport of considerable weight. The type of transport can be regional or long distance.

(17) In addition, the marketing of trucks is influenced by these technical differences which are of great importance for the buyer. Therefore, the technical boundary between the two products groups corresponds to a commercial distinction, which makes it possible to differentiate between two groups of customers. Upper range trucks are not normally considered by customers to be interchangeable with or substitutable for trucks belonging to the intermediate and lower range. The three categories of trucks thus constitute separate relevant product markets.

(18) Furthermore, this distinction appears to reflect the fact that different production lines are used to produce trucks belonging to the different categories and that manufacturers can concentrate their production on one range with no presence or with a relatively weaker presence in another range. (For example, as far as Volvo and Scania are concerned, Volvo has a presence in the segment for trucks between 7 and 16 tonnes, while Scania has no production of trucks falling within this segment. Neither party produces trucks below 7 tonnes. Both parties are active in respect of trucks over 16 tonnes).

Heavy-duty trucks (above 16 tonnes)

Information provided by Volvo in the notification

(19) As the proposed transaction more specifically concerns the market segment of trucks above 16 tonnes, or heavy trucks, the present assessment will, in particular, focus on this segment of the market.

(20) In the notification, Volvo indicated that there are generally two model categories for heavy trucks: long-haul and regional/local. However, Volvo indicates that chassis for trucks over 16 tonnes are essentially the same for all models. Differentiation only occurs in respect of the cab and the body or configuration for specific applications (for example, cement-mixing, city delivery, long haul transport).

(21) In addition to these categories, Volvo notes that in Sweden and in Finland, longer trucks (25,25 metres) with higher maximum load capacities (60 tonnes) are commonly used. This special type of truck is not normally allowed in other Member States.

(22) The notifying party claims that any major truck manufacturer would be in a position to easily modify one of its standard models for a specific application (as, for example, the longer trucks used in Sweden and Finland).

(23) On the basis of the foregoing, Volvo therefore concludes that trucks above 16 tonnes belong to the same relevant product market.

The results of the market investigation

(24) The extensive market investigation carried out in this case has shown that the reality, from the customer's point of view, is quite complex. In particular, the market investigation has revealed that, from the customer's point of view, there are a number of criteria, which are relevant for the choice of a given type of heavy truck over another.

(25) A main distinction in the overall category of "heavy-duty trucks" can be drawn between "rigid trucks" on the one hand and "tractor heavy trucks" on the other. Rigid trucks are integrated trucks, in the sense that they constitute a single body, from which no semi-trailer can be detached. "Tractor heavy trucks", on the other hand, are "detachable", in the sense that a semi-trailer is added to the top back of the cabin. On the basis of their transportation needs and personal preferences, the customers will choose a tractor or a rigid truck. As a matter of fact, the geographic location of the customer will strongly influence its choice for a tractor type or a rigid type of truck. As will be indicated in recital 52, customers in the northern part of Europe typically purchase rigid heavy trucks. There are some indications that from the point of view of demand, rigids and tractors may not be fully substitutable. However, this question can be left open, as it does not materially eaffect the assessment of the notified concentration.

(26) Besides this basic distinction, the market investigation has revealed that there are three main criteria according to which customers will choose to purchase a certain heavy truck (applicable to both rigids and tractors). The first criterion relates to the engine, and in particular, to its power (hp). The power of the engine is important in view of the weight to be transported and the topography in the geographic area of intended use. The second criterion is the number of axles of which the truck is composed: according to the investigation, there is a standard combination of axles (4 × 2), which is the most common combination in Europe. Other combinations, consisting of a higher number of axles (as for example 6 × 2 and 6 × 4) are more customised to meet specific customer preferences, which are, in turn, at least partially linked to topography and weather considerations. The third criterion relates to the cabin of the truck, which can be low, high or very high depending on the level of comfort required.

(27) A rather substantial number of options can and will then be chosen by the customer in relation to its specific needs and the type of transport is in involved in. However, in general, all heavy truck manufacturers will be able to offer a truck including any of the key elements which are decisive from the customer's point of view, as well as from the manufacturer's point of view (for example, when deciding whether to offer a price for a truck comparable to that offered by a competing manufacturer).

(28) Furthermore, in view of specific customers' requirements and the specific national regulations applicable, the customer will be in a position, in Sweden and in Finland, to purchase longer trucks (25,25 metres) with higher maximum load capacities (60 tonnes).

(29) From the point of view of supply, it would appear that any major European truck manufacturer is in a position to offer a complete range of different types of heavy trucks. To offer specific trucks for certain European areas would certainly represent a supplementary cost for such manufacturers. The cost would then have to be compared to the attractiveness of the market under consideration. However, with specific reference to the question of product market definition, it is considered that the costs related to switching form the production of one type of heavy truck to another would not, per se, be considered substantial. Therefore, it is considered that the different types of heavy trucks do not constitute separate product markets.

(30) On the basis of the foregoing, it is therefore concluded that the category of heavy trucks (more than 16 tonnes) can be considered to be a single relevant product market, for the purposes of this assessment.

B. RELEVANT GEOGRAPHIC MARKET

(31) In a previous case(5) the Commission indicated that "it is not necessary to determine whether or not the geographic market for trucks is a Community market or is still composed of several national markets", as the question was not essential for the purposes of that specific case. The investigation in this case has focused on northern Europe, in particular four Nordic countries, Denmark, Finland, Norway and Sweden, and Ireland. Since, even on a national market definition, the operation does not lead to a dominant position in other parts of the Community, it is still not necessary to determine the exact scope of the geographic market outside the Nordic countries and Ireland.

(32) The investigation has, however, shown that for these five countries the relevant geographic markets for heavy trucks are still national in scope. The reasons for reaching this conclusion will be explained below; the starting point will be the arguments put forward by Volvo in the notification.

Arguments put forward by the notifying party

(33) In the notification, Volvo relied on the Commission's findings in the Renault/Iveco case(6). In that Decision, the Commission concluded that the relevant market for touring buses was the European Economic Area (EEA), basically because of the high levels of imports and exports. The Commission also recognised that purchasers of touring buses are private operators who are price sensitive and have little regard for considerations of brand loyalty to national manufacturers(7).

(34) In the notification, Volvo submitted that the analysis that applies to touring coaches is equally applicable to heavy trucks. In addition, the parties refer to the following elements, which they claim to be conclusive in the determination of the relevant geographic market:

(a) price levels: according to Volvo, "... price differences between Member States are not substantial. In particular, with the exception of France, Member State price level variations for Volvo's heavy trucks, for example, are within a +- 10 % range" (see page 39 of the notification);

(b) manufacturers are already active EEA-wide and imports within the EEA are increasing: according to Volvo, "... the seven largest heavy truck manufacturers (DaimlerChrysler, Volvo, Scania, MAN, RVI, Iveco and DAF-Paccar), which account for approximately 97 % of the European market, are present in almost all Member States and all make substantial export sales. For Volvo and Scania, sales outside Sweden accounted for 90 % and 80 % of their total turnover in 1998 respectively. Imports represented about 30 % of sales of heavy trucks in the Nordic countries. While some manufacturers continue to maintain relatively large market shares in their home countries, this is largely an historical phenomenon. Imports are continuing to increase" (see pages 39 and 40 of the notification);

(c) the emergence of large, private, trans-border purchasers: according to Volvo, deregulation in the truck industry has led to a "significant change in customer profile and purchasing habits. In particular, it has resulted in the emergence of large, multinational fleet operators such as GPE Lyonnaise and Geodis/B Montreuil in France and the Netherlands with fleets that number between 5000 and 10000 trucks. Whereas in the past, most of Volvo's customers were small or medium-sized fleet owners, the majority of Volvo's customers are now large owners having fleets of at least 20 to 25 trucks. These large operators are present in several Member States and many of them either use competitive bids or tenders to purchase trucks from a central location or take advantage of their knowledge of prices and competitive conditions in other Member States when negotiating with distributors" (see page 46 of the notification);

(d) emergence of dual-sourcing: Volvo argues that the trend towards large and multinational customers has also contributed to increasing dual (or multiple) sourcing. "To ensure independence from any single manufacturer when negotiating purchases, fleet owners with more than 20 to 25 trucks typically carry at least two different makes in their fleets" (see page 47 of the notification);

(e) product standardisation: according to Volvo, "while in the past, weight and length restrictions presented barriers to the development of EC-wide truck models, the process of harmonisation that began in 1985 with Council Directive 85/3/EEC and most recently included Council Directive 96/53/EC has led to a situation whereby the same basic truck in terms of weight and dimensions can be sold and used throughout Europe" (see page 47 of the notification);

(f) absence of entry barriers for non-domestic producers: according to Volvo, "while in the past the need to establish dealer and aftersales networks may have been considered a barrier to entry, it no longer prevents non-domestic truck manufacturers from competing in a given Member State" (see page 48 of the notification).

(35) In its reply to the Commission's Statement of Objections pursuant to Article 18 of the Merger Regulation (hereinafter: "the reply"), Volvo submits that the Commission should not base its assessment of the relevant geographic market on non-price factors which were set out in Volvo's notification, as these are not relevant to the definition of the relevant geographic market. Instead, Volvo submits that the decisive factor for defining the relevant geographic market is whether suppliers actually price discriminate across markets. Volvo has submitted two reports (the Lexecon and Neven reports), which, in its view, show that prices for comparable heavy trucks are within a 5 % to 15 % band throughout the Community, with the exception of Sweden, and that there are therefore no significant price differences between the other Member States.

(36) In its reply, Volvo also submits some new evidence relating to parallel trade in heavy trucks and factors related to the deregulation of the downstream transport industry which, in Volvo's view, provide further support for its contention of an EEA (minus Sweden) market for heavy trucks. All of these arguments will be assessed below.

The Commission's assessment of the relevant geographic market

(37) In its reply, Volvo submits a number of new arguments in support of its contention as to the scope of the relevant geographic market. Although the reply seems to indicate that the company no longer considers the non-price factors indicated in its notification to be useful for the definition of the geographic market, these factors are nonetheless assessed, as they constitute useful elements in the overall market definition assessment. The main change of approach is that Volvo now believes that the primary focus of the assessment should be on suppliers' ability to price discriminate across markets. Contrary to the assertion in the reply, the evidence available to the Commission shows that Volvo and the other suppliers of heavy trucks have applied significantly different prices and margins for comparable products in different Member States. This, as well as the relevant non-price evidence, which shows that conditions of competition in the heavy truck market differ from one Member State to the other, is considered in the following paragraphs.

Price levels differ significantly across Member States

(38) Purchasing of heavy trucks is still largely done on a national level, for a number of reasons. This is reflected by the fact that significant price variations can be observed even between neighbouring countries. As indicated above, Volvo has argued both in its notification and in its reply that price differences between Member States are not substantial and concludes that there exists an EEA market for heavy trucks.

(39) In the notification, Volvo considered that the insignificance of price differences was shown by information (on page 122) according to which, with the exception of France, Member State price level variations for Volvo's heavy trucks would be within a +- 10 % range. This information (relating to [a commonly sold Volvo model](8)), however, showed the existence of national price variations as high as 20 %. According to the notification, Volvo's price for that model is approximately [10 % to 20 %] higher in Finland than in Denmark, approximately [10 % to 20 %] higher in Sweden than in France, [0 % to 10 % higher in Germany than in the Netherlands, [0 % to 10 %] higher in Germany than in Denmark and [0 % to 10 %] higher in the United Kingdom than in France. If the comparison is made with reference to (the [a more commonly sold model in the Nordic countries]), Volvo's price is approximately [10 % to 20 %] lower in Denmark than in Sweden, [10 % to 20 %] lower in Denmark than in Germany and [20 % to 30 %] lower in Denmark than in Finland. The notification did not provide price indications for Norway and Ireland. In the course of the proceedings the Commission also collected list prices for the most commonly sold models of heavy trucks for each manufacturer in each Member State. These data largely confirm the price variations indicated above. Furthermore, they show that Volvo's prices are significantly lower in Ireland than in the neighbouring United Kingdom. The indicated prices in 1998 for the most commonly sold rigid and tractor trucks ([...]) were thus more than 40 % higher in the United Kingdom than in Ireland. Whilst transaction prices may differ from list prices, such differences do not support Volvo's contention that these markets are not national. The mere fact that price lists differ significantly from country to country is indeed an indication that the conditions of competition differ and will have the effect of making price comparisons more difficult for purchasers of heavy trucks. In general, pricing figures provided by competitors confirm that there are substantial national price differences going in the same direction as those indicated for Volvo. For example, none of the competitors indicate a higher price in Denmark than in Germany. On the contrary, it appears that the indicated prices are normally at least 5 % to 10 % higher in Germany. This is consistent with a table contained in Volvo's notification, which was prepared for internal purposes prior to the transaction and gives actual dealer net prices adjusted for specifications. The indicated average price is 8 % lower in Denmark than in Germany.

(40) Volvo has argued that a price comparison based on the figures provided in the notification is not meaningful for the definition of geographical markets in this case. The reason for this is that the indicated price differences are, in Volvo's view, due to variations in the equipment supplied with the heavy truck and/or the customer structure (and therefore the purchasing power) in different countries. In its reply Volvo therefore stated that price discrimination should be defined as earning different margins on the sale of the same goods to different consumers.

(41) In its reply, Volvo submits, in support of its arguments, reports by Lexecon and Neven, which suggest that with the exception of Sweden, price divergences between Member States are limited. The methodology used in these studies is to compare the sales of two of Volvo's heavy truck models (the [a commonly sold model] tractor and the [a commonly sold model] rigid) across 12 EU countries and Norway(9). The starting point for the comparison was the average net prices charged to dealers in each country. In the reports, these average net prices are then adjusted for specification. Following these adjustments, the reports conclude that Volvo's prices for the tractor model fall within a +- 5 % band in all countries, except Sweden ([+ 0 % to 10 %]), France ([- 0 % to 10 %]) and Norway ([- 0 % to 10 %]). For the rigid model, the reports conclude that the adjusted prices fall within a +- 6 % band in all countries, except Sweden ([+ 10 % to 20 %)] and Denmark ([- 0 % to 20 %]). The reports furthermore attempt to adjust for customer mix which, it is claimed, would lead to a further reduction in the spread in the order of 2 % to 4,2 %.

(42) On closer examination, the Commission cannot agree that the Lexecon and Neven reports constitute a reliable source of evidence to support the existence of an EEA-wide market for heavy trucks. The reports rely on average net prices charged to dealers. Volvo has throughout the investigation questioned the validity of using this type of data. Furthermore, the adjustments use data from one year only (1998). It is therefore questionable how much weight can be given to the proposed conclusions of these reports, especially when several other factors point to national market definitions.

(43) The Commission has examined the data used in the reports and some data, which were not used in the reports. Based on these data provided by Volvo the Commission has made its own calculations for some of the truck types that are not analysed in the Lexecon and Neven reports. Instead of taking averages over different engine types, as is done in the reports, the Commission made direct comparisons between the prices for the exact same engine type in various countries while using the methodology of the reports for correcting for differences in specifications. These comparisons are given below for the [a commonly sold model], which, of the models for which data are provided, is the most frequently sold engine in several countries (Belgium, Finland, France, the Netherlands, Portugal, Sweden and the United Kingdom). The (adjusted) price is then [10 % to 20 %] higher in the United Kingdom than in France and [10 % to 20 %] higher in Belgium than in France. The (adjusted) price in Sweden is [10 % to 20 %] higher than in Denmark, [10 % to 20 %] higher than in Norway and [0 % to 10 %] higher than in Finland. The (adjusted) price in Finland is [10 % to 20 %] higher than in Norway and [0 % to 10 %] higher than in Denmark. These large differences in adjusted prices - using the methodology suggested by the reports - clearly do not support the finding of an EEA-wide geographic market or a regional geographic market in the Nordic region.

(44) The Commission has furthermore examined the corrections for customer mix made in the reports. It notes that the calculations are based on very limited data, particularly outside France, and that some of the countries where Volvo claims that large fleets are present but prices are still relatively high (for instance, the Netherlands) are not included in the calculation. This could bias the results towards finding a narrower spread. The reports also seem to favour the hypothesis that fleet discounts are particularly high in France. This is contradicted by a report from [a reputable market research company] to Volvo dated January 1999 which stated that "analysis on samples in the United Kingdom shows that the average price for a specific truck type is down [10 % to 20 %] for large customers (fleets owning more than 30 trucks) compared to small fleets (less than five trucks). The corresponding figures for new truck sales for Germany and France are [10 % to 20 %] and [10 % to 20 %] lower". The Commission is therefore of the view that the correction for customer mix applied in the reports has several shortcomings. Furthermore, it would in any case only offer insights for a limited number of countries. For instance, Norway, Ireland and the United Kingdom are not included.

(45) As to the conclusions of the Lexecon and Neven reports, the Commission cannot accept that the existence of price differences within a +- 5 % (or +- 6 %) band(10) should be disregarded for the purposes of market definition, as this would suggest that a hypothetical monopolist in one area could impose a price increase in some cases as large as 10 % (or 12 %) without being restricted form doing so by conditions of competition in neighbouring areas.

(46) Secondly, and even more importantly, the proposed conclusion of these reports is incompatible with other available sources of information. This includes not only the price comparison submitted by Volvo in the notification, but also the pricing information subsequently submitted during the Commission's investigation (which includes national price lists and transaction prices for the same truck model) and show that price variations are as important as those contained in the notification), and pricing comparisons contained in internal Volvo documents provided at the Commission's request (for example a table called "transaction price comparisons, Q1 1999", which indicates prices for one to three truck deals regarding specific truck models, for Volvo, Scania and DaimlerChrysler). It is clear from Volvo's internal data that the price comparison was made taking detailed specifications into account. For Volvo, this table included the [a commonly sold model] tractor, and it shows that this model was sold at a price, which was [...] higher in the United Kingdom than in France. The largest price difference indicated for this Volvo model is a [20 % to 30 %] higher price in Belgium than in France. The table shows that the selected, comparable Scania and DaimlerChrysler trucks follow the same price pattern in the countries indicated as the Volvo model. Consequently, both of the latter types of evidence indicate national price differences of the same order as those indicated in the notification. Therefore, in order to accept the findings of the Lexecon and Neven reports it would be necessary not only to overlook the shortcomings identified above but also to conclude that both the price comparisons provided by Volvo to the Commission and the price comparisons used internally by Volvo are equally flawed.

(47) Volvo suggests, in its reply, that the definition of relevant geographic markets should be based on whether there is price discrimination, defined as the heavy truck producers earning different margins on the sale of the same goods to consumers in different countries. It is therefore interesting to note that the figures on margin developments submitted by Volvo in the course of the proceedings clearly indicate that such price discrimination has taken place(11). As examples, Volvo's net profit margin in 1998 for its [a commonly sold model] rigid was [10 % to 20 %] in Sweden versus (0 % to 10 %] in Denmark (measured at the level of gross profit margin it was [20 % to 30 %] in Sweden and [10 % to 20 %] in Denmark). For the [a commonly sold model] rigid the margin was [10 % to 20 %] in Finland versus [- 0 % to 10 %] in Norway (measured at the level of gross profit margin it was [20 % to 30 %] in Finland and [10 % to 20 %] in Norway). The information provided by Volvo also indicates similar differences in the margins between other countries, such as between Denmark, Ireland and Belgium for the [a commonly sold model] tractor.

(48) In conclusion, Volvo suggests in its reply that the main question for the definition of the relevant geographic market should be whether price or margin discrimination is possible between different areas. Volvo has provided numerous examples indicating that it has indeed been able not only to uphold substantial price differences between neighbouring countries, but also to apply significantly different margins(12). It therefore must be concluded that the available evidence on prices and margins is incompatible with Volvo's contention that the Nordic countries (Sweden, Denmark, Finland and Norway), the United Kingdom and Ireland should not each be regarded as separate geographic markets.

(49) Indeed, if the markets were wider than national, it would be reasonable to assume that buyers of heavy trucks would take advantage of the existing price differences and buy their vehicles in a neighbouring country and/or that arbitrageurs would take advantage of the opportunities created by these differences and buy vehicles from Volvo in the countries where its margins are the lowest and sell them to customers in the countries where the margins are high. Some of the reasons for the absence of such customer behaviour and arbitrage will be indicated in the following paragraphs. This will be done in the context of the non-price evidence that was included in the notification, despite Volvo's statement in its reply that this material is not useful for the definition of relevant markets.

Customer preferences

(50) It is clear from the market investigation that, although truck manufacturers are in a position to supply a range of different models of heavy trucks (although the adaptation for specific regulations existing in certain Member States does certainly represent a supplementary cost constituting a disincentive to penetrate certain markets), customer requirements are such that the models and technical configurations of heavy trucks sold in different Member States present considerable variations.

(51) This conclusion is substantiated having regard to the most commonly sold truck models of major truck manufacturers in different Member States. While it is observed that major differences may exist even in the basic characteristics of the heavy trucks sold in the different Member States (even when the models of the same manufacturer are compared), these differences are significantly less marked if one compares the most commonly sold models for the different truck manufacturers within a single Member State.

(52) As a point of reference, the table below summarises the details of Volvo's three best selling models in each country along with the percentage of the total sales volume represented by these three models. The picture would be largely the same with regard to the other truck manufacturers.

>TABLE>

(53) As it can be seen form the table in recital 52, the types of basic characteristics, considered as key elements, of heavy duty trucks tend to change according to the Member State where the trucks are sold. Customers in Finland, Greece, Norway and Sweden have a stronger preference for rigid trucks than customers in other countries. At the same time customers in Austria, Finland, Greece and Norway require larger and more powerful engines, whereas customers in the United Kingdom tend to require smaller engines. There are similar differences in the preferences for the axle configuration. Finally, the cabin comfort level tends to be of lesser importance in Finland, France, the United Kingdom, Italy, Norway, Portugal and Sweden. Furthermore, with particular reference to the Nordic countries, it is evident that the basic specifications required vary substantially, not only if compared to those required in other Member States, but even among the Nordic countries, with Danish customers preferring tractor-type vehicles, whereas customers in the other three countries generally prefer rigid trucks and have lower requirements for cabin comfort. Moreover, customers in Norway, and in particular Finland, appear to require engines with higher horsepower than those in Sweden and Denmark.

(54) In addition to the differences in the basic characteristics, it appears that customers' requirements may vary for a number of options, which can be applied to heavy truck models (for example, the gearbox and the number of cylinders in the engine).

(55) It appears that customers in three of the Nordic countries (Norway, Finland and Sweden) generally purchase heavy trucks of the rigid type (integrated) having an engine of higher power than engines sold in other Member States and with a higher number of axles. These purchasing habits are linked to the topography and the climatic conditions prevailing in all these countries, as well as to the specific regulations applicable in terms of allowed tonnage. Given these conditions, truck operators will need to use trucks, which are actually able to provide the service required.

Technical requirements vary between Member States

(56) The market investigation has revealed that, despite a certain degree of harmonisation achieved at the European level (in particular Council Directive 85/3/EEC which harmonised weight requirements and dimensions for international traffic within the Union), there are still a number of technical requirements for heavy trucks which vary from country to country. This conclusion is particularly valid for the United Kingdom, Ireland and some of the Nordic countries. As far as the United Kingdom and Ireland are concerned, the fact that all vehicles must be adapted for right-hand drive severely restricts the possibility of importing vehicles intended for continental Europe. Furthermore, the Commission's attention has been drawn to the fact that the specification of the vehicles of the same model would be different in Ireland from that in the United Kingdom. Indeed, Scania, Volvo and Iveco all operate a heavier specification (in terms of running gear, driveline, suspension, tyres and springs) on the Irish market owing to the adverse road conditions in this country. For some of the Nordic countries, it is noted that whole vehicle type approval (i.e. complete harmonisation of technical regulations) in the heavy truck sector is not expected to take place within the next two to three years. Different regulations still apply for example in Sweden and Finland as concerns permitted total transported tonnage and maximum length of the trucks. Higher tonnage and longer trucks are allowed in these two countries (60 tonnes and 25,25 metres) than in the rest of Europe. This gives, in general, Volvo and Scania an advantage since their trucks are traditionally produced to meet the requirements (e.g. engine and axle configuration) of longer and heavier vehicles.

(57) In Sweden, there is also a specific regulatory barrier to entry. Under Swedish law, a specific homologation known as the "cab crash test" is required. A competitor described the effect of this test to the Commission in the following way. "A technical barrier to enter the Swedish market is, already mentioned, the Swedish cab test. This has amongst others effectively stopped (name of competitor) from selling its top of the range (name of models) and important models in its light line range. These models are homologated for sale in Europe and are in fact sold elsewhere in high quantities. The costs of passing the test outweighs the revenues that would be derived from the additional sales through the current network". At the oral hearing, Volvo admitted that the cab crash test constitutes a barrier to entry for non-Swedish producers of heavy trucks. Volvo estimated that DaimlerChrysler in Germany ask an additional DM 7850 from customers who want a Swedish safety cab.

Purchasing is done on a national basis

(58) In view of the above described specificity of the truck market relating to customer preferences, technical requirements and price differences, and the need for dealer support, it is not surprising that the market investigation has shown that purchasers of heavy trucks very rarely turn to dealers established outside their country of operation. Even when the purchaser is a "fleet customer" with international transport activity and operations located in various countries, it appears from the market investigation that trucks are bought nationally and buying decisions are taken on the basis of dealer support and pricing in that particular country. This is a fortiori true when the customer is a small to medium-sized transport company. As a matter of fact, the majority of heavy truck purchasers in the Nordic countries are small and medium-sized companies who buy nationally and do not consider taking advantage of price differences in view of the need for after sales and service support, the risk of a reduced secondhand value of privately imported trucks and the different types of technical characteristics prevailing in other Member States.

(59) Furthermore, it has been brought to the Commission's attention that dealers see the sale of a new truck as a source of future income from service and spare parts sales, on which the dealer typically has significantly higher margins than on the sale of the new truck. Data submitted by Volvo confirm that the major part of a dealer's revenue comes from service and the sale of spare parts. Therefore, a dealer who knows that the sale of a truck to a specific customer will not generate after sale income will be less inclined to offer an attractive price to this customer. Hence, customers trying to import trucks privately from other Member States (for instance, Danish truck customers wishing to buy in Germany) may well find that they will have to pay higher prices than locally based customers. It has also been brought to the Commission's attention that the various problems (service, guarantees, etc.) involved in importing privately from a neighbouring country would mean that a price difference of up to 10 % would be necessary before buying trucks in that neighbouring country would become profitable, and even then only for customers buying a certain number of trucks.

(60) Another issue that influences whether a truck customer fins it attractive to import trucks privately or buy from a parallel importer is the possibility of being partly or fully reimbursed for problems with a truck after the warranty period has expired. The decision to give such a reimbursement is, however, typically made by the importer which of course would have little incentive to give such a reimbursement for a truck not imported via the official importer.

Distribution and service network

(61) The market investigation has revealed another point, which needs to be taken into account when determining the geographic dimension of the relevant market. Although some market operators refer to the heavy truck market as a "European market", they invariably indicate that a key factor in the decision relating to the purchase of trucks is the after sales network (maintenance, ordinary and extraordinary, as well as supply of spare parts) which can be offered by a given truck manufacturer. Replies from truck customers invariably indicate that an effective and well spread after sales and maintenance service is essential for a truck operator. As a matter of fact, the market investigation has made clear that the decision of a truck operator to purchase a certain type of truck will depend on a number of variables, each being essential for the purchasing decision: the most important elements are price, after sales services, secondhand value and warranty conditions (all these elements being reflected in a brand name, as it will be seen later). It therefore follows that the choice of a truck operator relating to the purchase of a certain brand of truck will heavily depend on the possibility for this specific truck manufacturer to offer effective after sales assistance. This connection between the desirability of a heavy truck supplier and its available after sales service network could explain why most customers (despite being in Volvo's terms "professional buyers") do not take advantage of the existing price differences. For the same reason, it is likely that arbitrageurs would find it difficult to convince truck customers in a certain country to buy parallel imported vehicles(13). It should be noted that, although warranties offered by manufacturers typically are valid throughout Europe, these cover only manufacturing defects. Normal maintenance and servicing of the vehicle is not covered by the warranty but will typically be done locally, often on the basis of a service contract with the dealer which sold the vehicle.

(62) As will be further indicated in the assessment, especially in all Nordic countries, the situation is such that the other European truck companies have significantly smaller and less well spread after sales networks, and that the existing alternative networks primarily are intended to cater partly for the needs of international heavy truck companies (requiring emergency repair service across Europe), and partly to the servicing of cars and vans. The market investigation has indicated that an adaptation of the competitors' networks to the level of those of Volvo and Scania, in order to meet the requirements of customers with widespread operations in the Nordic countries, would require substantial investments (which, of course, would have to be compared to the economic attractiveness of the market.

(63) In the course of the market investigation, competitors have indicated that the decision relating to the establishment or the development of a service network is linked to a "critical mass" of vehicles sold in any particular country. It has been suggested that this may be in the order of 10 %, depending on a number of factors linked to the costs and opportunities offered by the market in question. For the Nordic countries, with their relatively small market sizes and the additional costs relating to technical requirements, it has been stated that a market share of 10 % to 15 % would be the minimum necessary to justify the decision to incur these supplementary costs. It has also been brought to the Commission's attention that the relatively small size of the Nordic countries may not provide a sufficient incentive to penetrate the markets, even in the case of a price increase of 5 % to 10 %.

(64) For the purposes of definition of the relevant geographic market it is sufficent to note that the importance of distribution and service networks is likely to be one of the main elements restricting customers from buying outside their country of establishment and also in limiting the ability of arbitrageurs to take advantage of existing price discrimination between Member States.

Market share variations

(65) Furthermore, Volvo's contention as to an EEA-wide market for heavy trucks is not supported by the facts concerning its sales across that area, as indicated in the notification. It has been indicated that Volvo has a market share of 15,2 % in the EEA. However, its market share is significantly higher in a number of individual Member States (45 % in Sweden, 34 % in Finland, 29 % in Denmark, 38 % in Norway, between 22 % and 25 % in Ireland. Belgium, the Netherlands, Portugal and Greece). At the same time, its market shares in a number of countries are significantly below this EEA average (12 % in Austria, 8 % in Germany, 13 % in Spain, 12 % in Italy and 11 % in Luxembourg). As indicated in the following table, similar national deviations from the average EEA market share can be observed for Scania and all other heavy truck manufacturers. Even between neighbouring Member States with somewhat similar topography such as Denmark and Germany there are large variations in the market shares of the main manufacturers. Apart form vague references to historical reasons, Volvo has not provided any explanation as to how, in its view, such differences in market shares between Member States could be compatible with its contention that the heavy truck market is EEA-wide.

>TABLE>

Source:

Notification (based on official registration figures).

Conclusion on relevant geographic markets for heavy trucks

Sweden

(66) The Commission considers that Sweden constitutes a separate relevant geographic market for heavy trucks. First, the market investigation has shown that purchasing of heavy trucks is done on a national basis and that the distribution and service networks constitute a barrier to import penetration to manufacturers who do not have a well-developed local network. This applies in particular to MAN and Iveco, which have no market share for heavy trucks in Sweden. The national purchasing pattern was confirmed by the investigation conducted by the Swedish competition authority showing that truck customers overwhelmingly tend to purchase heavy trucks on a national level, perhaps even locally. Secondly, as described above, prices in Sweden are different from those in its neighbouring countries. For instance, the (adjusted) price in Sweden for [a commonly sold model] is [10 % to 20 %] higher than in Denmark, [10 % to 20 %] higher than in Norway and [0 % to 10 %] higher than in Finland. Thirdly, Volvo's profit margins in Sweden are different from those in the other Nordic countries. For example, Volvo's net profit margin in 1998 for its [a commonly sold model] was [...(14)] in Sweden versus [...] in Denmark, [...] in Finland and [...] in Norway. Fourthly, technical specifications are different in Sweden from the rest of Europe as higher tonnage and longer trucks are allowed in Sweden. Moreover, the Swedish cab crash test has been identified as a specific regulatory barrier to entry, which has meant that some truck models are not presently for sale in Sweden. Finally, RVI only has 1 % market share in Sweden while in neighbouring Finland the "national" brand RVI/Sisu has 18 %. For the above reasons, the conditions of competition in the market for heavy trucks in Sweden are different from those of its neighbouring countries and Sweden thus constitute a separate relevant geographic market.

Denmark

(67) The Commission considers that there are strong indications that Denmark constitutes a separate relevant geographic market for heavy trucks. First, the market investigation has shown that purchasing of heavy trucks is done on a national basis and that the distribution and service networks constitute a barrier to import penetration to manufacturers who do not have a well-developed local network. Secondly, as described above, prices in Denmark are different from those in its neighbouring countries. For instance, the (adjusted) price for the [a commonly sold model] is [10 % to 20 %] higher in Sweden than in Denmark. Furthermore, the dealer net prices adjusted for specifications for the [a commonly sold model], which are given in the notification, indicate an average price, which is [0 % to 10 %] lower in Denmark than in Germany. Thirdly, Volvo's profit margins in Denmark are different from those in the other neighbouring countries. For example, Volvo's net profit margin in 1998 for its [a commonly sold model] was [...] in Denmark versus [...] in Sweden [...] in Finland and [...] in Norway. Fourthly, the three most sold Volvo heavy truck models in Denmark have different specifications from the preferred models in the other Nordic countries. Finally, the fact that Volvo has a market share of 29 % in Denmark but only 8 % in Germany, Scania 30 % in Denmark but only 9 % in Germany, DaimlerChrysler 42 % in Germany but only 18 % in Denmark, and MAN 26 % in Germany but only 10 % in Denmark tends to confirm that Denmark and Germany do not belong to the same relevant geographic market. The above reasons constitute strong indications that the conditions of competition in the market for heavy trucks in Denmark are different from those of its neighbouring countries and Denmark therefore constitutes a separate relevant geographic market. As shown below, if Denmark were to be considered as a separate geographical market the operation would lead to the creation of a dominant position on this market. However, given the fact that, as explained below, the notified transaction would in any event, be incompatible with the common market even if it would not create a dominant position on the Danish heavy truck market, this question does not have to be settled in the context of the present proceedings.

Norway

(68) The Commission considers that Norway constitutes a separate relevant geographic market for heavy trucks. First, the market investigation has shown that purchasing of heavy trucks is done on a national basis and that the distribution and service networks constitute a barrier to import penetration to manufacturers who do not have a well-developed local network. Secondly, as described above, prices in Norway are different from those in its neighbouring countries. For instance, the (adjusted) price for the [a commonly sold model] is [10 % to 20 %] higher in Sweden than in Norway and [10 % to 20 %] higher in Finland than in Norway. Thirdly, Volvo's profit margins in Norway are different from those in the other Nordic countries. For example, Volvo's net profit margin in 1998 for its [a commonly sold model] was [...] in Norway versus [...] in Sweden, [...] in Denmark and [...] in Finland. Fourthly, the three most sold Volvo heavy truck models in Norway have different specifications from the most preferred models in Denmark. Finally, market shares differ between Norway and Sweden in that MAN has 12 % in Norway and none in Sweden, while Volvo and Scania have 38 % and 32 % respectively, in Norway, and 45 % and 46 % in Sweden. Furthermore, RVI only has 1 % market share in Norway while in Finland the "national" brand RVI/Sisu has 18 %; in Denmark DaimlerChrysler has 18 % and only 9 % in Norway. For the above reasons, the conditions of competition in the market for heavy trucks in Norway are different from those of its neighbouring countries and Norway thus constitutes a separate relevant geographic market.

Finland

(69) The Commission considers that Finland constitutes a separate relevant geographic market for heavy trucks. First, the market investigation has shown that purchasing of heavy trucks is done on a national basis and that the distribution and service networks constitute a barrier to import penetration to manufacturers who do not have a well-developed local network. Secondly, as described above, prices in Finland are different from those in its neighbouring countries. For example, the (adjusted) price for the [a commonly sold model] is [10 % to 20 %] higher in Finland than in Norway and [0 % to 10 %] higher in Sweden than in Finland. Thirdly, Volvo's profit margins in Finland are different from those in the other Nordic countries. For example, Volvo's net profit margin in 1998 for its [a commonly sold model] was [...] in Finland versus [...] in Sweden, [...] in Denmark and [...] in Norway. Fourthly, higher tonnage and longer trucks are allowed in Finland than in the rest of Europe except for Sweden. Finally, the "national" brand RVI/Sisu has a market share of 18 % in Finland while it only has a share of 1 % in Sweden and Norway and 3 % in Denmark. For the above reasons, the conditions of competition in the market for heavy trucks in Finland are different from those of its neighbouring countries and Finland thus constitutes a separate relevant geographic market.

Ireland

(70) The Commission considers that Ireland constitutes a separate relevant geographic market for heavy trucks. First, the market investigation has shown that purchasing of heavy trucks is done on a national basis and that the distribution and service networks constitute a barrier to import penetration to manufacturers who do not have a well-developed local network. Secondly, list price data provided by Volvo for the most sold rigid and tractor trucks are considerably lower ([40 % to 50 %]) in the United Kingdom than in Ireland. Thirdly, technical requirements in Ireland are different from other Member States. The right-hand drive severely restricts the possibility of imports of vehicles intended for continental Europe. Furthermore, the specification of the vehicles of the same model is heavier in Ireland than in the United Kingdom due to the adverse road conditions in Ireland. Finally, the market shares of the main manufacturers in Ireland differ significantly from those in most of the rest of Europe. Although the difference to the United Kingdom is less pronounced, the combined market share of Volvo and Scania is 49 % in Ireland but only 37 % in the United Kingdom. For the above reasons, the conditions of competition in the market for heavy trucks in Ireland are different form those of its neighbouring countries and Ireland thus constitutes a separate relevant geographic market.

C. ASSESSMENT

(71) Article 2 of the Merger Regulation requires an assessment of proposed concentrations with a view to establishing whether or not they are compatible with the common market. The key question in making this assessment is whether the proposed operation will lead to the creation or the strengthening of a dominant position. One of the key parameters involved in this assessment relates to the market position of the undertakings concerned and their economic and financial power. From an economic viewpoint the effects of a merger on market conditions may be measured in a number of different ways. Traditionally, the market power of merging parties has been measured by way of proxy, using criteria such as the market shares of the merging parties on the relevant markets and those of the remaining competitors. This analysis is normally supplemented with an assessment of the possible purchasing power of the customers, the likelihood of new entry, etc. The Commission has conducted this type of analysis in this case, and has come to the conclusion that the proposed concentration would be incompatible with the common market.

(72) The Commission has also requested an econometric study from Professors Ivaldi and Verboven in order to attempt to measure directly what the effects of the merger could be on the prices charged by heavy truck producers in the various national markets. The results of such econometric studies can be a valuable supplement to the way the Commission has traditionally measured market power. This can, in particular, be the case when the customer base for a product is very fragmented so that reaching a satisfying segment of customers through survey-based methods is difficult. As there are many thousands of truck owners in each country, many having only one truck, a study was seen to be useful in this case.

(73) The study is based on a "nested logit model" where certain parameters relating to the pricing decisions of firms and to the buying decisions of customers are estimated from prices, market shares and other variables. In this case, the model was applied using data for two years for two types of truck for each of the seven major truck manufacturers in each of the Member States and Norway. The results from this estimation were then used to simulate the effects of the merger on the prices of both the combined entity ("New Volvo") and its competitors.

(74) The results of the study point to serious competition problems, in particular in the Nordic countries and Ireland, where the present Decision finds that the merger will lead to the creation of a dominant position.

(75) The Commission recognises that using this type of study is a relatively new development in European merger control. Furthermore, in its reply Volvo contested the validity of the study, claiming that the analysis was seriously flawed and that the results cannot be relied on. Although Professors Ivaldi and Verboven have provided answers to these criticisms, Volvo still contests some of the fundamental elements of the study. Given the novelty of the approach and the level of disagreement, the Commission will not base its assessment on the results of the study.

Current structure of the European heavy truck market

(76) According to tables reporting European ranking for producers of heavy duty trucks in 1998 provided by Volvo in the notification, DaimlerChrysler is the European leader with 20,6 % of the EEA market, Scania ranks second with 15,6 %, Volvo third with 15,2 % and then four producers (MAN, DAF-Paccar, RVI and Iveco) have EEA-level market shares between 10,4 % and 12,6 %(15).

(77) Therefore, before the implementation of the proposed operation, the European heavy truck market was characterised by the presence of seven producers. The strongest producers in Europe, also in view of their worldwide market presence, are respectively DaimlerChrysler, Volvo and Scania.

(78) In addition, when having regard to the respective market position in the EEA of each of these manufacturers, it appears that it is only DaimlerChrysler, Volvo and Scania that have a significant presence throughout the whole of Europe. The other manufacturers tend to be more geographically specialised. Although even DaimlerChrysler, Volvo and Scania are stronger in their "home" or "natural" markets only these three companies are well represented throughout Europe. DaimlerChrysler's market share ranges between 6,2 % and 17,7 % in northern Europe (Nordic countries and Ireland), form 12 % to 42 % in the rest of Europe. Volvo's and Scania's profile is very similar, since their position is very strong in the whole of northern Europe (Nordic countries and Ireland) and rather equally distributed through the rest of Europe, with market shares ranging form 8 % to 9 % in Germany to 16 % to 23 % in the Netherlands.

(79) The other European truck manufacturers have a relatively strong position in their "home" or "natural" market (RVI 38 % in France, Iveco 41 % in Italy, DAF-Paccar 33 % in the Netherlands and MAN 26 % in Germany and 34 % in Austria), but they are quite weak or virtually not present in some areas of Europe.

(80) Furthermore, before the proposed transaction, Volvo and Scania appeared to be each other's closest competitors pursuing similar market strategies. Both Volvo and Scania are Swedish makes and are generally perceived as the expression of quality products, offering globally a reliable service. An examination of Volvo's and Scania's respective market shares clearly shows their essentially parallel positions throughout the whole of Europe (1998 figures).

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(81) These figures relate to 1998 only. However, even considering the existing variations in market shares that can be observed with respect to previous years, the overall impression is that there is, to a significant extent, symmetry between the market position of the two companies. This is consistent with the observations by third parties, that Scania has been Volvo's most direct competitor.

(82) In addition, when examining the situation in the Nordic countries, it is clear that over a long period of time (1989 to 1998) the average market position of Volvo and Scania has not only remained relatively stable, but that in addition most variations in the market share of one of the two companies (say, Volvo) correspond to a variation (in the opposite direction) of the other one (Scania).

Sweden

>PIC FILE= "L_2001143EN.009001.EPS">

Denmark

>PIC FILE= "L_2001143EN.009002.EPS">

Finland

>PIC FILE= "L_2001143EN.009101.EPS">

Norway

>PIC FILE= "L_2001143EN.009102.EPS">

These graphs show not only that Volvo and Scania have similar market positions, but are also indicative of the fact that they are each other's closest substitutes.

(83) In addition to sales, the presence of a truck producer in a certain area can also be measured by the number of sales and service points that it has in that area. According to figures provided by Volvo, about [70 % to 80 %] of a heavy truck dealer's total turnover is from service and sales of spare parts, whereas the remaining [20 % to 30 %] is from sales of new vehicles. The table below indicates the total number of sales/service points in the relevant markets, as indicated by the main heavy truck suppliers. It should be noted that a dealer can have one or several sales points. The table below is intended to give an idea of the capillarity of each manufacturer's network, and consequently indicates the total number of sales points. The table is indicative of the merged entity's advantage over competing suppliers in the relevant markets, in particular as all of the Volvo and Scania sales and service points are largely dedicated to heavy trucks, whereas several of the competitors' sales and service points are used for medium and light trucks, cars and vans and not for heavy trucks. Whilst some service points intended for servicing medium trucks may also be able to service heavy trucks, it should be noted that the investigation has indicated that medium trucks are largely used only in urban areas(16). Competitors have, however, indicated that heavy trucks need service points throughout any given country and that purchasers of heavy trucks will not be persuaded to buy the trucks of competitors who only have a presence in the main cities. For the heavy truck market the table below therefore tends to overstate the extent and the quality of the networks of New Volvo's competitors.

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Structure of the market at Member State level - current structure and effects of the proposed operation

(84) In its reply, Volvo makes two general comments concerning the analysis of the competitive effects of the merger in individual Member States. First, it argues that customers do not display an undue level of concern about the proposed concentration. Secondly, it argues that price discrimination between large and small customers is not possible in the heavy truck markets. The Commission has considered these general remarks carefully and come to the conclusion that neither is conclusively supported by the available facts. Prior to analysing the results in the individual Member States, the reasons for this conclusion will be set out below.

Customer concerns

(85) When assessing Volvo's argument that customers are not concerned, it is necessary to keep in mind that the truck industry has an extremely fragmented customer structure. To give an illustration, there are, according to Volvo's figures, more than 23000 owners of heavy trucks in Sweden alone. Less than 5 % of these operate a fleet of more than 10 trucks. The situation is largely similar in other Member States (and also for the bus markets, in particular for tourist coaches).

(86) In a market with such a fragmented demand structure, it would be unreasonable to expect that the majority of such customers would be in a position to provide a sophisticated legal analysis of the proposed merger. This means that it is not possible, as Volvo suggests, to consider that customers who, for unknown reasons, have not participated actively in the proceedings are all unconcerned. Instead, the responsibility of the competition authority to look carefully at the effects of a merger in such a market is particularly strong.

(87) Thus, the Commission cannot accept Volvo's view that the question of whether significant concerns exist in a certain market can be answered by reference to the responses from a limited sample, such as the 20 largest buyers in a country. This approach would certainly raise a question as to how representative the views of these buyers are of the effects of the merger on smaller customers. There is evidence form Volvo's own documentation that price discrimination takes place in these markets.

(88) However, even on the basis of a limited sample, the Commission finds that there is strong cause for concern in the countries indicated below. In this context it must be stressed that the relevant question is not, as claimed by Volvo, the number of "complaints" that have been submitted. Instead, a qualitative analysis must be made of the answers provided. In this context it is clear that a competition authority has strong grounds to be concerned when, as in this case, a not insignificant proportion of the largest customers indicates, inter alia, that the parties will become dominant, that Scania is the only alternative to Volvo, that other brands are unable to fulfil their technical requirements or have insufficient service networks, and that they would have to accept a price increase of 5 % to 10 %(17). Even while admitting that a number of customers have not expressed concerns about the proposed concentration, the Commission is therefore unable to accept Volvo's argument that no concerns exist.

(89) The same argument also applies to the 12 surveys conducted by GfK on behalf of Volvo for its reply (hereinafter referred to as "the GfK surveys"). These surveys were conducted by telephone with a sample of "large" customers in each of the four Nordic countries, the United Kingdom, Ireland, Belgium and Portugal. In each of the Nordic countries an additional survey was made for "small" customers. The Commission cannot agree with Volvo's contention that the GfK surveys demonstrate the absence of concerns. The reasons for this are twofold. First, form a methodological viewpoint, there are a number of questions regarding the way in which the questions were formulated (for example, the respondents ware not asked how they would react if both Volvo and Scania were to raise their prices after the merger). Such methodological question marks inevitably reduce the evidential value that can be attributed to the GfK survey.

(90) Secondly, even assuming that the methodological question marks could be answered satisfactorily, it is difficult to follow Volvo's argument that the GfK surveys demonstrate that the proposed merger would not lead to competition concerns. One of the questions asked in the surveys was whether the respondent would switch supplier in response to a 5 % price increase by Volvo or Scania. While the indicated result of each survey shows that some respondents would switch (less than half of the respondents to each survey), it is unlikely that New Volvo would adopt a strategy to impose an across-the-board price increase. Indeed, information provided by Volvo shows that it applies a strategy of individual pricing for each transaction and that large price differences are applied to different customers. There is also strong evidence that Volvo is able to price discriminate between small and large customers. It is also worthy of note that the surveys show that the respondents' most common answer as to the company to which they would switch is actually Volvo and Scania. It therefore appears that, when stating their likelihood to switch in response to a 5 % price increase, respondents have been allowed to assume that their pre-merger ability to switch from Volvo to Scania (or vice versa) will be unchanged after the implementation of the proposed merger. It would therefore seem likely that the already low proportion of customers who indicated that they would switch in response to a 5 % price increase would have been even lower if they had been instructed to assume that their post-merger ability to switch form Volvo to Scania (or vice versa) will be decided by Volvo's marketing strategy for the two brands.

Price discrimination

(91) In its reply, Volvo argues that it would be extremely difficult to engage in successful price discrimination in the heavy truck market and that the risks associated with losing sales to customers who are not prepared to pay a higher price would outweigh the potential gains form such behaviour. In addition, at the oral hearing, Volvo presented the results of an analysis of its sales to Swedish and Danish customers in 1998. After having made various adjustments for specification of the vehicle and fleet size the analysis concludes that the price differential is small, [0 % to 10 %] lower prices to large customers (defined as those buying at least 30 trucks) - and does not constitute significant price discrimination. It should, however, be noted that this analysis of Volvo's sales to Swedish and Danish customers in 1998 does not contain any reference to its margins on the sales to the different customer groups. As will be recalled from the section on relevant geographic markets, Volvo have submitted that price discrimination should be defined as earning different margins on the sale of the same product to different consumers.

(92) Furthermore, it should be noted that Volvo's contention as to the absence of price discrimination is in sharp contrast with its own internal documents supplied to the Commission in the course of the proceedings. At the Commission's request Volvo has submitted information indicating its prices, profits and margins on sales to small, medium and large buyers of the [a commonly sold model] truck with three different engine sizes(18). For the most commonly sold engine size ([...]), this information shows that a small customer will pay a price that is [20 % to 30 %] higher than a large customer or [0 % to 10 %] higher than a medium-sized customer. Even more significantly, it is apparent that Volvo's profit margin on sales of this model to the small customer is [10 % to 20 %] whereas the profit margin on sales to large and medium-sized customers is [0 % to 10 %] and [10 % to 20 %] respectively. Thus, it follows that a relatively modest price difference such as the [0 % to 10 %] difference between a small and a medium-sized customer translates into a difference of [30 % to 40 %] in the profit margin achieved. At the same time the profit margin achieved from the small customer is [0 % to 10 %] times as high as that achieved from large customers (the margin on sales to medium-sized customers are more than [0 % to 10 %] times that achieved from large customers).

(93) In view of the foregoing, it must be concluded that this pre-existing internal Volvo document constitutes a strong indication that the company has actually been able to price discriminate between sales to different customer group, and that this evidence must take precedence over the abovementioned arguments developed for the purposes of the reply and the oral hearing

Assessment at Member State level

(94) The prominent market positions of Volvo and Scania in the Nordic countries and Ireland will now be assessed separately.

Sweden

Current structure of the market

Market shares

(95) The current structure of the Swedish market for heavy trucks is represented and summarised by the following table:

>TABLE>

(96) The table in recital 95 shows that currently Volvo and Scania are the only significant competitors in the Swedish market. Both Volvo and Scania have a market position, which is seven times higher than that of the next competitor, DaimlerChrysler. All other manufacturers are either not present in the Swedish market or have a totally insignificant presence.

(97) In addition, as it is further substantiated by the graphs shown in recital 82, Volvo and Scania are in direct competition with each other. That is shown by the fact that any market share variation of one of the two companies is closely correlated to an opposite market share variation of the other one.

Brand

(98) Both Volvo and Scania are Swedish high-value brands. The strength of the respective brands lies in their perception as high-quality products having effective and very well spread after sales networks. According to the supporting documentation submitted by Volvo, both parties present the second hand value of their vehicles as part of their brand image. All these elements make these two brands "the brands" in the whole of the Nordic countries and Sweden in particular. The market investigation indicates that demand in the heavy truck market is quite inelastic, in the sense that the purchase price is only one of the elements, which determine the choice of a certain type of heavy truck. The reason for this is that purchasers of heavy trucks typically have regard to the whole life cost of the vehicle, which means they will have regard to initial purchase price, financing, after sales network, warranties, and secondhand value (including "trade-in" of used trucks). As is clearly demonstrated by the market shares, only Volvo and Scania have up to now been able to offer a sufficiently good package, including a good balance of all these elements.

(99) This is further confirmed by the fact that price information in the possession of the Commission shows that the parties' pricing for heavy trucks in Sweden is invariably higher, for comparable models, than pricing applied by other potential competitors. This is proof that a typical truck purchaser in Sweden will not have regard only to the initial price paid for the purchase of the heavy truck, but will consider a number of elements, namely the quality of the product, the after sales network and the secondhand value, which will offset the higher price paid for the initial purchase.

(100) In view of this, Volvo and Scania have over time built up loyalty in the whole of the Nordic countries, and in Sweden in particular, vis-à-vis their own respective brands. In this market, brand loyalty means that market participants consider that Volvo and Scania over a long period have provided high-quality products, good service to customers and high secondhand value and that this reputation makes customers inclined to continue to buy these brands. This loyalty is expressed at least at two levels: at the level of the final purchaser, the truck operator, and at the level of the dealer.

Brand loyalty: service network

(101) The market investigation has provided indications that in the heavy truck market a well-spread and effective after sales network is crucial for any truck manufacturer to penetrate a market. Both Volvo and Scania have an extensive dealer and after sales network in Sweden, most of which are exclusive. The strength of a network is represented by its density, by the technical capability of a given dealer/service point to serve the truck operator, and by the contacts existing between the dealer/service points and the truck operator. This last element translates itself, after a number of years, into relationships of trust between the dealer/service point and the truck operator. This relationship of trust is part of the reputation of the brand, and its accumulated value is significant (which is reflected in the fact that a substantial proportion of the price that Volvo has offered to pay for Scania relates to goodwill).

(102) The investigation has shown that dealers/service points in Sweden tend to be loyal to Volvo and Scania, and will therefore show resistance in changing supplier. Owing, in particular, to the large installed base of Volvo and Scania vehicles, these companies are in a position to ensure a better and more secure return on investment to the dealer/service point.

Brand loyalty: final customer

(103) The market investigation has also provided indications that final purchasers of heavy trucks tend to be loyal to the national brands, Volvo and Scania. This is the case essentially for the reasons mentioned above; these two manufacturers are in a position to offer customers the best package in terms of whole life cost. In addition, as far as northern Europe and the Nordic countries in particular are concerned, Volvo and Scania are perceived to be the best placed to provide a product that satisfies customers' specific transport needs. In this context, factors such as the suitability for climatic and road conditions and satisfying all technical requirements, including national legislation, have been mentioned. It should be underlined, and this factor will be further elaborated below, that the vast majority of Swedish truck purchasers are not, as claimed by Volvo, fleet customers with a large number of trucks, but rather operators with one or two trucks. This type of customer will typically be more sensitive to brand loyalty considerations than customers with a large number of trucks in their fleets.

(104) In the reply, Volvo disputes the conclusion that road and climatic conditions in the Nordic countries amount to a substantial barrier to entry. To support its view, Volvo refers to a specialised truck magazine in the United Kingdom that chose a MAN truck as the best vehicle (ahead of both Volvo and Scania) in a test of trucks of various manufacturers in arctic conditions. It is noticeable that this test was organised by Scandinavian magazines and that Volvo has not submitted the assessment made by the other magazines that participated in the test. Furthermore, it must be noted that customers' purchasing behaviour and preferences may be based on the perceived quality of a product.

Effects of the proposed operation on the Swedish heavy truck market

Market shares - market structure

(105) The proposed acquisition of Scania by Volvo would result in a New Volvo whose combined market share in Sweden would be equal to 90,8 % of the market, according to 1998 figures. The next competitor to the New Volvo would be DaimerChrysler with a market share of 6,2 %. The other European truck manufacturers are virtually absent from the market (DAF-Paccar: 1,9 %, RVI: 0,8 %, Iveco: 0,2 %, MAN: no sales).

(106) Therefore, the proposed operation results in a significant overlap between the parties' activities. Moreover, the proposed concentration would significantly increase the gap between the market share held by New Volvo and that of its closest competitor in each of the Nordic countries, and in Sweden in particular. Prior to the concentration the closest remaining competitor in Sweden (DaimlerChrysler) had a market share that was about 7,5 times smaller than that of the market leader. Following the implementation of the concentration this competitor would have a market share 14,5 times smaller than that of the new entity.

(107) Furthermore, the information provided by Volvo (further corroborated by the graphs in recital 82) as well as the Commission's investigation, clearly supports a finding that, prior to the proposed concentration, Volvo and Scania have been each other's main competitors. As a result of the proposed concentration, this competition would be lost, and the advantage that New Volvo would hold over the remaining competitors would increase significantly.

(108) The situation is further aggravated by the fact that the very strong market position of each of the parties to the concentration is not a recent phenomenon or the result of strong market share variations. It is therefore not likely that other truck manufacturers will exercise a significant competitive pressure on the parties. Indeed, an evaluation of the respective market shares of the parties in Sweden, illustrated by the graphs in recital 82, shows that the respective market positions of Volvo and Scania have remained relatively stable over a very long period of time (10 years). Furthermore, the market investigation has corroborated this view.

Dealer and customer loyalty

(109) New Volvo will be in a position to act on a market, the heavy truck market in Sweden, where it will have the benefit of specific strengths. In the first place, it will benefit from a traditional dealer and customer loyalty. In the course of the market investigation, it has been explained that competitors of Volvo and Scania face significant difficulties in finding efficient and reliable dealers/service points in this area. This is essentially because dealers/service points are traditionally linked to their national suppliers, who can offer the highest volume of business and therefore a better return on the dealer's investment.

Customer structure

(110) Furthermore, given the customer structure of heavy truck purchasers in Sweden, the new entity will be in a position to profit from their loyalty and therefore be in a position to raise prices. In addition, Volvo's five major customers of heavy trucks in Sweden represent only [0 % to 10 %] of Volvo's total sales in that country. The situation is similar for Scania. The proportion of sales to the five largest customers of the merged entity would be even lower.

(111) This is further corroborated by Volvo's own estimates (see page 5 of the submission dated 25 November 1999) concerning its sales of a specific model of heavy truck ([...]), which is a commonly sold model in Sweden. This information shows that [80 % to 90 %] of these trucks sold in Sweden are sold as single unit sales. Volvo has indicated that this is a useful proxy for fleet size.

(112) In addition, according to a table provided by Volvo in a fax of 13 December 1999, out of a total Swedish fleet population of more than 61000 heavy trucks, [20 % to 30 %] are owned by a person or company owning just that one truck. Moreover, [40 % to 50 %] of the total Swedish heavy truck fleet are owned by persons or companies that have between 2 and 10 trucks in their fleet. This means that a large majority ([60 % to 70 %]) of the Swedish heavy truck population is owned by very small operators. According to the same source, out of a total of more than 23000 Swedish heavy truck owners, only [10 % to 20 %] have fleets consisting of more than 100 trucks, and only [50 % to 60 %] have between 51 and 100 trucks.

Customer structure and dual-sourcing

(113) Volvo has argued that many of their truck customers in the Nordic countries (and elsewhere) are sophisticated professional buyers with a policy of dual-sourcing. According to Volvo, these customers currently pursue a policy of double-sourcing or multi-sourcing, in order not to be dependent on a single truck manufacturer.

(114) According to information provided by Volvo in the table mentioned in recital 12, there are [ >30000] trucks in mixed fleets in Sweden of which [ >14000] are Volvo trucks. This means that 50 % of all Swedish heavy trucks are in mixed fleets and that just under half of those are Volvos. It should, however, be noted that Volvo's definition of a mixed fleet includes any proportion of mix, for example a fleet of 50 Volvos and one Scania is a mixed fleet according to this definition. Moreover, it is doubtful whether, based on this definition, and considering that heavy trucks are durable goods, the prevalence of mixed fleets provides any significant insight into the future devolpment of the market, or the reaction of customers with a policy of on-going dual-sourcing. On the other hand, there is a total of more than 23000 owners of heavy trucks in Sweden. Only [< 5000], that is less than 18 % of them have a mixed fleet. This means that more than 80 % of all Swedish heavy truck owners do not have more than one brand in their fleet. Under these circumstances, the value of the arguments relating to dual-sourcing should not be overstated.

(115) In addition, the market investigation has revealed that, especially as concerns smaller truck operators, there is a strong economic interest in concentrating the fleet to one brand. This is due to the possibilities that this type of strategy can offer, in terms of reducing costs for maintenance and training of personnel (primarily, the drivers).

Customer structure and shrinkage effect

(116) In mergers with horizontal overlaps in industrial markets where there is some dual-sourcing, merging parties often present calculations of a certain loss of market share resulting from customers switching supplier. These calculations are motivated in part by the fact that the management wants to be cautious vis-à-vis its shareholders. The calculations are therefore often more like worst-case scenarios than actual predictions. The Commission therefore has to evaluate carefully the assumptions behind the calculations and the likelihood that the losses will actually materialise. Only if this evaluation results in a finding that a certain merger can be safely predicted to lead to market share losses that will significantly change the competitive situation, will these losses be taken into account in the competitive assessment. In this particular case Volvo has not, for the reasons set out below, been able to sufficiently substantiate its claims that the merged entity will suffer such losses of sales as to support changing the competitive situation in the relevant markets.

(117) According to Volvo, the proposed operation will inevitably result in a shrinkage effect, i.e. in current Volvo and Scania heavy truck customers switching to other makes. To support this view, Volvo has provided the Commission with the final results of a study carried out by JP Morgan on behalf of Volvo. According to these results, the proposed operation would result in a loss of customers corresponding, in percentage of market share, to [10 % to 20 %] in Sweden and Finland and [10 % to 20 %] in Denmark and Norway. As to this contention the following is noted.

(118) According to Volvo, the best source for evaluating the likelihood of a post-merger reduction in market shares should be the above-indicated financial reports prepared by stock market analysts for the purpose of assessing the proposed concentration. It may, however, be necessary to approach these reports with a certain degree of caution. First, it is obvious that these reports have not been produced to evaluate the proposed concentration's effects on competition. Instead, the aim of such reports is to evaluate the value of the shares in the companies involved, should the concentration be approved. The fact that analysts may be overly cautious or optimistic in their presentation, in order to fit the long or short-term recommandation they wish to make can therefore not be excluded. Indeed, in a submission of 21 October 1999 Volvo stated that "if the valuation of the acquisition was overly optimistic because total gains were exaggerated or losses underestimated, then Volvo could suffer serous negative consequences in the form of the capital markets selling Volvo shares and reducing the total capital value of the company". Secondly, the way in which analysts present their recommendations do not have to follow any specific systematic approach, such as that imposed by the Merger Regulation, where each relevant market has to be assessed separately. Thirdly, Volvo has made known that the financial reports, to which it has referred, have been based only on information provided by Volvo itself.

(119) Volvo has indicated that a number of analysts other than JP Morgan have expressed their views on combined market share loss, and a number of them have confirmed the views of JP Morgan. It is however noted that these predictions were all made around the moment of the announcement of the operation and in any event before the date of notification to the Commission. It cannot be excluded that most of these early reports were based on the same material as that provided to JP Morgan by Volvo. Furthermore, the market share losses mentioned in these reports are often not estimates in the proper sense of the word, but rather scenarios used for quantifying the downside risk of the share price of New Volvo after the acquisition.

(120) In its reply Volvo relies on some of these estimates of market shares losses. Several of them are so high that they clearly cannot refer to what Volvo has described as a shrinkage effect. For instance, Volvo reports that Handelsbanken Markets has projected a long-term Volvo/Scania market share of 46 % in Sweden. This implies a market share loss of 45 %, equivalent to the entire market share addition. According to Volvo, both Den Danske Bank (8 August 1999) and Enskilda Securities (9 August 1999) estimate a long-term market share loss of 31,5 %. Again, this figure is so high that it clearly cannot refer to what Volvo calls the shrinkage effect.

(121) It is, however, useful to consider the two most recent predictions of possible shrinkage effects, made by two other analysts (Salomon Smith Barney, London, 4 October 1999, and Alfred Berg ABN Amro, 6 October 1999). The latter, in particular, is clearly made having considered the predictions of all the early reports. These later reports are much more conservative about the loss of market share than those expressed earlier by other analysts.

(122) For example, Alfred Berg Research of ABN Amro, in its report of 6 October 1999, indicates: "Short term, doubts on EU clearance of the Scania deal and synergies, could hold back the stock, but we are convinced that Volvo has a good chance of delivering on synergies and defending market share". And: "Based on our research and talking to customers, we believe that the overall market share risk in western Europe could be more limited than many seem to fear". Alfred Berg's scenarios of market share loss in western Europe are of a global loss between 0 % and 3 %.

(123) In view of these weaknesses, and in order to assess the likelihood of the proposed "shrinkage-effect", the Commission has contacted a number of important customers to assess the impact that the proposed concentration is likely to have on their future purchasing decisions. In addition the Swedish competition authority has, on the Commission's behalf, made a similar enquiry with smaller customers in Sweden. It follows from these investigations that Volvo, which has consistently announced in its market communications that it intends to keep the Volvo and Scania organisations and brand separate, may have been relatively successful in this strategy. An important number of heavy truck customers have referred to the fact that the two units will remain separate, and that the proposed concentration will not necessarily have an important impact on their future purchasing decisions.

(124) In order to evaluate the impact of Volvo's decision to keep brands and marketing organisations separate, the Alfred Berg report also provides comparisons with previous mergers in which a similar decision was taken. Two operations are considered: 1. Iveco-Pegaso; and 2. Freightliner-Ford (Sterling). It is appropriate to cite these past cases because Volvo also relies on the experience in the Freightliner case in order to assess the likelihood of loss of market share.

Iveco-Pegaso

(125) When Iveco acquired Pegaso in 1990, the combined market share was 14 %, which had fallen to 10 % last year. According to the report, "A key difference, we believe, (with the present operation) is the strength of those brands compared to Volvo and Scania. Merging two weak brands such as Pegaso and Iveco does not necessarily create a strong player". This comparison therefore appears to be inappropriate.

Freightliner-Ford (Sterling)

(126) The Alfred Berg report indicates: "When Freightliner announced its acquisition of Ford's heavy truck operations in January 1997, Ford's market shares had been on a declining trend for many years. As the Ford name and products were dropped and the new Sterling products were not introduced until a year later, market shares fell, but have started to recover less than a year after the Sterling products reached the market. We believe this ahs a very limited comparability with Volvo/Scania, as the Volvo and Scania names are strong and no brands will be dropped".

(127) Finally, it is worth mentioning that the Commission's conclusions, reached, inter alia, in the light of the market investigation amongst customers, are further substantiated by research carried out in the context of the econometric study. Alfred Berg indicates: "The decisive factor as to whether a parallel branding strategy will be successful is clearly what the customers say. We have interviewed a number of the largest European hauliers to get their initial thoughts on the proposed merger. Judging from interviews with purchasing managers at small, medium and large fleet hauliers, there seems little to suggest that market shares should drop drastically in the short to medium term, given that the organisations maintain separate channels and management is kept intact". The main factors relevant for this conclusion are the following: (a) separate distribution channels are a credible offer ("Most hauliers seem to be of the opinion that, as long as dealer networks are separate, they will continue to view both Volvo and Scania as separate offers in a