Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings
Date: 2004-02-05
Institutions: European Commission
Subjects: competition law, dominant position, economic concentration, horizontal agreement, merger control

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Guidelines on the assessment of horizontal mergers under the Council Regulation on the control
of concentrations between undertakings

(2004/C 31/03)

I. INTRODUCTION

the

(hereinafter:

1. Article 2 of Council Regulation (EC) No 139/2004 of 20
January 2004 on the control of concentrations between
undertakings (1)
‘Merger Regulation’)
provides that the Commission has to appraise concen-
trations within the scope of the Merger Regulation with
a view to establishing whether or not they are compatible
the
For
with the
that purpose,
Commission must assess, pursuant
to Article 2(2) and
(3), whether or not a concentration would significantly
impede effective competition, in particular as a result of
the creation or strengthening of a dominant position, in
the common market or a substantial part of it.

common market.

a

by

concentration. The

2. Accordingly, the Commission must take into account any
significant impediment to effective competition likely to be
caused
the
strengthening of a dominant position is a primary form
of such competitive harm. The concept of dominance was
defined in the context of Council Regulation (EEC) No
4064/89 of 21 December 1989 on the control of concen-
trations between undertakings (hereinafter ‘Regulation No
4064/89’) as:

creation or

‘a situation where one or more undertakings wield
economic power which would enable them to prevent
effective
competition from being maintained in the
relevant market by giving them the opportunity to act
their
a
to
competitors,
of
consumers’ (2).

considerable
their

extent
customers

independently

ultimately,

and,

of

3. For the purpose of interpreting the concept of dominance
in the context of Regulation No 4064/89, the Court of
Justice referred to the fact that it ‘is intended to apply to all
concentrations with a Community dimension insofar as
they are likely, because of their effect on the structure of
competition within the Community, to prove incompatible
with the system of undistorted competition envisaged by
the Treaty’ (3).

4. The creation or strengthening of a dominant position held
by a single firm as a result of a merger has been the most
common basis for finding that a concentration would
result in a significant impediment to effective competition.
the concept of dominance has also been
Furthermore,
applied in an oligopolistic setting to cases of collective
dominance. As a consequence,
it is expected that most
cases of
incompatibility of a concentration with the
common market will continue to be based upon a
finding of dominance. That concept
therefore provides
an important indication as to the standard of competitive
harm that
is applicable when determining whether a
concentration is likely to impede effective competition to
a significant degree, and hence, as to the likelihood of

intervention (4). To that effect,
the present notice is
intended to preserve the guidance that can be drawn
from past decisional practice and to take full account of
past case-law of the Community Courts.

5. The purpose of this notice is to provide guidance as to
how the Commission assesses concentrations (5) when the
undertakings concerned are actual or potential competitors
on the same relevant market (6).
In this notice such
mergers will be denoted ‘horizontal mergers’. While the
notice presents
the analytical approach used by the
Commission in its appraisal of horizontal mergers it
cannot provide details of all possible applications of this
approach. The Commission applies the approach described
in the notice to the particular facts and circumstances of
each case.

6. The guidance set out in this notice draws and elaborates
on the Commission's
evolving experience with the
appraisal of horizontal mergers under Regulation No
4064/89 since its entry into force on 21 September
1990 as well as on the case-law of the Court of Justice
and the Court of
the European
Communities. The principles contained here will be
applied and further developed and refined by the
Commission in individual cases. The Commission may
revise this notice from time to time in the light of
future developments.

Instance of

First

7. The Commission's interpretation of the Merger Regulation
as regards the appraisal of horizontal mergers is without
prejudice to the interpretation which may be given by the
Court of
the
European Communities.

Justice or the Court of First

Instance of

II. OVERVIEW

8. Effective competition brings benefits to consumers, such as
low prices, high quality products, a wide selection of
goods and services, and innovation. Through its control
of mergers, the Commission prevents mergers that would
these benefits by
be likely to deprive customers of
significantly increasing the market power of
firms. By
‘increased market power’
is meant the ability of one or
more firms to profitably increase prices, reduce output,
choice or quality of goods and services, diminish inno-
vation, or otherwise influence parameters of competition.
In this notice, the expression ‘increased prices’
is often
used as shorthand for these various ways in which a
harm (7). Both
merger may
suppliers and buyers can have market power. However,
for clarity, market power will usually refer here to a
supplier's market power. Where a buyer's market power
is the issue, the term ‘buyer power’ is employed.

in competitive

result

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9. In assessing the competitive effects of a merger,

the
Commission compares the competitive conditions that
would result from the notified merger with the conditions
that would have prevailed without the merger (8). In most
cases the competitive conditions existing at the time of the
merger constitute the relevant comparison for evaluating
the effects of a merger. However, in some circumstances,
the Commission may take into account future changes to
the market that can reasonably be predicted (9). It may, in
particular, take account of the likely entry or exit of firms
if the merger did not take place when considering what
constitutes the relevant comparison (10).

10. The Commission's assessment of mergers normally entails:

(a) definition of
markets;

the relevant product and geographic

(b) competitive assessment of the merger.

The main purpose of market definition is to identify in a
systematic way the immediate competitive constraints
facing the merged entity. Guidance on this issue can be
found in the Commission's Notice on the definition of the
of Community
relevant market
competition law (11). Various considerations leading to
the delineation of the relevant markets may also be of
importance for the competitive assessment of the merger.

purposes

the

for

11. This notice is structured around the following elements:

(a) The approach of the Commission to market shares and

concentration thresholds (Section III).

(b) The

likelihood that a merger would have anti-
in the

competitive effects in the relevant markets,
absence of countervailing factors (Section IV).

(c) The likelihood that buyer power would act as a
countervailing factor to an increase in market power
resulting from the merger (Section V).

(d) The likelihood that entry would maintain effective
competition in the relevant markets (Section VI).

(e) The likelihood that efficiencies would act as a factor
counteracting the harmful effects on competition
which might otherwise
from the merger
(Section VII).

result

(f) The conditions for a failing firm defence (Section VIII).

12. In order to assess the foreseeable impact (12) of a merger
on the relevant markets,
the Commission analyses its
possible anti-competitive effects and the relevant counter-

vailing factors such as buyer power, the extent of entry
forward by the
barriers and possible efficiencies put
the Commission
parties.
In exceptional circumstances,
considers whether
for a failing firm
defence are met.

the conditions

impede

significantly

a dominant position,

13. In the light of these elements, the Commission determines,
pursuant to Article 2 of the Merger Regulation, whether
the merger would
effective
in particular through the creation or the
competition,
strengthening of
and should
therefore be declared incompatible with the common
market. It should be stressed that these factors are not a
‘checklist’ to be mechanically applied in each and every
case. Rather, the competitive analysis in a particular case
will be based on an overall assessment of the foreseeable
impact of the merger in the light of the relevant factors
and conditions. Not all
the elements will always be
relevant to each and every horizontal merger, and it may
not be necessary to analyse all the elements of a case in
the same detail.

III. MARKET SHARE AND CONCENTRATION LEVELS

14. Market shares and concentration levels provide useful first
indications of the market structure and of the competitive
and their
importance of both the merging parties
competitors.

15. Normally, the Commission uses current market shares in
its competitive analysis (13). However, current market
reasonably certain
shares may be adjusted to reflect
future changes, for instance in the light of exit, entry or
expansion (14). Post-merger market shares are calculated on
the assumption that
the post-merger combined market
share of the merging parties is the sum of their pre-merger
market shares (15). Historic data may be used if market
shares have been volatile, for instance when the market
is characterised by large, lumpy orders. Changes in historic
market shares may provide useful information about the
competitive process and the likely future importance of the
various competitors, for instance, by indicating whether
firms have been gaining or losing market shares. In any
the Commission interprets market shares in the
event,
light of
the
market is highly dynamic in character and if the market
structure is unstable due to innovation or growth (16).

likely market conditions,

for instance,

if

16. The overall concentration level

in a market may also
provide useful information about the competitive situation.
In order to measure concentration levels, the Commission
often applies the Herfindahl-Hirschman Index (HHI) (17).
The HHI
is calculated by summing the squares of the
individual market shares of all the firms in the market (18).
to the
The HHI gives proportionately greater weight
market shares of the larger firms. Although it is best to
include all firms in the calculation,
lack of information
about very small firms may not be important because
such firms do not affect the HHI significantly. While the
absolute level of the HHI can give an initial indication of
the competitive pressure in the market post-merger, the
change in the HHI (known as the ‘delta’) is a useful proxy
for the change in concentration directly brought about by
the merger (19).

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Market share levels

for example,

17. According to well-established case law, very large market
shares — 50 % or more — may in themselves be evidence
the existence of a dominant market position (20).
of
However, smaller competitors may act as a sufficient
constraining influence if,
they have the
ability and incentive to increase their supplies. A merger
involving a firm whose market share will remain below
50 % after the merger may also raise competition concerns
in view of other factors such as the strength and number
of competitors, the presence of capacity constraints or the
extent to which the products of the merging parties are
close substitutes. The Commission has thus in several cases
resulting in firms holding market
considered mergers
shares between 40 % and 50 % (21), and in some cases
below 40 % (22),
the
to lead to the
strengthening of a dominant position.

creation or

(e)

indications of past or ongoing coordination, or facili-
tating practices, are present;

(f) one of the merging parties has a pre-merger market

share of 50 % of more (26).

21. Each of these HHI levels, in combination with the relevant
deltas, may be used as an initial indicator of the absence of
competition concerns. However, they do not give rise to a
presumption of either the existence or the absence of such
concerns.

IV. POSSIBLE ANTI-COMPETITIVE EFFECTS OF HORIZONTAL
MERGERS

18. Concentrations which, by reason of the limited market
share of the undertakings concerned, are not liable to
impede effective competition may be presumed to be
compatible with the common market. Without prejudice
to Articles 81 and 82 of the Treaty, an indication to this
effect exists, in particular, where the market share of the
undertakings concerned does not exceed 25 % (23) either in
the common market or in a substantial part of it (24).

HHI levels

19. The Commission is unlikely

to identify horizontal
competition concerns in a market with a post-merger
HHI below 1 000. Such markets normally do not require
extensive analysis.

20. The Commission is also unlikely to identify horizontal
competition concerns in a merger with a post-merger
HHI between 1 000 and 2 000 and a delta below 250,
or a merger with a post-merger HHI above 2 000 and a
delta below 150, except where special circumstances such
as, for instance, one or more of the following factors are
present:

(a) a merger involves a potential entrant or a recent

entrant with a small market share;

(b) one or more merging parties are important innovators

in ways not reflected in market shares;

(c) there are significant cross-shareholdings among the

market participants (25);

(d) one of the merging firms is a maverick firm with a
high likelihood of disrupting coordinated conduct;

22. There are two main ways in which horizontal mergers
effective
in
strengthening a dominant

may
impede
particular by creating or
position:

competition,

significantly

(a) by eliminating important competitive constraints on
one or more firms, which consequently would have
increased market power, without resorting to coor-
dinated behaviour (non-coordinated effects);

(b) by changing the nature of competition in such a way
that firms that previously were not coordinating their
behaviour, are now significantly more likely to coor-
dinate and raise prices or otherwise harm effective
competition. A merger may also make coordination
easier, more stable or more effective for firms which
were coordinating prior to the merger (coordinated
effects).

23. The Commission assesses whether the changes brought
about by the merger would result in any of these effects.
Both instances mentioned above may be relevant when
assessing a particular transaction.

Non-coordinated effects (27)

by

important

a market

24. A merger may significantly impede effective competition
competitive
in
removing
constraints on one or more sellers, who consequently
have increased market power. The most direct effect of
the merger will be the loss of competition between the
merging firms. For example, if prior to the merger one of
the merging firms had raised its price, it would have lost
some sales to the other merging firm. The merger removes
this particular constraint. Non-merging firms in the same
market can also benefit from the reduction of competitive
pressure that results from the merger, since the merging
firms' price increase may switch some demand to the rival
in turn, may find it profitable to increase
firms, which,
their prices (28). The
competitive
constraints could lead to significant price increases in the
relevant market.

reduction in these

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in

25. Generally, a merger giving rise to such non-coordinated
effects would significantly impede effective competition by
creating or strengthening the dominant position of a single
firm, one which,
typically, would have an appreciably
larger market share than the next competitor post-merger.
oligopolistic markets (29)
Furthermore, mergers
elimination of
involving
competitive
the
constraints that
the merging parties previously exerted
upon each other together with a reduction of competitive
pressure on the remaining competitors may, even where
there is little likelihood of coordination between the
the oligopoly, also result
members of
in a significant
impediment
to competition. The Merger Regulation
clarifies that all mergers giving rise to such non-coor-
dinated effects shall also be declared incompatible with
the common market (30).

important

decisive, may

26. A number of factors, which taken separately are not neces-
significant
influence whether
sarily
non-coordinated effects
from a
are
merger. Not all of these factors need to be present for
such effects to be likely. Nor should this be considered
an exhaustive list.

likely to result

Merging firms have large market shares

the more likely it

27. The larger the market share, the more likely a firm is to
possess market power. And the larger the addition of
market share,
is that a merger will
lead to a significant increase in market power. The larger
the increase in the sales base on which to enjoy higher
margins after a price increase, the more likely it is that the
merging firms will find such a price increase profitable
despite the accompanying reduction in output. Although
market shares and additions of market shares only provide
first indications of market power and increases in market
power,
in the
assessment (31).

they are normally important

factors

Merging firms are close competitors

substitutes

the degree of

substantial number of

28. Products may be differentiated (32) within a relevant market
than
some products are closer
such that
others (33). The higher
substitutability
between the merging firms' products, the more likely it
is that the merging firms will raise prices significantly (34).
For example, a merger between two producers offering
products which a
customers
regard as their first and second choices could generate a
significant price increase. Thus,
rivalry
between the parties has been an important source of
competition on the market may be a central factor in
the analysis (35). High pre-merger margins (36) may also
make significant price increases more likely. The merging
firms'
is more likely to be
constrained when rival firms produce close substitutes to
the products of the merging firms than when they offer
less close substitutes (37). It is therefore less likely that a
merger will significantly impede effective competition, in
particular
through the creation or strengthening of a
dominant position, when there is a high degree of

incentive to raise prices

the fact

that

substitutability between the products of
firms and those supplied by rival producers.

the merging

29. When data are available, the degree of substitutability may
be evaluated through customer preference surveys, analysis
of purchasing patterns, estimation of the cross-price elas-
ticities of the products involved (38), or diversion ratios (39).
In bidding markets it may be possible to measure whether
the merging
historically the submitted bids by one of
parties have been constrained by the presence of
the
other merging party (40).

their

product

portfolio.

30. In some markets it may be relatively easy and not too
costly for the active firms to reposition their products or
extend
the
Commission examines whether the possibility of reposi-
tioning or product line extension by competitors or the
merging parties may influence the incentive of the merged
entity to raise prices. However, product repositioning or
product line extension often entails risks and large sunk
costs (41) and may be less profitable than the current line.

particular,

In

Customers have limited possibilities of switching supplier

they face

suppliers (42) or because

costs (43). Such customers

31. Customers of the merging parties may have difficulties
switching to other suppliers because there are few alter-
substantial
native
are particularly
switching
vulnerable to price increases. The merger may affect
these customers' ability to protect
themselves against
this may be the case for
price increases.
customers that have used dual sourcing from the two
merging firms as a means of obtaining competitive
prices. Evidence of past customer switching patterns and
important
reactions
information in this respect.

changes may provide

In particular,

to price

Competitors are unlikely to increase supply if prices increase

32. When market conditions are such that the competitors of
the merging parties are unlikely to increase their supply
substantially if prices increase, the merging firms may have
an incentive to reduce output below the combined
pre-merger levels, thereby raising market prices (44). The
merger
the incentive to reduce output by
giving the merged firm a larger base of sales on which
to enjoy the higher margins resulting from an increase in
prices induced by the output reduction.

increases

33. Conversely, when market conditions are such that rival
firms have enough capacity and find it profitable to
expand output sufficiently, the Commission is unlikely to
find that the merger will create or strengthen a dominant
position or otherwise
effective
competition.

significantly

impede

34. Such output expansion is,

in particular, unlikely when
competitors face binding capacity constraints and the
expansion of capacity is costly (45) or if existing excess
capacity is
significantly more costly to operate than
capacity currently in use.

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35. Although capacity constraints are more likely to be
important when goods are relatively homogeneous, they
may also be important where firms offer differentiated
products.

Merged entity able to hinder expansion by competitors

36. Some proposed mergers would,

individually or

firms to compete.

if allowed to proceed,
significantly impede effective competition by leaving the
merged firm in a position where it would have the ability
and incentive to make the expansion of smaller firms and
potential competitors more difficult or otherwise restrict
In such a case,
the ability of rival
in the
either
competitors may not,
aggregate, be in a position to constrain the merged
entity to such a degree that it would not increase prices
or take other actions detrimental
to competition. For
instance, the merged entity may have such a degree of
inputs (46) or
the supply of
control, or influence over,
distribution possibilities (47)
that expansion or entry by
rival
the merged
entity's control over patents (48) or other types of intel-
lectual property (e.g. brands (49)) may make expansion or
entry by rivals more difficult. In markets where interoper-
ability between different
infrastructures or platforms is
important (50), a merger may give the merged entity the
ability and incentive to raise the costs or decrease the
In making this
its
quality of
assessment the Commission may take into account,
inter
alia, the financial strength of the merged entity relative to
its rivals (52).

firms may be more costly. Similarly,

service of

rivals (51).

Merger eliminates an important competitive force

increases the likelihood that

creation or the strengthening of a collective dominant
position, because it
firms
are able to coordinate their behaviour in this way and
raise prices, even without entering into an agreement or
resorting to a concerted practice within the meaning of
Article 81 of the Treaty (55). A merger may also make
coordination easier, more stable or more effective for
firms, that were already coordinating before the merger,
either by making the coordination more robust or by
permitting firms to coordinate on even higher prices.

40. Coordination may take various forms. In some markets,
the most likely coordination may involve keeping prices
above the competitive level. In other markets, coordination
may aim at limiting production or the amount of new
capacity brought to the market. Firms may also coordinate
by dividing the market, for instance by geographic area (56)
allocating
or other
contracts in bidding markets.

characteristics, or by

customer

41. Coordination is more likely to emerge in markets where it
is relatively simple to reach a common understanding on
the terms of coordination. In addition, three conditions are
necessary for coordination to be sustainable. First,
the
coordinating firms must be able to monitor to a sufficient
degree whether
the terms of coordination are being
adhered to. Second, discipline requires that there is some
form of credible deterrent mechanism that can be activated
if deviation is detected. Third, the reactions of outsiders,
such as current and future competitors not participating in
the coordination, as well as customers, should not be able
to jeopardise
coor-
dination (57).

expected from the

results

the

37. Some firms have more of an influence on the competitive
process than their market shares or similar measures
involving such a firm may
would suggest. A merger
change the competitive dynamics in a significant, anti-
competitive way,
is
already concentrated (53). For instance, a firm may be a
significant
recent
competitive pressure in the future on the other firms in
the market.

in particular when the market

expected to exert

entrant

that

is

38. In markets where innovation is an important competitive
force, a merger may increase the firms' ability and
incentive to bring new innovations to the market and,
thereby, the competitive pressure on rivals to innovate in
that market. Alternatively, effective competition may be
significantly
two
two
for
important
companies with ‘pipeline’ products related to a specific
product market. Similarly, a firm with a relatively small
market
important
nevertheless
competitive force if it has promising pipeline products (54).

impeded
innovators,

a merger
instance

between
between

share may

by

an

be

42. The Commission examines whether it would be possible to
reach terms of coordination and whether the coordination
is likely to be sustainable. In this respect, the Commission
considers the changes that the merger brings about. The
reduction in the number of firms in a market may,
in
itself, be a factor that facilitates coordination. However, a
merger may also increase the likelihood or significance of
coordinated effects in other ways. For instance, a merger
firm that has a history of
may involve a ‘maverick’
for example by
preventing or disrupting coordination,
failing to follow price increases by its competitors, or
has characteristics that gives it an incentive to favour
choices
different
coordinating
competitors would prefer.
the merged firm were to
If
adopt strategies similar to those of other competitors,
the remaining firms would find it easier to coordinate,
and the merger would increase the likelihood, stability or
effectiveness of coordination.

strategic

than

its

Coordinated effects

39. In some markets the structure may be such that firms
would consider it possible, economically rational, and
to adopt on a sustainable basis a
hence preferable,
course of action on the market aimed at
selling at
increased prices. A merger in a concentrated market may
through the
significantly impede effective competition,

43. In assessing the likelihood of coordinated effects,

characteristics of

including both structural

the
into account all available relevant
Commission takes
the markets
information on the
features and the
concerned,
past behaviour of firms (58). Evidence of past coordination
is important if the relevant market characteristics have not
changed appreciably or are not likely to do so in the near
future (59). Likewise, evidence of coordination in similar
markets may be useful information.

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Reaching terms of coordination

Monitoring deviations

44. Coordination is more likely to emerge if competitors can
easily arrive at a common perception as to how the coor-
dination should work. Coordinating firms should have
similar views regarding which actions would be considered
to be in accordance with the aligned behaviour and which
actions would not.

45. Generally,

the less complex and the more stable the
economic environment, the easier it is for the firms to
reach a common understanding on the terms of coor-
dination. For instance, it is easier to coordinate among a
few players than among many. It is also easier to coor-
dinate on a price for a single, homogeneous product, than
on hundreds of prices in a market with many differentiated
products. Similarly,
it is easier to coordinate on a price
when demand and supply conditions are relatively stable
than when they are continuously changing (60).
In this
context volatile demand, substantial
internal growth by
some firms in the market or frequent entry by new
situation is not
firms may indicate that
sufficiently stable to make coordination likely (61).
In
important, coordination
markets where innovation is
may be more difficult
since innovations, particularly
significant ones, may allow one firm to gain a major
advantage over its rivals.

the current

46. Coordination by way of market division will be easier if
customers have simple characteristics that allow the coor-
dinating firms to readily allocate them. Such characteristics
may be based on geography; on customer type or simply
on the existence of customers who typically buy from one
specific firm. Coordination by way of market division may
be relatively straightforward if it is easy to identify each
customer's supplier and the coordination device is the
incumbent
allocation of
supplier.

existing customers

to their

47. Coordinating firms may, however,

find other ways to
overcome problems stemming from complex economic
environments short of market division. They may,
for
instance, establish simple pricing rules that reduce the
complexity of coordinating on a large number of prices.
One example of such a rule is establishing a small number
of pricing points, thus reducing the coordination problem.
Another example is having a fixed relationship between
certain base prices and a number of other prices, such
that prices basically move in parallel. Publicly available
key information, exchange of information through trade
associations, or information received through cross-share-
holdings or participation in joint ventures may also help
firms reach terms of coordination. The more complex the
market situation is, the more transparency or communi-
cation is likely to be needed to reach a common under-
standing on the terms of coordination.

48. Firms may find it easier to reach a common understanding
they are relatively
on the terms of coordination if
symmetric (62), especially in terms of cost
structures,
market shares, capacity levels and levels of vertical
inte-
gration (63). Structural links such as cross-shareholding or
participation in joint ventures may also help in aligning
incentives among the coordinating firms (64).

49. Coordinating firms are often tempted to increase their
share of the market by deviating from the terms of coor-
dination, for instance by lowering prices, offering secret
discounts, increasing product quality or capacity or trying
to win new customers. Only the credible threat of timely
and sufficient
from deviating.
Markets therefore need to be sufficiently transparent to
allow the coordinating firms to monitor to a sufficient
degree whether other firms are deviating, and thus know
when to retaliate (65).

retaliation keeps

firms

take place

50. Transparency in the market is often higher, the lower the
number of active participants in the market. Further, the
transparency often depends on how market
degree of
transactions
in a particular market. For
example, transparency is likely to be high in a market
where transactions take place on a public exchange or in
an open outcry auction (66). Conversely, transparency may
be low in a market where transactions are confidentially
negotiated between buyers and sellers on a bilateral
basis (67). When evaluating the level of transparency in
the market,
firms
can infer about
the actions of other firms from the
available information (68). Coordinating firms should be
able to interpret with some certainty whether unexpected
behaviour is the result of deviation from the terms of
coordination. For instance,
in unstable environments it
may be difficult for a firm to know whether its lost sales
are due to an overall
low level of demand or due to a
competitor offering particularly low prices. Similarly, when
overall demand or cost conditions fluctuate,
it may be
difficult to interpret whether a competitor is lowering its
price because it expects the coordinated prices to fall or
because it is deviating.

is to identify what

the key element

51. In some markets where the general conditions may seem
firms may
to make monitoring of deviations difficult,
nevertheless engage in practices which have the effect of
easing the monitoring task, even when these practices are
not necessarily entered into for such purposes. These
practices, such as meeting-competition or most-favoured-
information,
customer clauses, voluntary publication of
announcements, or exchange of
information through
trade associations, may increase transparency or help
choices made. Cross-direc-
competitors
and similar
torships, participation in joint ventures
arrangements may also make monitoring easier.

interpret

the

Deterrent mechanisms

52. Coordination is not sustainable unless the consequences of
deviation are sufficiently severe to convince coordinating
firms that it is in their best interest to adhere to the terms
of coordination. It is thus the threat of future retaliation
that keeps the coordination sustainable (69). However the
threat is only credible if, where deviation by one of the
firms is detected, there is sufficient certainty that some
deterrent mechanism will be activated (70).

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to offset

53. Retaliation that manifests itself after some significant time
lag, or is not certain to be activated, is less likely to be
sufficient
from deviating. For
the benefits
example, if a market is characterised by infrequent, large-
volume orders, it may be difficult to establish a sufficiently
severe deterrent mechanism, since the gain from deviating
at the right time may be large, certain and immediate,
whereas the losses from being punished may be small
and uncertain and only materialise after some time. The
speed with which deterrent mechanisms can be imple-
mented is related to the issue of transparency.
If firms
are only able to observe their competitors' actions after
a substantial delay,
then retaliation will be similarly
delayed and this may influence whether it is sufficient to
deter deviation.

54. The credibility of the deterrence mechanism depends on
whether the other coordinating firms have an incentive to
retaliate. Some deterrent mechanisms, such as punishing
the deviator by temporarily engaging in a price war or
increasing output significantly, may entail a short-term
economic loss for the firms carrying out the retaliation.
This does not necessarily remove the incentive to retaliate
since the short-term loss may be smaller
than the
long-term benefit of retaliating resulting from the return
to the regime of coordination.

55. Retaliation need not necessarily take place in the same
market as the deviation (71).
the coordinating firms
have commercial interaction in other markets, these may
offer various methods of retaliation (72). The retaliation
could take many forms,
joint
ventures or other forms of cooperation or selling of
shares in jointly owned companies.

including cancellation of

If

Reactions of outsiders

56. For coordination to be successful, the actions of non-coor-
dinating firms and potential competitors, as well as
customers, should not be able to jeopardise the outcome
expected from coordination. For example, if coordination
aims at reducing overall capacity in the market, this will
only hurt consumers if non-coordinating firms are unable
or have no incentive to respond to this decrease by
increasing their own capacity sufficiently to prevent a
net decrease in capacity, or at least to render the coor-
dinated capacity decrease unprofitable (73).

57. The effects of entry and countervailing buyer power of
customers are analysed in later sections. However, special
consideration is given to the possible impact of
these
elements on the stability of coordination. For instance,
by concentrating a large amount of its requirements with
one supplier or by offering long-term contracts, a large
buyer may make coordination unstable by successfully
tempting one of
the coordinating firms to deviate in
order to gain substantial new business.

Merger with a potential competitor

58. Concentrations where an undertaking already active on a
relevant market merges with a potential competitor in this
market can have similar anti-competitive effects to mergers
between two undertakings already active on the same
relevant market and, thus, significantly impede effective
competition,
in particular through the creation or the
strengthening of a dominant position.

is

the behaviour of
the case if

59. A merger with a potential competitor can generate hori-
zontal anti-competitive effects, whether coordinated or
non-coordinated, if the potential competitor significantly
the firms active in the
constrains
market. This
the potential competitor
possesses assets that could easily be used to enter the
market without
incurring significant sunk costs. Anti-
competitive effects may also occur where the merging
partner is very likely to incur the necessary sunk costs
to enter the market in a relatively short period of time
after which this company would constrain the behaviour
of the firms currently active in the market (74).

60. For a merger with a potential competitor

to have
significant anti-competitive effects, two basic conditions
the potential competitor must
must be fulfilled. First,
already exert a significant constraining influence or there
must be a significant likelihood that it would grow into an
effective competitive force. Evidence that a potential
competitor has plans to enter a market in a significant
way could help the Commission to reach such a
conclusion (75). Second,
there must not be a sufficient
number of other potential competitors, which could
maintain
the
competitive
merger (76).

sufficient

pressure

after

Mergers

creating or

strengthening buyer power

in

upstream markets

61. The Commission may also analyse to what extent a
merged entity will increase its buyer power in upstream
markets. On the one hand, a merger that creates or
strengthens the market power of a buyer may significantly
impede effective competition, in particular by creating or
strengthening a dominant position. The merged firm may
be in a position to obtain lower prices by reducing its
purchase of
lead it also to
lower its level of output in the final product market, and
thus harm consumer welfare (77). Such effects may in
particular arise when upstream sellers are relatively frag-
mented. Competition in the downstream markets could
also be adversely affected if,
the merged
entity were likely to use its buyer power vis-à-vis its
suppliers to foreclose its rivals (78).

inputs. This may,

in particular,

in turn,

62. On the other hand,

for competition.

increased buyer power may be
increased buyer power
beneficial
lowers
downstream
restricting
competition or total output, then a proportion of these
cost reductions are likely to be passed onto consumers
in the form of lower prices.

If
costs without

input

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63. In order to assess whether a merger would significantly
impede effective competition by creating or strengthening
buyer power, an analysis of the competitive conditions in
the possible
upstream markets and an evaluation of
are
described
positive
therefore required.

and negative

effects

above

V. COUNTERVAILING BUYER POWER

64. The competitive pressure on a supplier

is not only
exercised by competitors but can also come from its
customers. Even firms with very high market shares may
not be in a position, post-merger, to significantly impede
effective competition, in particular by acting to an appre-
ciable extent independently of their customers, if the latter
possess countervailing buyer power (79). Countervailing
buyer power in this context should be understood as the
bargaining strength that the buyer has vis-à-vis the seller in
commercial negotiations due to its size,
its commercial
significance to the seller and its ability to switch to alter-
native suppliers.

65. The Commission considers, when relevant, to what extent
customers will be in a position to counter the increase in
market power that a merger would otherwise be likely to
create. One source of countervailing buyer power would
be if a customer could credibly threaten to resort, within a
reasonable timeframe,
to alternative sources of supply
should the supplier decide to increase prices (80) or to
conditions of
quality or
otherwise deteriorate
the buyer could
delivery. This would be the case if
credibly
immediately
threaten to vertically integrate into the upstream market
or to sponsor upstream expansion or entry (82) for instance
by persuading a potential entrant to enter by committing
to placing large orders with this company. It is more likely
that large and sophisticated customers will possess this
kind of countervailing buyer power than smaller firms in
a fragmented industry (83). A buyer may also exercise
countervailing buying power by refusing to buy other
products produced by the supplier or, particularly in the
case of durable goods, delaying purchases.

switch to other

suppliers (81),

the

66. In some cases,

it may be important

to pay particular
attention to the incentives of buyers
to utilise their
buyer power (84). For example, a downstream firm may
in sponsoring new
not wish to make an investment
entry if
lower
the benefits of such entry in terms of
input costs could also be reaped by its competitors.

67. Countervailing

be

buyer

found

cannot

to
power
sufficiently off-set potential adverse effects of a merger if
it only ensures that a particular segment of customers (85),
with particular bargaining strength,
shielded from
significantly higher prices or deteriorated conditions after
the merger (86). Furthermore, it is not sufficient that buyer
power exists prior to the merger, it must also exist and
remain effective following the merger. This is because a
merger of two suppliers may reduce buyer power if it
thereby removes a credible alternative.

is

VI. ENTRY

entry

analysis

68. When entering a market is sufficiently easy, a merger is
unlikely to pose any significant anti-competitive risk.
Therefore,
important
element of the overall competitive assessment. For entry
to be considered a sufficient competitive constraint on the
merging parties, it must be shown to be likely, timely and
sufficient to deter or defeat any potential anti-competitive
effects of the merger.

constitutes

an

Likelihood of entry

is

entry

likely

it must be

sufficiently profitable

69. The Commission examines whether entry is likely or
to constrain the
whether potential
incumbents post-merger. For entry to be
behaviour of
taking into
likely,
injecting additional output
the price effects of
account
into the market and the potential
the
incumbents. Entry is thus less likely if it would only be
economically viable on a large scale, thereby resulting in
significantly depressed price levels. And entry is likely to
be more difficult if the incumbents are able to protect their
market shares by offering long-term contracts or giving
targeted pre-emptive price reductions to those customers
that the entrant is trying to acquire. Furthermore, high risk
and costs of failed entry may make entry less likely. The
costs of failed entry will be higher, the higher is the level
of sunk cost associated with entry (87).

responses of

the market, which give incumbent

70. Potential entrants may encounter barriers to entry which
determine entry risks and costs and thus have an impact
on the profitability of entry. Barriers to entry are specific
features of
firms
advantages over potential
competitors. When entry
barriers are low, the merging parties are more likely to
be constrained by entry. Conversely, when entry barriers
are high, price increases by the merging firms would not
be significantly constrained by entry. Historical examples
in the industry may provide useful
of entry and exit
information about the size of entry barriers.

71. Barriers to entry can take various forms:

(a) Legal advantages encompass situations where regu-
latory barriers limit the number of market participants
by, for example, restricting the number of licences (88).
They also cover tariff and non-tariff trade barriers (89).

(b) The incumbents may also enjoy technical advantages,
such as preferential access to essential facilities, natural
resources (90), innovation and R & D (91), or intellectual
property rights (92), which make it difficult for any firm
to compete
in certain
to obtain essential
industries,
input materials, or patents might protect products or
processes. Other factors such as economies of scale
and scope, distribution and sales networks (93), access
to important technologies, may also constitute barriers
to entry.

successfully. For
it might be difficult

instance,

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(c) Furthermore, barriers to entry may also exist because
of the established position of the incumbent firms on
the market. In particular, it may be difficult to enter a
particular industry because experience or reputation is
necessary to compete effectively, both of which may
be difficult to obtain as an entrant. Factors such as
the
consumer
closeness of
and
customers,
the importance of promotion or adver-
tising, or other advantages relating to reputation (95)
will be taken into account in this context. Barriers to
entry also encompass situations where the incumbents
have already committed to building large excess
capacity (96), or where the costs faced by customers
in switching to a new supplier may inhibit entry.

loyalty to a particular brand (94),
relationships between suppliers

72. The expected evolution of the market should be taken into
account when assessing whether or not entry would be
profitable. Entry is more likely to be profitable in a
market that is expected to experience high growth in the
future (97) than in a market that is mature or expected to
decline (98). Scale economies or network effects may make
can obtain a
entry unprofitable unless
sufficiently large market share (99).

entrant

the

73. Entry is particularly likely if suppliers in other markets
already possess production facilities that could be used
to enter the market in question, thus reducing the sunk
costs of entry. The smaller the difference in profitability
between entry and non-entry prior to the merger,
the
more likely such a reallocation of production facilities.

Timeliness

74. The Commission examines whether

entry would be
sufficiently swift and sustained to deter or defeat
the
exercise of market power. What constitutes an appropriate
time period depends on the characteristics and dynamics
of the market, as well as on the specific capabilities of
potential entrants (100). However, entry is normally only
considered timely if it occurs within two years.

Sufficiency

75. Entry must be of sufficient scope and magnitude to deter
or defeat the anti-competitive effects of the merger (101).
Small-scale entry, for instance into some market ‘niche’,
may not be considered sufficient.

VII. EFFICIENCIES

76. Corporate reorganisations in the form of mergers may be
in line with the requirements of dynamic competition and
are capable of increasing the competitiveness of industry,
thereby improving the conditions of growth and raising
the standard of living in the Community (102). It is possible
that efficiencies brought about by a merger counteract the
effects on competition and in particular the potential harm
to consumers that it might otherwise have (103). In order to
assess whether a merger would significantly impede
in particular through the creation
effective competition,

or the strengthening of a dominant position, within the
meaning of Article 2(2) and (3) of the Merger Regulation,
the Commission performs an overall competitive appraisal
of the merger. In making this appraisal, the Commission
takes into account the factors mentioned in Article 2(1),
including the development of
technical and economic
progress provided that it is to the consumers' advantage
and does not form an obstacle to competition (104).

incompatible with the

77. The Commission considers any substantiated efficiency
claim in the overall assessment of the merger.
It may
decide that, as a consequence of the efficiencies that the
merger brings about, there are no grounds for declaring
common market
the merger
pursuant to Article 2(3) of the Merger Regulation. This
will be the case when the Commission is in a position
to conclude on the basis of sufficient evidence that the
efficiencies generated by the merger are likely to enhance
the ability and incentive of
the merged entity to act
pro-competitively for the benefit of consumers, thereby
counteracting the adverse effects on competition which
the merger might otherwise have.

78. For the Commission to take account of efficiency claims in
its assessment of the merger and be in a position to reach
the conclusion that as a consequence of efficiencies, there
are no grounds for declaring the merger to be incom-
patible with the common market, the efficiencies have to
benefit consumers, be merger-specific and be verifiable.
These conditions are cumulative.

Benefit to consumers

79. The relevant benchmark in assessing efficiency claims is
that consumers (105) will not be worse off as a result of the
merger. For that purpose, efficiencies should be substantial
and timely, and should, in principle, benefit consumers in
those relevant markets where it is otherwise likely that
competition concerns would occur.

80. Mergers may bring about various types of efficiency gains
that can lead to lower prices or other benefits
to
consumers. For example, cost savings in production or
distribution may give the merged entity the ability and
incentive to charge lower prices following the merger. In
line with the need to ascertain whether efficiencies will
lead to a net benefit to consumers, cost efficiencies that
lead to reductions in variable or marginal costs (106) are
more likely to be relevant to the assessment of efficiencies
than reductions in fixed costs; the former are, in principle,
more likely to result in lower prices for consumers (107).
Cost reductions, which merely result from anti-competitive
reductions in output, cannot be considered as efficiencies
benefiting consumers.

81. Consumers may also benefit

from new or

improved
products or services, for instance resulting from efficiency
gains in the sphere of R & D and innovation. A joint
venture company set up in order to develop a new
product may bring about the type of efficiencies that the
Commission can take into account.

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the merged

82. In the context of coordinated effects, efficiencies may
increase
to increase
entity's
production and reduce prices, and thereby reduce its
incentive to coordinate its market behaviour with other
firms in the market. Efficiencies may therefore lead to a
lower risk of coordinated effects in the relevant market.

incentive

should therefore be quantified. When the
consumers
necessary data are not available to allow for a precise
quantitative analysis,
it must be possible to foresee a
clearly identifiable positive impact on consumers, not a
marginal one. In general, the longer the start of the effi-
ciencies is projected into the future, the less probability the
Commission may be able to assign to the efficiencies
actually being brought about.

83. In general,

the later

the efficiencies are expected to
materialise in the future, the less weight the Commission
can assign to them. This implies that,
in order to be
considered as a counteracting factor, the efficiencies must
be timely.

84. The incentive on the part of the merged entity to pass
efficiency gains on to consumers is often related to the
existence of competitive pressure from the remaining firms
in the market and from potential entry. The greater the
possible negative effects on competition,
the more the
Commission has to be sure that the claimed efficiencies
are substantial, likely to be realised, and to be passed on,
to a sufficient degree, to the consumer. It is highly unlikely
that a merger leading to a market position approaching
that of a monopoly, or leading to a similar level of market
power, can be declared compatible with the common
market on the ground that efficiency gains would be
sufficient
its potential anti-competitive
effects.

to counteract

Merger specificity

85. Efficiencies are relevant

It

is

for

to the competitive assessment
when they are a direct consequence of
the notified
merger and cannot be achieved to a similar extent by
less anticompetitive alternatives.
In these circumstances,
the efficiencies are deemed to be caused by the merger
and thus, merger-specific (108).
the merging
parties to provide in due time all the relevant information
necessary to demonstrate that
there are no less anti-
competitive,
realistic and attainable alternatives of a
non-concentrative nature (e.g. a licensing agreement, or a
cooperative joint venture) or of a concentrative nature (e.g.
a concentrative joint venture, or a differently structured
merger)
than the notified merger which preserve the
claimed efficiencies. The Commission only considers alter-
in the business
natives
situation faced by the merging parties having regard to
established business practices in the industry concerned.

that are reasonably practical

Verifiability

86. Efficiencies have to be verifiable such that the Commission
can be reasonably certain that the efficiencies are likely to
materialise, and be substantial enough to counteract a
merger's potential harm to consumers. The more precise
and convincing the efficiency claims are, the better the
Commission can evaluate the claims. Where reasonably
to
possible,

efficiencies

resulting

benefit

and

the

87. Most of

the merging parties.

to clear a merger,
It
incumbent upon the notifying parties
the

the information, allowing the Commission to
assess whether the merger will bring about the sort of
efficiencies that would enable it
is
is,
solely in the possession of
to
therefore,
provide
information
necessary to demonstrate that the claimed efficiencies are
merger-specific and likely to be realised. Similarly, it is for
the effi-
the notifying parties to show to what extent
ciencies are likely to counteract any adverse effects on
competition that might otherwise result from the merger,
and therefore benefit consumers.

in due

relevant

time

all

88. Evidence relevant to the assessment of efficiency claims
includes, in particular, internal documents that were used
by the management to decide on the merger, statements
from the management to the owners and financial markets
about the expected efficiencies, historical examples of effi-
ciencies and consumer benefit, and pre-merger external
experts' studies on the type and size of efficiency gains,
and on the extent to which consumers are likely to benefit.

VIII. FAILING FIRM

89. The Commission may decide that an otherwise prob-
compatible with the
is nevertheless
lematic merger
common market
is a
if one of
failing firm. The basic requirement is that the deterioration
of
follows the merger
cannot be said to be caused by the merger (109). This will
arise where the competitive structure of the market would
deteriorate to at least the same extent in the absence of the
merger (110).

the competitive structure that

the merging parties

90. The Commission considers the following three criteria to
be especially relevant for the application of a ‘failing firm
defence’. First, the allegedly failing firm would in the near
future be forced out of the market because of financial
taken over by another undertaking.
difficulties if not
alternative
Second,
purchase than the notified merger. Third, in the absence
of a merger, the assets of the failing firm would inevitably
exit the market (111).

is no less anti-competitive

there

91. It is for the notifying parties to provide in due time all the
the
follows

relevant
deterioration of
the merger is not caused by the merger.

information necessary to demonstrate that

the competitive structure that

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(1) Council Regulation (EC) No 139/2004 of 20 January 2004 (OJ L 24, 29.1.2004, p. 1).

(2) Case T-102/96, Gencor v Commission, [1999] ECR II-753, paragraph 200. See Joined Cases C-68/94 and C-30/95, France and others v
Commission (hereinafter ‘Kali and Salz’), [1998] ECR I-1375, paragraph 221. In exceptional circumstances, a merger may give rise to the
creation or the strengthening of a dominant position on the part of an undertaking which is not a party to the notified transaction (see Case
IV/M.1383 — Exxon/Mobil, points 225-229; Case COMP/M.2434 — Grupo Villar MIR/EnBW/Hidroelectrica del Cantabrico, points 67-71).

(3) See also Joined Cases C-68/94 and C-30/95, Kali and Salz, paragraph 170.

(4) See Recitals 25 and 26 of the Merger Regulation.

(5) The term ‘concentration’ used in the Merger Regulation covers various types of transactions such as mergers, acquisitions, takeovers, and certain
types of joint ventures. In the remainder of this notice, unless otherwise specified, the term ‘merger’ will be used as a synonym for concentration
and therefore cover all the above types of transactions.

(6) The notice does not cover the assessment of the effects of competition that a merger has in other markets, including vertical and conglomerate

effects. Nor does it cover the assessment of the effects of a joint venture as referred to in Article 2(4) of the Merger Regulation.

(7) The expression should be understood to also cover situations where, for instance, prices are decreased less, or are less likely to decrease, than they
otherwise would have without the merger and where prices are increased more, or are more likely to increase, than they otherwise would have
without the merger.

(8) By analogy, in the case of a merger that has been implemented without having been notified, the Commission would assess the merger in the

light of the competitive conditions that would have prevailed without the implemented merger.

(9) See, e.g. Commission Decision 98/526/EC in Case IV/M.950 — Hoffmann La Roche/Boehringer Mannheim, OJ L 234, 21.8.1998, p. 14, point
13; Case IV/M.1846 — Glaxo Wellcome/SmithKline Beecham, points 70-72; Case COMP/M.2547 — Bayer/Aventis Crop Science, points 324 et
seq.

(10) See, e.g. Case T-102/96, Gencor v Commission, [1999] ECR II-753, paragraphs 247-263.

(11) OJ C 372, 9.12.1997, p. 5.

(12) See Case T-102/96, Gencor v Commission, [1999] ECR II-753, paragraph 262, and Case T-342/99, Airtours v Commission, [2002] ECR II-2585,

paragraph 280.

(13) As to the calculation of market shares, see also Commission Notice on the definition of the relevant market for the purposes of Community

competition law, OJ C 372, 9.12.1997, p. 3, paragraphs 54-55.

(14) See, e.g. Case COMP/M.1806 — Astra Zeneca/Novartis, points 150 and 415.

(15) When relevant, market shares may be adjusted, in particular, to account for controlling interests in other firms (See, e.g. Case IV/M.1383 —
Exxon/Mobil, points 446-458; Case COMP/M.1879 — Boeing/Hughes, points 60-79; Case COMP/JV 55 — Hutchison/RCPM/ECT, points 66-75),
for instance, as regards sub-contractors, Commission Decision 2001/769/EC in Case
or for other arrangements with third parties (See,
COMP/M.1940 — Framatome/Siemens/Cogema, OJ L 289, 6.11.2001, p. 8, point 142).

(16) See, e.g. Case COMP/M.2256 — Philips/Agilent Health Care Technologies, points 31-32, and Case COMP/M.2609 — HP/Compaq, point 39.

(17) See, e.g. Case IV/M.1365 — FCC/Vivendi, point 40; Case COMP/JV 55 — Hutchison/RCPM/ECT, point 50. If appropriate, the Commission may
also use other concentration measures such as, for instance, concentration ratios, which measure the aggregate market share of a small number
(usually three or four) of the leading firms in a market.

(18) For example, a market containing five firms with market shares of 40 %, 20 %, 15 %, 15 %, and 10 %, respectively, has an HHI of 2 550 (402 +
202 + 152 + 152 + 102 = 2 550). The HHI ranges from close to zero (in an atomistic market) to 10 000 (in the case of a pure monopoly).

(19) The increase in concentration as measured by the HHI can be calculated independently of the overall market concentration by doubling the
product of the market shares of the merging firms. For example, a merger of two firms with market shares of 30 % and 15 % respectively would
increase the HHI by 900 (30 × 15 × 2 = 900). The explanation for this technique is as follows: Before the merger, the market shares of the
merging firms contribute to the HHI by their squares individually: (a)2 + (b)2. After the merger, the contribution is the square of their sum: (a +
b)2, which equals (a)2 + (b)2 + 2ab. The increase in the HHI is therefore represented by 2ab.

(20) Case T-221/95, Endemol v Commission, [1999] ECR II-1299, paragraph 134, and Case T-102/96, Gencor v Commission, [1999] ECR II-753,

paragraph 205. It is a distinct question whether a dominant position is created or strengthened as a result of the merger.

(21) See, e.g. Case COMP/M.2337 — Nestlé/Ralston Purina, points 48-50.

(22) See, e.g. Commission Decision 1999/674/EC in Case IV/M.1221 — Rewe/Meinl, OJ L 274, 23.10.1999, p. 1, points 98-114; Case COMP/M.2337

— Nestlé/Ralston Purina, points 44-47.

(23) The calculation of market shares depends critically on market definition. It must be emphasised that the Commission does not necessarily accept

the parties' proposed market definition.

(24) Recital 32 of the Merger Regulation. However, such an indication does not apply to cases where the proposed merger creates or strengthens a
collective dominant position involving the ‘undertakings concerned’ and other third parties (see Joined Cases C-68/94 and C-30/95, Kali and Salz,
[1998] ECR I-1375, paragraphs 171 et seq.; and Case T-102/96, Gencor v Commission, [1999] ECR II-753, paragraphs 134 et seq.).

(25) In markets with cross-shareholdings or joint ventures the Commission may use a modified HHI, which takes into account such share-holdings

(see, e.g. Case IV/M.1383 — Exxon/Mobil, point 256).

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(26) See paragraph 17.

(27) Also often called ‘unilateral’ effects.

(28) Such expected reactions by competitors may be a relevant factor influencing the merged entity's incentives to increase prices.

(29) An oligopolistic market refers to a market structure with a limited number of sizeable firms. Because the behaviour of one firm has an
appreciable impact on the overall market conditions, and thus indirectly on the situation of each of the other firms, oligopolistic firms are
interdependent.

(30) Recital 25 of the Merger Regulation.

(31) See, in particular, paragraphs 17 and 18.

(32) Products may be differentiated in various ways. There may, for example, be differentiation in terms of geographic location, based on branch or
stores location; location matters for retail distribution, banks, travel agencies, or petrol stations. Likewise, differentiation may be based on brand
image, technical specifications, quality or level of service. The level of advertising in a market may be an indicator of the firms' effort to
differentiate their products. For other products, buyers may have to incur switching costs to use a competitor's product.

(33) For the definition of the relevant market, see the Commission's Notice on the definition of the relevant market for the purposes of Community

competition law, cited above.

(34) See for example Case COMP/M.2817 — Barilla/BPS/Kamps, point 34; Commission Decision 2001/403/EC in Case COMP/M.1672 — Volvo/

Scania, OJ L 143, 29.5.2001, p. 74, points 107-148.

(35) See, e.g. Commission Decision 94/893/EC in Case IV/M.430 — Procter & Gamble/VP Schickedanz (II), OJ L 354, 21.6.1994, p. 32, Case
T-290/94, Kaysersberg v Commission, [1997] II-2137, paragraph 153; Commission Decision 97/610/EC in Case IV/M.774 — Saint-Gobain/
Wacker-Chemie/NOM, OJ L 247, 10.9.1997, p. 1, point 179; Commission Decision 2002/156/EC in Case COMP/M.2097 — SCA/Metsä Tissue,
OJ L 57, 27.2.2002, p. 1, points 94-108; Case T-310/01, Schneider v Commission, [2002] II-4071, paragraph 418.

(36) Typically, the relevant margin (m) is the difference between price (p) and the incremental cost (c) of supplying one more unit of output expressed

as a percentage of price (m = (p - c)p)).

(37) See, e.g. Case IV/M.1980 — Volvo/Renault VI, point 34; Case COMP/M.2256 — Philips Agilent/Health Care Solutions, points 33-35; Case

COMP/M.2537 — Philips/Marconi Medical Systems, points 31-34.

(38) The cross-price elasticity of demand measures the extent to which the quantity of a product demanded changes in response to a change in the
price of some other product, all other things remaining equal. The own-price elasticity measures the extent to which demand for a product
changes in response to the change in the price of the product itself.

(39) The diversion ratio from product A to product B measures the proportion of the sales of product A lost due to a price increase of A that are

captured by product B.

(40) Commission Decision 97/816/EC in Case IV/M.877 — Boeing/McDonnell Douglas, OJ L 336, 8.12.1997, p. 16, points 58 et seq.; Case

COMP/M.3083 — GE/Instrumentarium, points 125 et seq.

(41) Sunk costs are costs which are unrecoverable upon exit from the market.

(42) See e.g. Commission Decision 2002/156/EC in Case IV/M.877 — Boeing/McDonnell Douglas, OJ L 336, 8.12.1997, p. 16, point 70.

(43) See, e.g. Case IV/M. 986 — Agfa Gevaert/DuPont, OJ L 211, 29.7.1998, p. 22, points 63-71.

(44) See, e.g. Case COMP/M.2187 — CVC/Lenzing, points 162-170.

(45) When analysing the possible expansion of capacity by rivals, the Commission considers factors similar to those described in Section VI on entry.

See, e.g. Case COMP/M.2187 — CVC/Lenzing, points 162-173.

(46) See, e.g. Case T-221/95, Endemol v Commission, [1999] ECR II-1299, paragraph 167.

(47) See, e.g. Case T-22/97, Kesko v Commission, [1999], ECR II-3775, paragraphs 141 et seq.

(48) See, e.g. Commission Decision 2001/684/EC in Case M.1671 — Dow Chemical/Union Carbide OJ L 245, 14.9.2001, p. 1, points 107-114.

(49) See, e.g. Commission Decision 96/435/EC in Case IV/M.623 — Kimberly-Clark/Scott, OJ L 183, 23.7.1996, p. 1; Case T-114/02, Babyliss SA v

Commission (‘Seb/Moulinex’), [2003] ECR II-000, paragraphs 343 et seq.

(50) This is, for example, the case in network industries such as energy, telecommunications and other communication industries.

(51) Commission Decision 99/287/EC in Case IV/M.1069 — Worldcom/MCI, OJ L 116, 4.5.1999, p. 1, points 117 et seq.; Case IV/M.1741 — MCI

Worldcom/Sprint, points 145 et seq.; Case IV/M.1795 — Vodafone Airtouch/Mannesmann, points 44 et seq.

(52) Case T-156/98 RJB Mining v Commission [2001] ECR II-337.

(53) Commission Decision 2002/156/EC in Case IV/M.877 — Boeing/McDonnell Douglas, OJ L 336, 8.12.1997, p. 16, point 58; Case COMP/M.2568

— Haniel/Ytong, point 126.

(54) For an example of pipeline products of one merging party likely to compete with the other party's pipeline or existing products, see, e.g. Case

IV/M.1846 — Glaxo Wellcome/SmithKline Beecham, point 188.

(55) Case T-102/96, Gencor v Commission, [1999] ECR II-753, paragraph 277; Case T-342/99, Airtours v Commission, [2002] ECR II-2585,

paragraph 61.

(56) This may be the case if the oligopolists have tended to concentrate their sales in different areas for historic reasons.

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(57) Case T-342/99, Airtours v Commission, [2002] ECR II-2585, paragraph 62.

(58) See Commission Decision 92/553/EC in Case IV/M.190 — Nestlé/Perrier, OJ L 356, 5.12.1992, p. 1, points 117-118.

(59) See, e.g. Case IV/M.580 — ABB/Daimler-Benz, point 95.

(60) See, e.g. Commission Decision 2002/156/EC in Case COMP/M.2097 — SCA/Metsä Tissue, OJ L 57, 27.2.2002, p. 1, point 148.

(61) See, e.g. Case IV/M.1298 — Kodak/Imation, point 60.

(62) Case T-102/96, Gencor v Commission, [1999] ECR II-753, paragraph 222; Commission Decision 92/553/EC in Case IV/M.190 — Nestlé/Perrier,

OJ L 356, 5.12.1992, p. 1, points 63-123.

(63) In assessing whether or not a merger may increase the symmetry of the various firms present on the market, efficiency gains may provide

important indications (see also paragraph 82 of the notice).

(64) See, e.g. Commission Decision 2001/519/EC in Case COMP/M.1673 — VEBA/VIAG, OJ L 188, 10.7.2001, p. 1, point 226; Case COMP/M.2567

— Nordbanken/Postgirot, point 54.

(65) See, e.g. Case COMP/M.2389 — Shell/DEA, points 112 et seq.; and Case COMP/M.2533 — BP/E.ON, points 102 et seq.

(66) See also Commission Decision 2000/42/EC in Case IV/M.1313 — Danish Crown/Vestjyske Slagterier, OJ L 20, 25.1.2000, p. 1, points 176-179.

(67) See, e.g. Case COMP/M.2640 — Nestlé/Schöller, point 37; Commission Decision 1999/641/EC in Case COMP/M.1225 — Enso/Stora, OJ L 254,

29.9.1999, p. 9, points 67-68.

(68) See, e.g. Case IV/M.1939 — Rexam (PLM)/American National Can, point 24.

(69) See Case COMP/M.2389 — Shell/DEA, point 121, and Case COMP/M.2533 — BP/E.ON, point 111.

(70) Although deterrent mechanisms are sometimes called ‘punishment’ mechanisms, this should not be understood in the strict sense that such a
mechanism necessarily punishes individually a firm that has deviated. The expectation that coordination may break down for a certain period of
time, if a deviation is identified as such, may in itself constitute a sufficient deterrent mechanism.

(71) See, e.g. Commission Decision 2000/42/EC in Case IV/M.1313 — Danish Crown/Vestjyske Slagterier, OJ L 20, 25.1.2000, p. 1, point 177.

(72) See Case T-102/96, Gencor v Commission, [1999] ECR II-753, paragraph 281.

(73) These elements are analysed in a similar way to non-coordinated effects.

(74) See, e.g. Case IV/M.1630 — Air Liquide/BOC, points 201 et seq. For an example of a case where entry by the other merging firm was not

sufficiently likely in the short to medium term (Case T-158/00, ARD v Commission, [2003] ECR II-000, paragraphs 115-127).

(75) Commission Decision 2001/98/EC in Case IV/M.1439 — Telia/Telenor, OJ L 40, 9.2.2001, p. 1, points 330-331, and Case IV/M.1681 — Akzo

Nobel/Hoechst Roussel Vet, point 64.

(76) Case IV/M.1630 — Air Liquide/BOC, point 219; Commission Decision 2002/164/EC in Case COMP/M.1853 — EDF/EnBW, OJ L 59, 28.2.2002,

p. 1, points 54-64.

(77) See Commission Decision 1999/674/EC in Case M.1221 — Rewe/Meinl, OJ L 274, 23.10.1999, p. 1, points 71-74.

(78) Case T-22/97, Kesko v Commission, [1999] ECR II-3775, paragraph 157; Commission Decision 2002/156/EC in Case M.877 — Boeing/

McDonnell Douglas, OJ L 336, 8.12.1997, p. 16, points 105-108.

(79) See, e.g. Case IV/M.1882 — Pirelli/BICC, points 73-80.

(80) See, e.g. Case IV/M.1245 — Valeo/ITT Industries, point 26.

(81) Even a small number of customers may not have sufficient buyer power if they are to a large extent ‘locked in’ because of high switching costs

(see Case COMP/M.2187 — CVC/Lenzing, point 223).

(82) Commission Decision 1999/641/EC in Case COMP/M.1225 — Enso/Stora, OJ L 254, 29.9.1999, p. 9, points 89-91.

(83) It may also be appropriate to compare the concentration existing on the customer side with the concentration on the supply side (Case COMP/JV
55 — Hutchison/RCPM/ECT, point 119, and Commission Decision 1999/641/EC in Case COMP/M.1225 — Enso/Stora, OJ L 254, 29.9.1999, p.
9, point 97).

(84) Case COMP/JV 55 — Hutchison/RCPM/ECT, points 129-130.

(85) Commission Decision 2002/156/EC in Case COMP/M.2097 — SCA/Metsä Tissue, OJ L 57, 27.2.2002, point 88. Price discrimination between
different categories of customers may be relevant in some cases in the context of market definition (See the Commission's notice on the definition
of the relevant market, cited above, at paragraph 43).

(86) Accordingly, the Commission may assess whether the various purchasers will hold countervailing buyer power, see, e.g. Commission Decision

1999/641/EC in Case COMP/M.1225 — Enso/Stora, OJ L 254, 29.9.1999, p. 9, points 84-97.

(87) Commission Decision 97/610/EC in Case IV/M.774 — Saint-Gobain/Wacker-Chemie/NOM, OJ L 247, 10.9.1997, p. 1, point 184.

(88) Case IV/M.1430 — Vodafone/Airtouch, point 27; Case IV/M.2016 — France Télécom/Orange, point 33.

(89) Commission Decision 2002/174/EC in Case COMP/M.1693 — Alcoa/Reynolds, OJ L 58, 28.2.2002, point 87.

(90) Commission Decision 95/335/EC in Case IV/M.754 — Anglo American Corp./Lonrho, OJ L 149, 20.5.1998, p. 21, points 118-119.

(91) Commission Decision 97/610/EC in Case IV/M.774 — Saint-Gobain/Wacker-Chemie/NOM, OJ L 247, 10.9.1997, p. 1, points 184-187.

(92) Commission Decision 94/811/EC in Case IV/M.269 — Shell/Montecatini, OJ L 332, 22.12.1994, p. 48, point 32.

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(93) Commission Decision 98/327/EC in Case IV/M.833 — The Coca-Cola Company/Carlsberg A/S, OJ L 145, 15.5.1998, p. 41, point 74.

(94) Commission Decision 98/327/EC in Case IV/M.833 — The Coca-Cola Company/Carlsberg A/S, OJ L 145, 15.5.1998, p. 41, points 72-73.

(95) Commission Decision 2002/156/EC in Case COMP/M.2097 — SCA/Metsä Tissue, OJ L 57, 27.2.2002, p. 1, points 83-84.

(96) Commission Decision 2001/432/EC in Case IV/M.1813 — Industri Kapital Nordkem/Dyno, OJ L 154, 9.6.2001, p. 41, point 100.

(97) See, e.g. Commission Decision 98/475/EC in Case IV/M.986 — Agfa-Gevaert/Dupont, OJ L 211, 29.7.1998, p. 22, points 84-85.

(98) Case T-102/96, Gencor v Commission, [1999] ECR II-753, paragraph 237.

(99) See, e.g. Commission Decision 2000/718/EC in Case IV/M.1578 — Sanitec/Sphinx, OJ L 294, 22.11.2000, p. 1, point 114.

(100) See, e.g. Commission Decision 2002/174/EC in Case COMP/M.1693 — Alcoa/Reynolds, L 58, 28.2.2002, points 31-32, 38.

(101) Commission Decision 91/535/EEC in Case IV/M.68 — Tetra Pak/Alfa Laval, OJ L 290, 22.10.1991, p. 35, point 3.4.

(102) See Recital 4 of the Merger Regulation.

(103) See Recital 29 of the Merger Regulation.

(104) Cf. Article 2(1)(b) of the Merger Regulation.

(105) Pursuant to Article 2(1)(b), the concept of ‘consumers’ encompasses intermediate and ultimate consumers, i.e. users of the products covered by
the merger. In other words, consumers within the meaning of this provision include the customers, potential and/or actual, of the parties to the
merger.

(106) Variable costs should be viewed as those costs that vary with the level of production or sales over the relevant time period. Marginal costs are

those costs associated with expanding production or sales at the margin.

(107) Generally, fixed cost savings are not given such weight as the relationship between fixed costs and consumer prices is normally less direct, at least

in the short run.

(108) In line with the general principle set out in paragraph 9 of this notice.

(109) Joined Cases C-68/94 and C-30/95, Kali and Salz, paragraph 110.

(110) Joined Cases C-68/94 and C-30/95, Kali and Salz, paragraph 114. See also Commission Decision 2002/365/EC in Case COMP/M.2314 —
BASF/Pantochim/Eurodiol, OJ L 132, 17.5.2002, p. 45, points 157-160. This requirement is linked to the general principle set out in paragraph
9 of this notice.

(111) The inevitability of the assets of the failing firm leaving the market in question may, in particular in a case of merger to monopoly, underlie a
finding that the market share of the failing firm would in any event accrue to the other merging party. See Joined Cases C-68/94 and C-30/95,
Kali and Salz, paragraphs 115-116.