Opinion of the European Economic and Social Committee on the "Draft Commission Notice on the appraisal of horizontal mergers under the Council Regulation on the control of concentrations between undertakings"
Date: 2003-09-24
Institutions: European Economic and Social Committee
Subjects: competition, competition law, dominant position, economic concentration, horizontal agreement, merger control

14.1.2004

EN

Official Journal of the European Union

C 10/37

Opinion of the European Economic and Social Committee on the ‘Draft Commission Notice on
the appraisal of horizontal mergers under the Council Regulation on the control of concentrations
between undertakings’ (1)

(2004/C 10/11)

On 22 January 2003 the Commission decided to consult the European Economic and Social Committee,
under Article 262 of the Treaty establishing the European Community, on the above-mentioned notice.

The Section for the Single Market, Production and Consumption, which was responsible for preparing
the Committee’s work on the subject, adopted its opinion on 3 September 2003. The rapporteur was
Mr Hernández Bataller.

At its 402nd plenary session of 24 and 25 September 2003 (meeting of 24 September), the European
Economic and Social Committee adopted the following opinion by 90 votes to 21 with 25 abstentions.

1.

Introduction

hearings in concentration procedures (7) are to be added to this
already complex legal framework.

1.1.
Under Article 2 of Council Regulation (EEC) No 4064/
89 of 21 December 1989 on the control of concentrations
between undertakings (2), the Commission is empowered to
appraise such operations provided they fall within the scope
of the regulation.

The regulation has been supplemented by a number of

1.2.
Commission notices on:

— the concept of full-function joint ventures (3);

— the concept of undertakings concerned (3);

— calculation of turnover (3);

1.4.
Following the debate sparked by the publication of the
green paper, on which the Committee has already issued an
opinion (8), and recent Court of Justice case-law on concen-
trations (9), the Commission has had to shift its focus on
merger operations. It has published a new proposal for a
regulation on control of concentrations between undertak-
ings (10) and the present notice, the purpose of which is the
appraisal of horizontal concentrations under the Council
regulation on the control of concentrations between undertak-
ings.

— alignment of procedures for processing mergers under

2. Content of the draft notice

the ECSC and EC Treaties (3);

— the simplified procedure for processing certain merger

operations;

— remedies acceptable to the Commission (4);

— restrictions directly related and necessary to concen-

trations (5).

1.3.
The regulation on the terms of reference of hearing
officers (6) and the rules on notifications, time limits and

(1) OJ C 331, 31.12.2002.
(2) OJ L 395, 30.12.1989, as amended by Council Regulation (EC)

No 1310/97 of 30.6.1997 (OJ L 180, 9.7.1997).

(3) OJ C 66, 2.3.1998.
(4) OJ C 68, 2.3.2001.
(5) OJ C 188, 4.7.2001.
(6) Commission Decision of 23.5.2001 on the terms of reference of
hearing officers in certain competition proceedings, OJ L 162,
19.6.2001.

2.1.
The subject of the draft notice is the criteria for
appraising the impact on competition in the relevant market
of ‘horizontal concentrations’ (11).

(7) Commission Regulation (EC) No 447/98 of 1.3.1998 on the
notifications, time limits and hearings provided for in Council
Regulation (EEC) No 4064/89 on the control of concentrations
between undertakings, OJ L 61, 2.3.1998.

(8) OJ C 241, 7.10.2002.
(9) Including the judgments of 22.10.2002 (Case T-77/02) on
Schneider Electric v Commission and of 20.11.2002 (Case T-251/
00) on Lagardère SCA and Canal+ SA v Commission.

(10) Proposal for a Council Regulation on the control of concen-
trations between undertakings [COM(2002) 711 final], OJ C 20,
28.1.2003.

(11) Understood as concentrations in which the undertakings con-
cerned are actively operating on the same market, or are potential
competitors on that market. The distinction and its meaning are
set out in detail in the Commission Guidelines on the applicability
of Article 81 of
the EC Treaty to horizontal cooperation
agreements, OJ C 3, 6.1.2001.

C 10/38

EN

Official Journal of the European Union

14.1.2004

2.1.1.
ways:

These criteria are applied in two complementary

i)

definition of the relevant product and geographic mar-
kets, especially aspects such as market shares, concen-
tration levels and the importance of innovation;

— a merger may change the nature of competition in an
oligopolistic market so sellers, who previously were not
coordinating their behaviour, now are able to coordinate
and therefore raise prices. A merger may also make
coordinating easier for sellers who were coordinating
prior to the merger.

ii)

assessment of the merger in competition terms.

2.1.2.
following questions:

The draft notice is therefore structured around the

The Commission applies a number of criteria to define
2.4.
‘firms with a paramount market position’. In general, they
must have very large market shares (in excess of 50 %),
particularly when smaller firms hold much smaller shares.
However, the Commission also points to other factors which
may be taken into account when determining the merged
entity’s economic power, including:

a)

b)

c)

d)

the likely anti-competitive effects of the merger in the
relevant markets in the absence of countervailing factors;

— economies of scale and scope;

the likelihood that buyer power would act as a
countervailing force to an increase in economic power as
a result of the merger;

— privileged access to supply;

— a highly developed distribution and sales network;

the likelihood that entry by new firms would maintain
effective competition in the relevant markets;

— access to important facilities or to leading technologies,
which may give the merging firms a strategic advantage
over their competitors;

the likelihood that efficiencies would result from the
merger;

— privileged access to certain inputs, such as physical and

financial capital;

e)

the conditions for a failing firm defence.

However, these elements are not all equally relevant to
2.2.
horizontal mergers. Efficiencies and the failing firm defence
are usually only analysed if the notifying parties establish that
the necessary conditions are met.

2.3.
The Commission believes that there are three main
ways in which horizontal mergers may significantly impede
effective competition as the result of the creation or strengthen-
ing of a dominant position:

— a merger may create a paramount market position. A
firm in such a position will often be able to increase prices
without being constrained by actions of its customers and
its actual or potential competitors;

— a merger may diminish the degree of competition in an
oligopolistic market by eliminating important competi-
tive constraints on one or more sellers, who consequently
would be able to increase their prices;

— other strategic advantages, such as ownership of the
most important brands, a well-established reputation,
or extensive knowledge of the specific preferences of
customers.

Rather than an absolute value, 50 % is an indicator for the
in
presumption of the existence of a dominant position;
practice, levels of up to 70 % have been tolerated which did
not prevent competition or place insurmountable obstacles to
access in the path of market competitors, as in Case T-114/02
of 3 April 2003. On the other hand, notifications of agree-
ments below the 50 % mark may meet with a refusal if they
would entail a serious risk to competition.

2.5.
The Commission considers that on oligopolistic mar-
kets (non-collusive oligopolies), under certain circumstances
some mergers may diminish the degree of competition by
removing important competitive constraints on one or more
sellers, who consequently find it profitable to increase prices
or reduce output post-merger. In such cases, the Commission
advocates the use of different measures of market concen-
tration, depending on whether the goods are relatively homo-
geneous or differentiated.

14.1.2004

EN

Official Journal of the European Union

C 10/39

In markets where output or capacity levels are the
2.5.1.
most important strategic decisions made by the oligopolists,
the important concern for firms is how their output or capacity
decision influences the prices on the market.

This will, firstly, promote consumers’ interests by
3.1.1.
providing them with new guarantees for obtaining an excellent
level of quality and price for goods and services. Secondly, it
will spur businesses to strive harder for competitiveness and
economic efficiency.

In contrast,

2.5.2.
there are markets in which setting
prices is the most important strategic decision made by the
oligopolists. Negative effects on competition may arise where,
following the merger, the new entity finds it profitable to raise
prices as a result of the loss of competition between the
merging firms, thereby damaging the interests of consumers.
The incentive to increase prices is strongly related to the
proportion of lost sales that each merging firm would be
expected to recapture in increased sales of the other merging
party’s product.

2.6.
A merger may change the nature of competition in an
oligopolistic market so sellers, who previously were not
coordinating their behaviour, are now able to coordinate and
thus raise prices, without having to enter into an agreement or
resort to a concerted practice within the meaning of Article 81
of the EC Treaty.

2.6.1.
The alteration of the market structure may be such
that such sellers would consider it possible, economically
rational, and hence preferable, to adopt on a lasting basis a
course of action on the market aimed at selling at above
competitive prices.

2.7.
Lastly, the Commission looks at a number of particular
cases relating to innovation, the potential entry of competitors
into the market, mergers creating or strengthening negotiating
power, corporate reorganisations meeting the requirements of
dynamic competition, and failing firms.

3. General comments

3.1.
The Committee warmly welcomes the Commission’s
adoption of the above-mentioned criteria, which clarify the
analyses of the impact on competition of mergers. On an
overall basis, the Committee finds the theoretical economic
thinking applied in the draft notice to be adequate and fairly
uncontroversial. The Committee however also feels that more
can be done to provide guidance with regard to the practical
implementation. In order to advise companies in individual
cases, the notice needs to relate more to situations typically
arising in practice, and to expand on issues of empirical
evidence and standard of proof.

The proposal clarifies a number of aspects of the
3.1.2.
Commission’s administrative rules for dealing with company
merger notifications. By their very nature, these rules cannot
take account of other aspects which, as a side-effect, assume
importance in company mergers, such as those relating to
employment and industrial policy.

3.1.3.
The Committee believes that consideration should
be given to such aspects in future supranational legislative
projects on this question. One example might be the introduc-
tion of provisions concerning the employers’ duty of infor-
mation to workers.

3.1.4.
The draft notice further develops ‘the dominance
test’ (1) and ‘significant lessening of competition’ set out in the
Green Paper on the review of Council Regulation (EEC)
No 4064/89 (2), by introducing new parameters, particularly
with regard to ‘efficiencies’. The clarification provided in this
respect by the draft notice does not entail any amendment to
the Council regulation. However, dominant firms now seem
to be all those that are capable of influencing appreciably and
sustainably the competition parameters. The Committee feels
this enlarges the scope, and subsequently lowers the threshold
of intervention considerably. The proposed definition appears
to be very wide and ambiguous. In the view of the Committee,
the draft notice is insufficient to alleviate this problem, which
however first and foremost should be rectified by a more
precise definition in the regulation. To clarify that it applies to
so-called unilateral affects of non-collusive oligopolies, it could
use a formula saying just that, with a reasonable degree of
precision (cf. the concept indicated in footnote 7 of the draft
notice). The Committee would like to emphasise the crucial
importance of predictability here. Uncertainty as to the scope
and substance of the merger regime causes a severe and
undesirable deterrent effect. It will dissuade not only truly
harmful mergers, but also impede legitimate, useful and
necessary restructuring.

(1) Firms have usually been considered to hold a dominant position
if their economic power enables them to operate on the market
without taking account of the reaction of their competitors or of
intermediate or final consumers.

(2) COM(2001) 745 final. The Commission Notice on the definition
of relevant market for the purposes of Community competition
law is also worth consulting in this respect, OJ C 372, 9.12.1997.

C 10/40

EN

Official Journal of the European Union

14.1.2004

The Committee supports the Commission’s on-going
3.1.5.
drive for greater institutional transparency in other areas of its
relations with individuals (for instance, a series of administrat-
ive commitments in processing complaints against Member
States’ failure to comply with their obligations under Com-
munity law (1)).

in the Commission’s own practice and in the case-law of the
CJEC (6), and which is expressly referred to in point 20.
The EESC proposes that the expression ‘paramount market
position’ be deleted on account of its lack of legal precision.
The effect would be to increase transparency and legal certainty
in the Commission’s assessment.

3.2. With a view to more accurate analyses of the impact
on competition, the draft notice focuses only on situations
created by horizontal mergers, excluding comparable events
involving joint ventures or cooperation agreements between
firms (2) from its scope.

3.3.
Applying the criteria laid down in the draft notice will
result in more detailed appraisals. Companies will consequently
have to provide more exact detail on certain aspects in the
notifications, particularly concerning their specialised sector.
The Commission must ensure that an excessive or unnecessary
administrative burden is not placed on undertakings.

This strengthens the principle of legal certainty and
3.3.1.
will presumably avoid the kind of disputes recently settled by
the Court of First Instance (3), in which the appropriateness of
the appraisal criteria currently used by the Commission (4) are
questioned.

3.3.2.
The Commission should nevertheless also examine
the suitability of including some of these concepts, criteria,
parameters and rules in the draft regulation on merger
control (5)) as statutory obligations, so as to ensure greater
legal certainty in the assessment of merger situations.

4. Specific comments

Further efforts to clarify the content and scope of
4.1.
certain terms used by the Commission in its draft notice would
however be advisable. They are set out below.

Points 11(a) and 19 mention ‘a paramount market
4.2.
position’. This is a new concept, which cannot easily be
distinguished from the concept of ‘dominant position’ as used

(1) COM(2002) 141 final, in OJ C 244, 10.10.2002.
(2) These are governed by the block exemption regulations for R+D
and specialisation agreements, and by the guidelines referred to in
footnote 13 above.

(3) See Case T-342/99: Airtours v Commission; Case T-310/01:
Schneider Electric v Commission, not yet published in the
European Court Reports.

(4) Application of the new criteria will not affect the Commission’s
degree of tolerance towards horizontal mergers. The aim is not to
make it harder to grant authorisations, but rather to provide a
clearer definition of the terms on which the relevant administrative
act is based in each case.

(5) COM(2002) 711 final, 12.12.2002.

4.3.
Point 25 also introduces the new concept of ‘non-
collusive oligopolies’. This term appears to give separate legal
treatment to a situation comparable to that of ‘individual
dominant position’ defined in the Commission’s practice and
the case-law of the CJEC (7). Parameters consolidated by the
USA anti-trust authorities — referred to in a number of recent
Commission decisions — should be used when establishing
‘non-collusive oligopolies’.

The particularity of

4.3.1.
is
apparently that they create neither a collective nor an individ-
ual dominant position. On what criteria can the Commission
then establish their existence?

‘non-collusive oligopolies’

4.4.
In footnote 28 and in point 27 the Commission refers
to ‘relatively homogeneous products’, deeming them to exist
‘if customers consider the products from one producer as a
sufficiently good substitute for the product from any other
producer’. These should be defined in more practical terms, if
possible on the basis of actual cases.

4.5.
The benchmark to be used by the Commission in
assessing particular concentrations also needs to be clarified.
Point 16 refers to the market concentration index (HHI below
1 000 points), while point 29 mentions the market share
(maximum 25%), which could cause problems in the case of
homogeneous products. What would happen if the parties
concerned had a market share of less than 25 % but their HHI
concentration index exceeded 1 000 points? In this regard,
1 000 HHI points would appear to be too low, considering
that other Commission documents, such as the guidelines on

(6) Michelin v Commission, judgment of 9.11.1983, ECR p. 3461.
(7) DLG judgment of 15.12.1994, ECR I-5641.

14.1.2004

EN

Official Journal of the European Union

C 10/41

horizontal agreements (1), describe a concentration index of
between 1 000 and 1 800 as ‘moderate’. The reference to the
HHI index could perhaps be raised to 1 300 or 1 400. Under
exceptional circumstances, the HHI index may rise above
1 000, even reaching the 2 000 mark. In conclusion, the
Committee finds the draft notice too ambiguous as to how the
thresholds would apply. Also,
in practice the delimitation
between differentiated and homogeneous markets may not be
that clear-cut, but involve various grey areas. Clarifications
should therefore be made, with a view to creating ‘safe-havens’
of practical use and greater generality of the thresholds,
preferably relating them to all types of effects dealt with.

The same confusion arises in point 41, which states
4.6.
that ‘it is unlikely that the Commission would approve a
merger’ if coordination was already taking place between the
members of an oligopoly on the oligopolistic market in
question prior to the transaction, unless the merger was likely
to disrupt such coordination. This does not fit in well with the
test contained in Article 2(3) of the Concentration Regulation
according to which the Commission may only prohibit a
merger if
it creates or strengthens a dominant position
significantly impeding competition.

Lastly, section VI on ‘efficiencies’ merits particular
4.7.
consideration.
In essence, efficiencies may be decisive in
determining that a merger is to be approved if the benefits for
competition make the restrictions acceptable. Efficiencies must
be demonstrated, by applying pre-established criteria to be
specified in a Commission document or instrument. Undertak-
ings will have to place special emphasis on the benefits for
consumers; by way of exception, these benefits could also be

(1) OJ C 66, 2.3.1998.

Brussels, 24 September 2003.

viewed in a long-term perspective (2) (e.g. benefits deriving
from R&D). Consideration of the long-term benefits must
nevertheless be restricted to highly specific sectors of business
activity.

4.7.1.
However, point 21 also mentions efficiencies as an
element which can increase the likelihood of a merger leading
to greater ‘market power’ (a concept which is not defined).
Would efficiencies generating economies of scale be considered
as positive elements or, on the contrary, as strengthening
market dominance? How could a balance be struck between
the positive and negative effects of efficiencies?

4.7.2.
In order to avoid confusing situations of this kind,
the Commission must provide clear and concrete examples. It
should be borne in mind that analysis of ‘efficiencies’
is
probably the most innovative feature of the Commission’s
draft notice. Indeed, until very recently efficiencies were not
considered to be of particular importance in analysing merger
notifications to the Commission (as in European Commission
Decision/Honeywell 2001 (3)). For the sake of legal certainty,
the Commission should clarify explicitly, in the notice, that
there is indeed no such thing as an ‘efficiency offence’.

(2) Caution should be exercised in introducing the long-term benefits
criterion, as the CJEC itself appears to do in its clarification of the
consideration given to such benefits in the Kramer case set out in
the obiter dictum contained in the judgment of 12.12.2002, Case
C-281/01, which states, inter alia, that: ‘It is true that in the long
term, depending on how manufacturers and consumers in fact
behave, the programme should have a positive environmental
effect as a result of the reduction in energy consumption which it
should achieve. However, that is merely an indirect and distant
effect, in contrast to the effect on trade in office equipment which
is direct and immediate’.

(3) Commission Decision of 3.7.2001 in Case COMP/M.2220.

The President

of the European Economic and Social Committee

Roger BRIESCH

C 10/42

EN

Official Journal of the European Union

14.1.2004

APPENDIX

to the opinion of the European Economic and Social Committee

The following amendment, which received more than one quarter of the votes cast, was rejected in the course of the
discussion:

Point 3.1.3

Delete.

Reason

Employee rights to information and consultation are regulated by other provisions. It is up to the Commission to
decide how it obtains the information it needs to take a decision. In most cases assessments by, inter alia, workers’
organisations should be included in the grounds for the decision. It seems unnecessary to incorporate provisions on
this in the Regulation.

The impact on employment must never in itself be a reason for opposing a planned merger. The Regulation should
only be used to prevent concentrations that would clearly impede competition.

Result of the vote

In favour: 53, against: 78, abstentions: 10.