(26)

In relation to all the three markets, the Commission found that (i) the Parties compete closely, (ii) customers face important impediments in switching suppliers, (iii) competitors are not a sufficient constraint to the Parties’ market power, (iv) across-technology competition is limited, (v) countervailing buyer power would not prevent price increases, and (vi) barriers to entry are high. (a) The Parties compete closely. The Commission’s investigation suggested that the Parties are close, if not each other’s closest, competitors in HSUs, ESVs, and orbital motors. Quantitative economic analysis showed that the Parties frequently compete for the same opportunities in these markets. Moreover, the market investigation confirmed that competitors and customer’s view the Parties’ product offerings as largely similar and substitutable. There are also factors that distinguish Danfoss and Eaton from other market players, such as the comprehensive range of their portfolios and quality of their products, which also lead to a conclusion that they compete closely. (b) Customers face important impediments in switching suppliers. There are technical and practical limitations to switching, particularly at the production phase of a machine. OEMs also typically have only one homologated supplier for each component of a certain machine in production. There are also sometimes barriers to switching at the design phase of a machine due to cost factors and time required for homologation and therefore for new machines OEMs tend to use HSUs, ESVs or orbital motors that were already homologated for other machines. (c) Competitors are not a sufficient constraint to the Parties’ market power. All three markets contain a very small number of credible competitors to the Parties. The market investigation indicated that these existing competitors would be unlikely to sufficiently constrain the Merged Entity post-Transaction, given (i) their limited market shares and (ii) distinctions between the Parties offerings and those of competitors, e.g. on the basis of product portfolio or quality. This distinction of products lead to the conclusion that not all the demand would be contestable in the event of a price increase by the combined entity. (d) Across-technology competition is limited. Across-technology alternatives (for HSUs these are electric steering and electrohydraulic steering solutions, for ESVs a particular steering solution developed by Ognibene, and for orbital motors electric motors and cam-lobe piston motors) exert a limited competitive constraints on the Parties mainly because (i) OEMs face difficulties or are reluctant to switch technology and/or (ii) competition with other technologies regard only a limited part of the market. (e) Countervailing buyer power would not prevent price increases. Small and medium OEMs typically purchase HSUs, ESVs and orbital motors through distributors. Neither these OEMs nor distributors appear to have enough countervailing buyer power to prevent price increase. Larger OEMs, which purchase directly from the Parties, possess, to some extents, a relatively higher degree of buyer power. However, barriers to switching suppliers, the lack of credible alternatives to the Parties, and past instances in which the Parties successfully managed to increase price with large OEMs indicate that also large OEMs would not be able to prevent a price increase. (f) Barriers to entry are high. Entering any of the markets for HSUs, ESVs or orbital motor takes a long time and is very challenging due to the required technical know-how, expertise, R&D as well as certification, validation and testing processes of OEMs. Other requirements such as economies of scale, breadth of portfolio, sales and support systems and reputation are very difficult to meet for new market entrants. In line with this, the Commission did identify neither recent market entries nor foreseeable market entries in the near future (including by manufacturers located outside the EEA).