CELEX: 32019M8941
Language: en
Date: 2019-02-13 00:00:00
Title: Commission Decision of 13/02/2019 declaring a concentration to be compatible with the common market (Case No COMP/M.8941 - Widex Holding A/S / EQT / Sivantos Group) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                Brussels, 13.02.2019
                                                                C(2019) 1388 final
  In the published version of this decision, some
  information has been omitted pursuant to Article                      PUBLIC VERSION
  17(2) of Council Regulation (EC) No 139/2004
  concerning non-disclosure of business secrets and
  other confidential information. The omissions are
  shown thus […]. Where possible the information
  omitted has been replaced by ranges of figures or a
  general description.
                                                                To the notifying parties:
Subject:            Case M.8941 - EQT / Widex / JV
                    Commission decision pursuant to Article 6(1)(b) of Council
                    Regulation No 139/20041 and Article 57 of the Agreement on the
                    European Economic Area2
Dear Sir or Madam,
(1)         On 9 January 2019, the European Commission received notification of a
            proposed concentration pursuant to Article 4 of Council Regulation (EC) No
            139/2004 (the “Merger Regulation”). This notification concerns the creation of
            a full function joint venture between the following undertakings: Sivantos Pte.
            Ltd. (“Sivantos”, Singapore), controlled by Equity VI Limited and EQT Fund
            Management S.à r.l. (together referred to as “EQT”); and Widex A/S (“Widex”,
            Denmark), controlled by T&W Medical A/S (formerly Widex Holding) (“T&W
            Medical”, Denmark). T&W Medical and EQT acquire, within the meaning of
            Article 3(1)(b) and 3(4) of the Merger Regulation, joint control over a newly
            created entity (the “JV” or the “Merged Entity”), combining the activities of
            Widex and Sivantos (the “Transaction”). The concentration is accomplished by
            way of purchase of shares in a newly created company constituting a joint
1         OJ L 24, 29.1.2004, p. 1 (the 'Merger Regulation'). With effect from 1 December 2009, the Treaty
          on the Functioning of the European Union ('TFEU') has introduced certain changes, such as the
          replacement of 'Community' by 'Union' and 'common market' by 'internal market'. The
          terminology of the TFEU will be used throughout this decision.
2         OJ L 1, 3.1.1994, p. 3 (the 'EEA Agreement').
Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak---       venture.3 (EQT and T&W Medical are designated hereinafter as the “Notifying
      Parties” or “Parties”).
1.    THE PARTIES
(2)   EQT is a private equity company controlling numerous investment funds. The
      EQT funds’ portfolio companies are active in a variety of industries, including
      the healthcare, Telecommunications, Media & Technology services, consumer
      and industrial technology sectors amongst others.
(3)   Sivantos is a privately held company controlled by EQT, with headquarters in
      Singapore, which manufactures hearing aids and complementary accessories and
      develops fitting software, smartphone apps and diagnostics workflow solutions.
      Sivantos manufactures and assembles hearing aids both in Europe (in Germany
      and Poland), as well as at various sites around the world. Sivantos offers hearing
      aids under the brands Siemens, Signia, Audio Service, Rexton, and A&M. In
      addition, Sivantos is active in Germany, France and the Netherlands through its
      online affiliate audibene which refers potential customers to partner
      audiologists.
(4)   Widex is a privately held company controlled by T&W Medical, with
      headquarters in Denmark. Widex manufactures and assembles hearing aids and
      complementary accessories, fitting software and smartphone apps. T&W
      Medical is ultimately jointly controlled by descendants of the two founders of
      Widex, Christian Tøpholm and Erik Westermann.4 In Europe, Widex has
      manufacturing activities in Estonia (subassembly), Poland (refurbishment and
      repair) and Denmark (chip production, moulding, final assembly and
      programming), and subassembling activities at various sites around the world.
      Widex offers hearing aids under the brands Widex and Coselgi.
2.    THE OPERATION
(5)   On 15 May 2018, the Notifying Parties signed transaction documents including
      the “Combination Agreement” and the “Shareholders’ Agreement” in which
      they agreed the implementation conditions, and respectively the management
      conditions for the JV.
(6)   Pursuant to the transaction documents, EQT and T&W Medical will contribute
      the businesses of Sivantos and Widex to the JV, which will be jointly controlled
      by the Notifying Parties following several operations, whereby EQT will
      ultimately own 53% of the JV’s shares and T&W Medical will own the
      remaining 47%. Post-Transaction, the JV will be the parent company of both
      Sivantos and Widex.
3   Publication in OJ C 20, 16.1.2019, p. 10.
4   No member of the Topholm or Westermann families holds controlling shares in companies active
    in the hearing aid industry, outside of T&W Medical, Audiofon (Poland) and Din Hørespecialist
    (Denmark) which are discussed in the relevant country sections.
                                                   2
 ---pagebreak--- 3.     THE CONCENTRATION
(7)    The Transaction constitutes a concentration within the meaning of Articles
       3(1)(b) and 3(4) of the Merger Regulation.
3.1.   Joint control
(8)    EQT and T&W Medical will jointly own the JV, EQT owning 53% (through
       three acquisition vehicles) and T&W Medical owning 47% of the shares issued
       by the JV.
(9)    Pursuant to the Shareholders’ Agreement, EQT and T&W Medical will have
       equal voting rights in the JV and equal rights to appoint the board of directors in
       charge of the JV management. Specifically, EQT and T&W Medical will each
       have the right to separately appoint four (out of eight) members of the board of
       directors.5 The board of director decides on matters that are of material
       importance to the JV.
(10)   Pursuant to the transaction documents, the voting procedures grant (negative)
       control to both T&W Medical and EQT. Decisions of the board of directors are
       taken by simple majority.6 The quorum rules applicable to board of directors’
       decisions imply the presence (or representation) of at least one director
       appointed by T&W Medical and one director appointed by EQT. 7 Furthermore,
       neither EQT nor T&W Medical have a casting vote in case of deadlock.
(11)   In addition, a number of strategic matters8 require the approval of each Party. At
       board level, strategic matters require the consenting vote of at least one director
       nominated by T&W Medical and one director nominated by EQT. Similarly, at
       general meetings of the JV shareholders, decisions on strategic matters require
       the consenting vote of both T&W Medical and one of the EQT shareholders. As
       a result, both Parties have veto rights related to such strategic matters, which
       include the JV’s budget, business plan, and the appointment of senior
       management.9
(12)   Consequently, the JV will be jointly controlled by the Notifying Parties.
3.2.   Full functionality
(13)   The JV will combine the existing customer-facing businesses of Sivantos and
       Widex. The JV will in particular take on the existing manufacturing, wholesale
       and retail distribution operations of Sivantos and Widex, funding itself from
       such activities. The JV will have an autonomous presence on the market,
       benefitting from Sivanto and Widex’s management teams, resources, financing,
       personnel and tangible and intangible assets. As parent company of Sivantos and
5    Shareholders’ Agreement, clause 12.1.1.
6    Shareholders’ Agreement, clause 12.3.
7    Shareholders’ Agreement, clause 12.2.3.
8    Strategic matters ("Reserved Matters” in clause 13.1.1 of the Shareholders’ Agreement) include
     inter alia (i) material amendments of the business plan, (ii) approval of budget, (iii) appointment
     or removal of members of the top management and (iv) any acquisition either requiring additional
     equity funding or having a value in excess of EUR 100 million.
9    Shareholders’ Agreement, clause 13.1.1.
                                                    3
 ---pagebreak---        Widex, the JV will be in control of these resources. The JV is incorporated for
       an indefinite period and intended to operate on a long-lasting basis. The
       Transaction will therefore lead to the creation of a full function joint venture.
4.     EU DIMENSION
(14)   The undertakings concerned have a combined aggregate world-wide turnover of
       more than EUR 5 000 million10 (EQT: EUR […] million; T&W Medical: EUR
       […] million). Each of them has an EU-wide turnover in excess of EUR 250
       million (EQT: EUR […] million; T&W Medical: EUR […] million), but they do
       not achieve more than two-thirds of their aggregate EU-wide turnover within
       one and the same Member State.
(15)   The Transaction therefore has an EU dimension pursuant to Article 1(2) of the
       Merger Regulation.
5.     RELEVANT MARKETS
(16)   Both Parties are primarily active in the manufacture and wholesale distribution
       of hearing aids globally.
(17)   The Parties are also active in the distribution of audiology diagnostic equipment,
       including audiometers, otoscopes, and tympanometers. The Parties do not
       manufacture audiology diagnostic equipment and act as mere resellers. Their
       activities as distributors of audiology diagnostic equipment do not give rise to
       any horizontally or vertically affected market in the EEA and will therefore not
       be further assessed in the present decision.11
5.1.   Introduction – General characteristics of hearing aids
(18)   Hearing aids are medical devices designed to improve a patient’s ability to hear
       by amplifying acoustic signals. The severity of a hearing loss is specific to every
       patient and hearing aids are prescribed for addressing the complete range of
       hearing loss, from mild to profound.12
(19)   Although there is no minimum threshold of hearing loss required for an
       individual to start using hearing aids, practitioners typically do not prescribe
       hearing aids unless the deficit exceeds 30dB.13 In certain EEA countries, the
       hearing threshold is a benchmark for determining the entitlement to
       reimbursement by social security systems of the costs of a hearing aid (for e.g.
       in Belgium, only patients with a hearing loss of at least 40dB are eligible for
10   Turnover calculated in accordance with Article 5 of the Merger Regulation.
11   While both Parties distributed diagnosis equipment in Poland and the Netherlands at one point
     over the last three years, their activities are marginal, and the Parties’ combined market share does
     not reach the 20% threshold in any plausible market. Furthermore, […], which will further
     decrease the relevance of this activity.
12   A typical classification for the degree of hearing loss is provided by the World Health
     Organization as follows: mild hearing loss (deficit of 26-40dB), moderate hearing loss (41-60dB),
     severe hearing loss (61-80dB) and profound hearing loss (above 81dB).
13   A decibel (“dB”) is a unit of measurement that indicates the loudness of a sound. A human ear
     typically distinguishes acoustic signals between 0 and 140dB.
                                                        4
 ---pagebreak---  ---pagebreak--- (25) RIC hearing aids are an intermediate solution between BTE and ITE hearing
     aids. Unlike in traditional BTE hearing aids, the loudspeaker of a RIC model sits
     inside the ear canal, meaning that fewer components need to fit inside the
     hearing aid shell that is placed behind the ear.
(26) The manufacturing of hearing aids is based on well-established technologies.
     The production of most components can easily be outsourced to third-party
     suppliers. In general, the manufacturing steps differ slightly according to the
     form factor of the hearing aid, although the majority of electric components
     contained within the different form factors are identical. Thus, for example, RIC
     hearing aids (see Figure 2) have the following components: (1) microphones
     (pick up the sound from the environment), (2) mini-chip (processes the acoustic
     signal according to the individual hearing needs) (3) receiver (delivers the
     sound), (4) battery (powers the hearing aid), and (5) program switch / volume
     control.
     Figure 2 – Overview of components included in a RIC hearing aid
(27) By contrast, BTE hearing aids integrate all five components inside the shell
     which is placed behind the ear and transmits the sound via a sound tube into the
     ear. While the shell of ITE hearing aids are custom-made in order to fit a
     patient’s ear, the basic components (including the chip, microphones and some
     of the electronics) are the same as for BTE and RIC devices.
(28) Hearing aids have significantly evolved over the last couple of decades, with
     one of the main changes being the move from analogue to digital signal
     processing. Nowadays, nearly all hearing aids sold on the market are digital.
     Since this disruptive technological change took place, subsequent improvements
     have been incremental, focusing in particular on miniaturisation, the
     introduction of additional features (e.g. connectivity with smartphones,
     Bluetooth connectivity, directional hearing), improvements to sound quality and
     the introduction of rechargeable battery solutions.
(29) Irrespective of recent innovations, the basic principle behind every hearing aid
     remains the same. A microphone picks up the sound signal, a processor converts
     and treats it, and the receiver plays it back into the ear. A hearing aid can then be
     outfitted with additional software for extra features (e.g. connectivity, machine
     learning, rechargeability, etc.). Ultimately, the final price of a hearing aid is
     primarily linked to its technology level.
                                               6
 ---pagebreak--- (30)  Hearing aids must be distinguished from (i) cochlear implants and bone
      conducting systems, that are surgically implanted to treat hearing impairment,
      (ii) personal sound amplification products (“PSAPs”), which are wearable
      electronic devices designed to amplify sounds for non-hearing impaired users
      (amplification of sounds up to 30dB) and are sold over-the-counter, and (iii)
      assistive listening devices (“ALDs”), which are devices used to bring distant
      sound signals directly into the wearer’s ear and to eliminate background noise.
      Neither of the Parties manufacture cochlear implants, bone conducting systems,
      PSAP or ALD devices.
(31)  The typical route to obtaining a hearing aid (although, this is not the case in
      every EEA country) involves the patient making an appointment with an ear,
      nose and throat specialist doctor (“ENT”), who diagnoses their hearing loss and
      prescribes a hearing aid. The patient then goes to an audiologist to be fitted with
      a hearing aid device. Audiologists can work either in independent private
      practices (or as part of a larger chain) or at public clinics and hospitals.
(32)  Depending on the EEA country, manufacturers of hearing aids sell their
      products (either directly or via third-party distributors) to public health services,
      private retailers or a combination of the two (market for the manufacture and
      wholesale distribution of hearing aids, see section 5.2.1). In turn, public health
      authorities and private retailers dispense hearing aids to patients (market for the
      retail distribution of hearing aids, see section 5.2.2). In some EEA countries,
      certain hearing aid manufacturers are vertically integrated and also sell hearing
      aids directly to patients in their retail stores.
(33)  On the private part of the wholesale distribution, competition between hearing
      aid manufacturers focuses on winning business from audiologists such as
      independent retail stores or large chains. There are significant variations
      between EEA countries in terms of the downstream retail structure of the
      hearing aid market, with large multinational chains (and/or optical chains that
      have expanded into audiology) having a much more significant presence in
      some EEA countries than others.
(34)  On the public part of the wholesale distribution such as in Denmark, Finland,
      Ireland, Latvia, Malta, Norway, Sweden, or the United Kingdom, competition
      between hearing aid manufacturers typically arises during tenders for specific
      product categories, although the precise procurement system largely depends on
      the national public authorities. Such tenders typically specify a set of technical
      criteria that hearing aid products must meet. Generally, pricing plays a more
      significant role in public tenders than on the private wholesale market.17
(35)  The price of hearing aids significantly varies between EEA countries, both at the
      wholesale and retail levels. The price charged generally depends on the product
      itself, its technical features, bilateral negotiations with retailers, tender
      procedures, as well as other market characteristics in each EEA country (e.g.
      reimbursement and income levels, presence and size of retail players, etc.). Even
      if most EEA countries offer some form of financial support to patients for the
      purchase of hearing aids, the generosity and structure of these reimbursement
17   Non-confidential replies to questionnaire Q1 to competitors, question 17.3.
                                                     7
 ---pagebreak---        systems considerably vary between EEA countries. In some countries, the public
       health system is involved directly (e.g. by sourcing hearing aids through public
       tenders and distributing them to patients), whilst in others there are private
       and/or public health insurance providers that offer fixed levels of
       reimbursement, with the patient usually paying some part of the retail price.
5.2.   Product market definition
(36)   Manufacturers of hearing aids operate along the hearing aid distribution chain at
       two levels. At the upstream level, hearing aid manufacturers offer their products
       at wholesale level to private retailers and public procurement authorities. At the
       downstream level, manufacturers vertically integrated into retail (along third-
       party retailers) supply hearing aids and related services directly to end users, i.e.
       patients suffering from hearing loss. In examining the Transaction, it is
       appropriate to maintain that distinction.
       5.2.1.      Upstream: Manufacture and wholesale distribution of hearing aids
(37)   Manufacturers of hearing aids generally sell their products (at the wholesale
       level), either directly or via third-party distributors, to (i) public authorities
       and/or (ii) private retailers.
            5.2.1.1.     Precedents
(38)   The Commission has not in the past assessed the market for the manufacture and
       wholesale distribution of hearing aids.
(39)   Several national competition authorities examined concentrations in the hearing
       aids industry in the EEA and consistently identified a single market for the
       manufacture and wholesale distribution of all types of hearing aids. In particular,
       in its 2015 decision relating to the acquisition by William Demant of the retailer
       Audika, the French competition authority identified a market for the
       manufacture and wholesale commercialisation of hearing aids. 18 In its 2007
       decision relating to the planned merger between Phonak (Sonova) and GN, the
       German competition authority also identified a single product market for the
       manufacture of hearing aids and their sale to hearing aid retailers, finding in
       particular that there should be no separate markets depending on the form
       factors, technology (analogue or digital), or price of hearing aids. 19 Similarly, in
       its 2016 decision relating to the acquisition by Sonova of the retailer Audionova,
       the Dutch competition authority identified a market for the manufacture and
       (wholesale) supply of hearing aids.20
18   French competition authority Decision dated 18 September 2015 in Case 15-DCC-115, recitals 19
     to 22. The French competition authority considered in particular that this market was distinct from
     the manufacture and wholesale of (i) other audiology equipment, including PSAPs, (ii) auditive
     implants, (iii) diagnostic equipment, and (iv) preventive equipment.
19   German competition authority Decision dated 11 April 2007 in Case B3 578/06, Section 3.2.
20   Dutch competition authority Decision dated 7 September 2016 in Case 16.0721.22 / Sonova -
     AudioNova, recitals 19 to 21.
                                                      8
 ---pagebreak---              5.2.1.2.    The Parties’ view
(40)     The Parties submit that the overall market for the manufacture and wholesale
         distribution of hearing aids is the relevant one to assess the Transaction, without
         the need for further segmentation. In particular, the Parties exclude the existence
         of separate relevant product markets with respect to the following
         differentiations: (i) depending on the form factor and/or performance level of
         hearing aids, (ii) based on the distribution channel, (iii) based on hearing aids’
         prices, (iv) between manufacturer-branded products and private label hearing
         aids, (v) between hearing aids for adults and children, or (vi) between hearing
         aids and their accessories and services.
             5.2.1.3.    The Commission’s assessment
(41)     Despite providing clear indications that the hearing aid market is highly
         differentiated, the market investigation generally supported the Parties’ view of
         a single overall product market encompassing all types of hearing aids as well as
         related accessories and services. The market investigation also indicated that
         further segmentations of the hearing aid market is not necessary for the purpose
         of the present case.
No distinction depending on the form factor, performance level or price of hearing aids
(42)     Multiple parameters determine a patient’s requirements when procuring hearing
         aids. Such parameters include mainly the severity of the hearing loss, as well as
         the shape of the patient’s ear canal, the patient’s dexterity, or the presence of
         wax in the ear canal. There are significant overlaps across hearing aids of
         different form factors to meet each patient’s specific requirements. Most
         fundamental features of modern hearing aids (software, algorithm, sound
         processing, amplification etc.) are generally available across all form factors, as
         these are included in the digital chip that is used by manufacturers across all
         hearing aid models of a specific generation/platform. In particular, BTE and RIC
         hearing aids form part of a continuum in terms of performance, with no clear
         distinction in terms of suitable use for patients. Only a small number of patients
         cannot use a specific form factor. Most notably, ITE hearing aids are not
         suitable for patients with profound hearing losses,21 patients with small or
         irregularly shaped ear canals, or with excessive amounts of ear wax.
(43)     In addition, patients’ awareness about hearing aids, including about form
         factors, models, prices or brands, is typically very limited, in particular for non-
         returning patients, which represent the majority of sales. 22 Patients may have
         some preference between various form factors, designs, or features, in particular
         for the most discrete models. However, they typically follow the
         recommendations of ENTs and/or audiologists, which prescribe the most
         adapted hearing aids to the patient’s requirements. Retailers and ENTs, as
         trusted professionals, usually act as gatekeepers of the hearing aids market. 23
21     There is no consensus as to the definition of profound hearing loss. While the WHO considers as
       profound a hearing loss above 81dB, the Parties use a threshold of 95dB
22     Non-confidential replies to questionnaire Q6 to associations for the hearing impaired, question 3.
23     Non-confidential replies to questionnaire Q6 to associations for the hearing impaired, question 7.
                                                       9
 ---pagebreak--- (44)     The market investigation confirms that retailers of hearing aids typically
         purchase and offer all types of hearing aids, regardless of their form factor, price
         or technical performance.24 They do so in order to offer a full range of hearing
         aid solutions, which comprises products for all levels of hearing loss severity
         and addresses patients’ needs and/or preferences. In particular, the market
         investigation reveals that the vast majority of customers (retailers,25 large retail
         chains,26 and public procurement authorities27) consider it important to dispense
         a full range of form factors and performance levels of hearing aids, to
         accommodate all possible patients’ requirements and wishes. Offering a full
         range of hearing aids even is a legal requirement in some EEA countries, such as
         Germany.28
(45)     To reflect demand, most hearing aid manufacturers, in particular every major
         player, offer hearing aids of all possible form factors, price and performance
         levels, treating all levels of hearing loss severity, for both adults and children.29
No distinction between adults’ and children’ hearing aids
(46)     Hearing aids for children are based on the same technology, have the same chip
         and come in the same variety of form factors as those for adults. However, like
         all types of hearing aids, solutions for children may integrate specific features
         due to age-specific requirements. For instance, hearing aids for children
         typically include a clip and a string to attach the device to a child’s clothes, and
         a battery door lock to prevent children from swallowing the battery.
         Consequently, all hearing aid manufactures offer hearing aids for children. A
         distinction between adult and paediatric hearing aids is thus irrelevant for the
         purposes of assessing the Transaction.
No separate product markets between manufacturer-branded products and private label
hearing aids
(47)     The market investigation indicates that branded products and private label
         products, offered by retailers under their own brand, form part of the same
         relevant product market. Large retailers, which offer private label products
         overall confirm that hearing aids do not differ in terms of characteristics and
         overwhelmingly consider that the negotiation dynamics are similar in both
         cases.30 In addition, on the supply side, most hearing aid manufacturers,
         including all of the primary players offer both branded and private label hearing
         aids.31
24     The market investigation confirms that hearing aid prices reflect technical performance. As such,
       the present section assesses the relevance of a possible segmentation by both price and
       performance.
25     Non-confidential replies to questionnaire Q2 to retailers of hearing aids, questions 10 to 12.
26     Non-confidential replies to questionnaire Q3 to large retail chains, questions 14 to 17.
27     Non-confidential replies to questionnaire Q4 to public purchasers of hearing aids, question 4.
28     Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 10.
29     Non-confidential replies to questionnaire Q1 to competitors, questions 10.1 to 10.5.
30     Non-confidential replies to questionnaire Q3 to large retail chains, questions 37 and 38.
31     Non-confidential replies to questionnaire Q3 to large retail chains, question 36 and non-
       confidential replies to questionnaire Q1 to competitors, question 1.
                                                      10
 ---pagebreak--- No separate product markets between hearing aids and their accessories and services
(48)
          The market investigation confirms that the wholesale supply of accessories and
          services should form part of the same relevant product market as the one for
          hearing aids. The Commission derives from the market investigation that the
          accessories and services are ancillary to the use of a hearing aid and are
          typically purchased together with the hearing aid or as replacement sales, and
          thus consistently linked to the original hearing aid sale. Moreover, according to
          respondents to the market investigation, the competitive dynamics for the supply
          of accessories and services are identical to those for the supply of hearing aids
          which supports the Commission’s conclusion that the market for the wholesale
          supply of accessories and services is not a separate relevant product market from
          the one for hearing aids.32
Existence of separate product markets between hearing aids distributed through the
public system and to retailers on the private segment
(49)      The market investigation indicates that the distinction between public and
          private wholesale distribution channels, in the national markets where it is
          applicable, gives useful insights for the competitive analysis of the
          Transaction.33 Within public schemes, patients acquire their hearing aids from
          hospitals or health services, typically free of charge. Sales of hearing aids to the
          public market typically involve the organization of a tender by a public
          authority, guaranteeing (usually large) sales volumes to the successful bidder(s)
          over a specific duration, usually reaching or exceeding two years. Specific
          technical requirements are issued by the relevant public authorities, and the
          selection process is typically price-driven. All of these factors impact the
          competitive landscape.34
(50)      The Commission also investigated whether wholesale distribution of hearing
          aids to retailers on the private segment should be further segmented between the
          supply to (i) manufacturer-owned retail outlets, (ii) large retail chains (e.g.
          Amplifon, Specsavers, etc.), and (iii) supply to other independent retailers. In
          that respect, the Commission found that all major players in the manufacture and
          wholesale distribution of hearing aids, including vertically integrated
          manufacturers supply large chains and/or independent retailers, and compete to
          increase their sales across all distribution channels. Furthermore, the market
          investigation confirms that manufacturer-owned retail outlets often offer
          products from more than one supplier, even if usually in smaller quantities.35
          Also, some second-tier hearing aid manufacturers such as Audifon and
          Microson, are owned by retail chains, namely Kind and GAES respectively,
32      Non-confidential replies to questionnaire Q7 to competitors, question 14.
33      EEA countries with a public market for hearing aids include Denmark, Estonia, Finland, Ireland,
        Latvia, Malta, Norway, Portugal, Sweden, and the UK.
34      Non-confidential replies to questionnaire Q4 to public purchasers of hearing aids, questions 10
        and 19. Non-confidential replies to questionnaire Q1 to competitors, questions 17.1 to 17.3.
35      As evidenced by the fact that the Parties’ customers include manufacturer-owned retails (e.g.
        Sonova, William Demant, and Starkey) in the following countries: Austria, Belgium, Denmark,
        Germany, France, the Netherlands, Poland, Spain and Sweden. Similarly, shops owned by Widex
        in Denmark, Hungary, Ireland, and the UK also offer products from competing suppliers.
                                                       11
 ---pagebreak---         who offer a wide portfolio of hearing aid products from different manufacturers
        besides their own in their retail outlets.
Conclusion
(51)    On the basis of the evidence before it, and account taken of the lack of
        significant differentiations between possible categories of hearing aids from
        both the demand and supply sides (i) depending on the form factor and/or
        performance level of hearing aids, (ii) based on hearing aid prices, (iii) for
        manufacturer-branded products and private label hearing aids, (iv) depending on
        the patient’s age (i.e. paediatric hearing aids or adult hearing aids), or (v) for
        accessories and services, the Commission considers that the market for the
        manufacture and wholesale distribution of hearing aids should not be further
        segmented according to these distinctions.
(52)    However, based on its market investigation the Commission considers that the
        distinction between the markets for the manufacture and wholesale distribution
        of hearing aids to the private segment (i.e. to retailers) and, on the other hand,
        the manufacture and wholesale distribution of hearing aids to the public segment
        (i.e. to public procurement bodies) may be a relevant factor in the competitive
        analysis of the Transaction in the EEA countries where public health
        administrations are directly procuring hearing aids.
(53)    For the purpose of the present decision, the Commission considers that the
        possible segmentation of the product market for the manufacture and wholesale
        distribution of hearing aids between private and public segments can be left
        open as the Transaction does not give rise to competition concerns under any
        such alternative product market definitions.
        5.2.2.      Downstream: Retail distribution of hearing aids
(54)    The market for the retail distribution of hearing aids is downstream from the
        market for the production and wholesale distribution of hearing aids.36 Retailers
        of hearing aids, which include independent shops, large chains (specialized in
        audiology or not), as well as manufacturer-owned chains, supply patients with
        hearing aids.
             5.2.2.1.      Precedents
(55)    The Commission has not in the past assessed the markets for the retail
        distribution of hearing aids.
(56)    National competition authorities of the EEA have assessed several transactions
        related to the retail distribution of hearing aids. In its 2015 decision, the French
        competition authority identified a single relevant product market for the retail
        distribution of hearing aids without further segmentations.37 In its 2016 decision,
36    Distribution of hearing aids by hospitals or health services under public schemes thus do not form
      part of the retail segment.
37    French competition authority Decision in Case 15-DCC-115, recitals 8 to 12. The French
      competition authority considered in particular that this market was distinct from the retail of (i)
      other audiology equipment, including PSAPs, (ii) auditive implants, (iii) diagnostic equipment and
      (iv) preventive equipment.
                                                      12
 ---pagebreak---        the Dutch competition authority also identified a product market for the retail
       distribution of hearing aids and accessories without further segmentations.38
           5.2.2.2.    The Parties’ view
(57)   The Parties consider the retail distribution of hearing aids to be the relevant
       product market, without the need for any further segmentation.
           5.2.2.3.    The Commission’s assessment
(58)   The market investigation did not indicate that any further segmentation of the
       product market for the retail distribution of hearing aids is justified.
(59)   In particular, a distinction between brick-and-mortar and online stores does not
       appear relevant. Direct online sales of hearing aids are not possible in a number
       of EEA countries due to hearing aids being medical devices, whose distribution
       is strictly regulated. While online distribution does exist, it mostly takes the
       form of an intermediary to traditional brick-and-mortar businesses.
(60)   Similarly, a distinction between (i) manufacturer-owned retail outlets, (ii) large
       retail chains, and (iii) supply to other independent retailers, does not appear
       relevant. Patients have limited awareness of the hearing aid industry and no
       marked preference in terms of retail channel. Furthermore, as explained above,
       retail outlets, including manufacturer-owned outlets, often offer products from
       more than one manufacturer.
(61)   Based on the evidence before it, and account taken of the lack of significant
       differentiations at the level of the retail distribution of hearing aids, the
       Commission considers, for the purposes of the present decision, that the market
       for the retail distribution of hearing aids is the relevant product market. In any
       event, for the purpose of the present case, the exact scope of the product market
       definition can be left open with respect to possible further segmentations of the
       product market for retail distribution of hearing aids as the Transaction does not
       give rise to competition concerns under any plausible product market definition.
5.3.   Geographic market definition
       5.3.1.    Upstream: Manufacture and wholesale distribution of hearing aids
           5.3.1.1.    Precedents
(62)   In previous cases concerning medical devices, the Commission has considered
       the geographic scope of the relevant markets as being national in scope.39
38   Dutch competition authority Decision in Case 16.0721.22 / Sonova - AudioNova, recitals 15 to
     18.
39   See for example Commission decision of 1 March 2018 in Case No COMP/M.8394
     Essilor/Luxottica; Commission decision of 25 August 2005 in Case No COMP/M.3687 Johnson &
     Johnson/Guidant; Commission decision of 27 May 2003 in Case No COMP/M.3146 Smith &
     Nephew/Centerpulse; Commission decision of 28 October 1998 in Case No COMP/M.1286
     Johnson & Johnson/DePuy.
                                                  13
 ---pagebreak--- (63)   In its 2015 decision, the French competition authority left the question open
       whether the geographic dimension of the market was national or supranational
       in scope.40 The German competition authority, in its 2007 decision, considered
       the relevant geographic market to be national in scope due to the significance of
       national sales systems and local care, buying patterns of purchasers, the
       diversity of prescription and reimbursement systems across countries, as well as
       price differences.41 The 2016 decision of the Dutch competition authority also
       considered the relevant market to be national in scope.42
           5.3.1.2.      The Parties’ view
(64)   The Parties argue that the relevant geographic market for the manufacture and
       wholesale distribution of hearing aids is national in scope due to the facts that
       reimbursement regimes, procurement processes and sales organisations of
       hearing aid manufacturers are national in scope. Moreover, the Parties claim that
       wholesale price differences between EEA countries indicate national geographic
       markets for the manufacture and wholesale distribution of hearing aids.
           5.3.1.3.      The Commission’s assessment
(65)   The market investigation broadly confirmed the Parties’ arguments. In
       particular, the Commission found that the market shares of the major players in
       the sector substantially vary from one EEA country to another. Furthermore, the
       market investigation confirmed that the overall market structure is very different
       from one EEA country to another. The Commission also notes that some
       second-tier players, such as Audifon, Microson or BHM are only active in
       certain EEA countries.
(66)   As in other medical sectors, the presence of specific reimbursement systems
       across the EEA has partitioned off the markets at national level. The differences
       across the various national reimbursement schemes across the EEA contribute to
       the significant wholesale price variations between EEA countries.
(67)   In addition, customers’ profiles (public authorities, larger chains, independent
       retailers, and/or purchasing groups), as well as purchasing behaviour (tender
       procedures and/or bilateral negotiations) largely differ from one EEA country to
       another.
(68)   On the private part of the market, while agreements with some key customers,
       especially for large retail chains such as Specsavers, Amplifon, or Neuroth, may
       be negotiated across multiple countries, or even at EEA level, most of the
       competition to supply customers takes place at national level. Only a minority of
       large retail chains that responded to the market investigation operate in over two
       countries,43 and nearly all smaller retailers operate only in one country.44
40   French competition authority Decision in Case 15-DCC-115, recitals 19 to 22. The French
     competition authority considered in particular that this market was distinct market from the
     manufacture and wholesale of (i) other audiology equipment, including PSAPs, (ii) auditive
     implants, (iii) diagnostic equipment and (iv) preventive equipment.
41   German competition authority Decision dated 11 April 2007 in Case B3 578/06, Section 4.
42   Dutch competition authority Decision in Case 16.0721.22 / Sonova - AudioNova, recital 31.
43   Non-confidential replies to questionnaire Q3 to large retail chains, question 4.
                                                     14
 ---pagebreak--- (69)   On the public part of the market, where public tenders take place, the design of
       the tender process and the applicable requirements to qualify differ depending
       on the public authority.45 Such tender processes may be particularly complex
       and in some cases require full time employees with a knowledge of the local
       tender rules.46
(70)   However, from a supply-side perspective, a number of factors indicate that the
       relevant geographic market could also be wider than national, and potentially
       EEA-wide, in particular due to (i) low regulatory barriers (CE mark); (ii)
       worldwide production and research and development, (iii) low transport costs;
       and (iv) the scope of public tenders not being limited to nationally established
       players.
(71)   In conclusion, for the purpose of the present case, the Commission considers
       that the question of whether the scope of the market for the manufacture and
       wholesale distribution of hearing aids is national or EEA-wide can be left open,
       as the Transaction does not give rise to competition concerns under any
       plausible geographic market definition.
       5.3.2.     Downstream: Retail distribution of hearing aids
           5.3.2.1.     Precedents
(72)   In its past decisional practice, the Commission has never before assessed the
       geographic scope of the retail distribution of hearing aids.
(73)   In its 2015 decision, the French competition authority analysed the retail market
       for hearing aids both at national level and within a radius of a 25-minute drive
       from each of the relevant points of sales as possible alternative relevant
       geographic market definitions.47 The 2016 decision of the Dutch competition
       authority left the exact geographic definition open, but assessed the retail market
       for hearing aids based on both national and local scope.48
           5.3.2.2.     The Parties’ view
(74)   The Parties submit that the relevant geographic market can be considered
       national in scope, even if hearing aid products are identical globally.
(75)   The Parties consider in particular that there is no need to define regional or local
       markets for the retail distribution of hearing aids.
           5.3.2.3.     The Commission’s assessment
(76)   The market investigation conducted by the Commission indicates that the
       market for the retail distribution of hearing aids is likely local in scope.
44   Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 1.2.
45   Some similarities can exist across specific groups of countries; e.g. between the UK and Ireland.
46   Parties’ response to the Commission's request for information RFI 16, question 15, paragraphs 65
     and 66 and question 20, paragraph 86.
47   French competition authority Decision in Case 15-DCC-115, recitals 13 to 18.
48   Dutch competition authority Decision in Case 16.0721.22 / Sonova - AudioNova, recital 31.
                                                     15
 ---pagebreak--- (77)  On the demand side, end users typically travel limited distances to their hearing
      aid retailers. An overwhelming majority of associations for the hearing impaired
      who responded to the market investigation indicated that patients travelled for
      around 30 minutes or less (by car or using public transportation) to their
      audiologist.49
(78)  Furthermore, on the supply side, a significant number of retailers only operate a
      limited number of stores and, as a result, are only present in a specific
      geographic area.50 Opening another shop in a distinct catchment area may
      involve significant investment and time for these retailers.
(79)  For the purpose of the present case, the Commission concludes that the question
      of whether the geographic market for the retail distribution of hearing aids is
      national or local can be left open as the Transaction does not give rise to
      competition concerns under any plausible geographic market definition.
6.    COMPETITIVE ASSESSMENT
6.1.  Data availability: Market reconstruction
(80)  From the outset, it should be noted that the market share data provided by the
      Parties are not entirely reliable in light of methodological challenges and the
      absence, in many instances, of public information sources. Specifically,
      difficulties in providing an accurate overview of the market are mainly related to
      the presence of local smaller-scale competitors and to the need to allocate sales
      to a specific country in cases where either retailers are active in several countries
      or manufacturers do not sell their products in the national markets themselves
      (i.e. in their own points of sale).
(81)  During the market investigation, the Commission obtained sales data, both in
      value and in volume,51 from the Parties' competitors. This exercise (with all its
      limitations) did not enable the Commission to fully reconstruct the market, but
      suggested, together with data from the Parties' own internal documents, that the
      Parties may have, in several instances, overestimated (at times significantly)
      their respective market shares, especially as regards value market shares.
(82)  In fact, the Commission understands that, due to their various degrees of
      downstream integration at retail level, hearing aid manufacturers do not use
      consistent approaches with respect to reporting wholesale prices. Thus, the
      internal transfer prices at wholesale level do not enable the Commission to
      consistently compare wholesale value sales data between those manufacturers
      that are vertically integrated into downstream retail and those that are not. As a
      result, the Commission considers that (estimated and reconstructed) value
      market shares constitute unreliable indicators of the respective competitors’
      market power. For the purpose of this case, the Commission therefore relies on
      the Parties’ and their competitors’ market share estimates based on volume data.
49   Non-confidential replies to questionnaire Q6 to associations for the hearing impaired, question 21.
50   Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 1.3.
51   Non-confidential replies to questionnaire Q1 to competitors, question 4.
                                                    16
 ---pagebreak--- (83)  Since the volume sales data gathered during the market investigation contains
      confidential information of third parties, the Decision relies on volume data
      provided by the Parties in the Form CO and their replies to the Commission’s
      requests for information, while providing general comments about the accuracy
      of the Parties’ best estimates.
(84)  In any event, and irrespective of the exact market shares, the Commission's
      assessment in this case is complemented by qualitative elements collected
      during the market investigation which, taken together, reflect the competitive
      features of the markets for hearing aids and the Parties' real position on the
      markets.
6.2.  Horizontal non-coordinated effects
      6.2.1.     Legal framework
(85)  Article 2 of the Merger Regulation requires the Commission to examine whether
      notified concentrations are compatible with the internal market, by assessing
      whether they would significantly impede effective competition in the internal
      market or in a substantial part of it.
(86)  The Commission Guidelines on the assessment of horizontal mergers under the
      Council Regulation on the control of concentrations between undertakings 52 (the
      "Horizontal Merger Guidelines") distinguish between two main ways in which
      mergers between actual or potential competitors on the same relevant market
      may significantly impede effective competition, namely non-coordinated effects
      and coordinated effects.
(87)  Non-coordinated effects may significantly impede effective competition by
      eliminating the competitive constraint imposed by each merging party on the
      other, as a result of which the merged entity would have increased market power
      without resorting to coordinated behaviour. In this regard, the Horizontal
      Merger Guidelines consider not only the direct loss of competition between the
      merging firms, but also the reduction in competitive pressure on non-merging
      firms in the same market that could be brought about by the merger.53
      According to recital (25) of the preamble of the Merger Regulation, a significant
      impediment to effective competition can result from the anticompetitive effects
      of a concentration even if the merged entity would not have a dominant position
      on the market concerned.
(88)  The Horizontal Merger Guidelines list a number of factors which may influence
      whether or not significant non-coordinated effects are likely to result from a
      merger, such as the large market shares of the merging firms, the fact that the
      merging firms are close competitors, the limited possibilities for customers to
      switch suppliers or the fact that the merger would eliminate an important
      competitive force.54 Not all of such factors need to be present for the
      Commission to exclude that a proposed concentration would not entail
52   OJ C3, 05.2.2004, p. 5.
53   Horizontal Merger Guidelines, paragraph 24.
54   Horizontal Merger Guidelines, paragraphs 27 to 38.
                                                  17
 ---pagebreak---          significant non-coordinated effects. The list of factors, each of which is not
         necessarily decisive in its own right, is also not exhaustive.
         6.2.2.      Upstream market for the manufacture and wholesale distribution of
                     hearing aids
              6.2.2.1.     Introduction – Competitive features
(89)     To the effect of examining the Transaction the Commission considers
         appropriate to review the following competitive features of the relevant markets
         identified therewith.
Market players
(90)     The market for the manufacture and wholesale distribution of hearing aids is
         characterised by the presence of several competitors of varying size each with
         their own strategy.
(91)     There are six established manufacturers of hearing aids active globally (in order
         of size): Sonova (Switzerland), William Demant (Denmark), Sivantos
         (Singapore), GN (Denmark), Widex (Denmark) and Starkey (US). Each of these
         manufacturers offers a full range of products, covering the full spectrum of
         technical capabilities and price points. Together, these players represent
         approximately [90-100]% of the global production of hearing aids worldwide.55
(92)     In addition, several second-tier players are present in one or more EEA
         countries: small manufacturers such as Berl Hörgeräte Manufaktur (“BHM”,
         Austria), Victofon (Hungary), AcoSound (China), LiSound (China), RION
         (Japan), NewSound (China) or Ear Technic (Turkey).
(93)     Finally, the market comprises retailers with their own manufacturing capacities,
         such as Kind (Germany) with the Audifon brand and GAES (Spain) with the
         Microson brand. These players typically sell their hearing aids through their
         established network of retail stores.
(94)     As a result, the Commission will take into account the diversity of players active
         on the hearing aid markets in its competitive analysis.
Role of innovation
(95)     Hearing aids from different manufacturers are generally comparable in terms of
         technological features. As explained in recital 26, the manufacturing of hearing
         aids is based on well-established technologies and most components can be
         easily outsourced to third-party suppliers. In addition, there is no need to have
         specific intellectual property rights (“IPR”) in order to manufacture hearing
         aids.
(96)     It is only amongst top-of-the-range products that some differentiation starts to be
         apparent. Innovation goes from minor refinements to additional features such as
         connectivity (e.g. with smartphones, direct or indirect connectivity, etc.), and
55      Parties’ internal documents.
                                                  18
 ---pagebreak---         rechargeability. All manufacturers are committed to innovation and devote
        considerable resources to research and development (around […]% of turnover)
        in order to facilitate product innovation. The strong level of innovation is
        reflected in the relatively short product lifecycle of hearing devices (around 18-
        30 months).
(97)    Although each manufacturer may claim to have a particular strength within one
        or more areas of innovation, the market investigation revealed that the newest
        and most sophisticated technologies are gradually integrated by all
        manufacturers in their product portfolios. Therefore, over time, the advanced
        technologies generally become a commodity for all manufacturers. It generally
        takes up to 24 months before a new feature/technology is fully integrated into all
        major manufacturers’ portfolios.56 The consequence of this continuous diffusion
        of innovation is that today's basic performance level is significantly better
        compared to that of five years ago. Newer hearing aids gradually replace older
        ones, which are phased out as they become obsolete.
(98)    IPR mostly become relevant in the context of premium features, such as
        Sivantos’ Own Voice Processing technology. These patents are in place to
        temporarily protect new innovations, but are by no means essential for a new
        entrant. In fact, these proprietary features vary across the established
        manufacturers, each one generally choosing to develop their own IPR rather
        than relying on patents from competitors. In the event that a new entrant chose
        to design a product with premium innovative features they may similarly decide
        to protect their new features with a patent.
(99)    The Parties’ internal documents indicate that, among the six major hearing aid
        manufacturers, the Parties are […]. Post-Transaction, the Merged Entity would
        […]. Similarly, in terms of average R&D investment per hearing aid specific
        patent, each of the Parties […].57
Purchasing patterns
(100)   Hearing aids are distributed (either directly by hearing aid manufacturers or
        through third-party distributors) through a variety of channels: private retailers
        including independent stores, multinational audiology chains, optical chains as
        well as purchasing groups, but also public procurement authorities.
(101)   Purchasing processes differ significantly between EEA countries, although some
        trends may be observed across EEA countries.
(102)   First, there is an increasing vertical integration into retail of some of the main
        hearing aid manufacturers. Most notably, Sonova and William Demant, have
        adopted vertical integration strategies in several EEA countries, which have
        typically resulted in a loss of business for manufacturers who previously
        supplied those retailers while they were still independent. For example, when
        AudioNova, one of the largest retail chains across several EEA countries, was
        acquired by Sonova, it essentially stopped procuring hearing aids from the
56    Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 56 and non-
      confidential replies to questionnaire Q3 to large retail chains, question 79.
57    Parties’ internal documents.
                                                       19
 ---pagebreak---         Parties and other competing manufacturers. As a consequence, competition for
        the remainder of the retail customers has further intensified. While hearing aids
        are still mainly sold through independent dispensers, this development has
        resulted in an increased competition to win this important part of the retail
        market.
(103)   Second, there is an increasing presence of large independent national and
        international audiological and optical chains (such as Amplifon, Specsavers,
        Neuroth, Fielmann, Optical Center, and Alain Afflelou) on the market. These
        chains increase competition at retail level and thus create a price pressure on
        hearing aid manufacturers.
(104)   Third, audiologists in most EEA countries tend to pursue a multi-sourcing
        strategy and stock products from at least three different manufacturers.58
(105)   As patients typically have very little awareness of the different hearing aid
        brands available on the market,59 audiologists are generally able to switch
        supplier without fear of losing patients. There are no must-have brands or
        products,60 and all manufacturers offer a broadly similar product range covering
        the full spectrum of customer needs, with very few exceptions,61 and switching
        can thus easily occur. As a matter of example, in [EEA country] and [EEA
        country], [name of retailer] stopped carrying Sivantos in favour of […] despite
        Sivantos having […].
(106)   Furthermore, a retailer who starts carrying hearing aids from a new
        manufacturer will typically require the supply of the manufacturer-specific
        software and adequate training for the retailer’s audiologists. In most Member
        States, the manufacturer will bear the majority of these costs.62 For the retailer,
        therefore, the main switching cost is the time commitment associated with the
        training of its employees, including training around the new product’s features,
        how they need to be fitted and any corresponding software.63 Depending on the
        size of the retailer (e.g., a small independent or a large chain) the required
        training can be completed in as little as one day and possibly some sessions of
        follow-up training.64
58    Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 15 and non-
      confidential replies to questionnaire Q3 to large retail chains, question 24.
59    Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 45 and non-
      confidential replies to questionnaire Q3 to large retail chains, question 45.
60    Non-confidential replies to questionnaire Q2 to retailers of hearing aids, questions 9 and 15 to 17
      and non-confidential replies to questionnaire Q3 to large retail chains, questions 14 and 20 to 22.
61    Non-confidential replies to questionnaire Q2 to retailers of hearing aids, questions 9 and 10 and
      non-confidential replies to questionnaire Q3 to large retail chains, questions 14 and 15.
62    By default, Sivantos offers continual support to retailers through fitting software, training material
      and content, free of cost. The only extra costs potentially taken on by retailers are their own
      additional on-site trainings which is decided by the sales representative individually. Widex does
      – in principle – not charge for providing training or Widex-specific software to any retailers in any
      countries.
63    Non-confidential replies to questionnaire Q2 to retailers of hearing aids, questions 30 and 36 and
      non-confidential replies to questionnaire Q3 to large retail chains, questions 56 and 62.
64    Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 30 and non-
      confidential replies to questionnaire Q3 to large retail chains, question 56.
                                                       20
 ---pagebreak--- Barriers to entry and expansion
(107)    The market investigation indicates that there are relatively limited barriers to
         expansion for existing hearing aid manufacturers. Replies to the market
         investigation confirmed that all major manufacturers have the capability to
         regularly develop new hearing aid models, expand their product portfolios and
         adapt these to the changing needs, demands and technological shifts in the
         market.65
(108)    The Parties consider that barriers to entry are equally low for new entrants, and
         that the rising attractiveness of the hearing aid market is expected to attract entry
         by new market players active in neighbouring markets.
(109)    While internal documents of the Parties confirm that players active in
         neighbouring markets such as Cochlear, Samsung, Bose, Apple or Panasonic
         individually file a substantial number of patents related to the hearing aid space
         (sometimes more than each of the Parties),66 the Commission considers that
         barriers to entry for a new entrant are significant.
(110)    In fact, the Commission considers that, beyond the necessary regulatory
         approvals and significant initial R&D investments required to set up a complete
         product portfolio of hearing aids, a new entrant would further need to hire and
         form a qualified wholesale sales force in order to be able to effectively compete
         in the industry. Results of the market investigation further confirm that
         economies of scale are important in order to be able to offer attractive pricing
         conditions to retailers, which implies that a new entrant manufacturer would
         need to gain retailers’ loyalty and achieve a minimum efficient scale in order to
         be competitive on price.67 Given the fast pace of incremental innovation in the
         industry, characterised by the introduction of new technological features, a new
         entrant would similarly need to capture a non-negligible market share before
         being able to sustainably finance an effective R&D department and be
         competitive in terms of technological features.
(111)    The majority of competitors that participated in the Commission’s market
         investigation indicated that they do not expect any new hearing aid manufacturer
         to enter the hearing aid industry in the next three years. 68 Respondents that
         indicated that they expected new entrants referred exclusively to large
         manufacturers of consumer electronic goods active in neighbouring markets.
         Several of these referred to Bose, that announced in October 2018 that they
         would enter the over-the-counter hearing aid market in the US.
(112)    Conclusively, the Commission considers that possible market entries cannot be
         expected to happen soon with respect to EEA countries as medical devices
         cannot currently be sold over-the-counter in the EEA and accordingly this is a
         relevant factor for the competitive assessment of the Transaction.
65     Non-confidential replies to questionnaire Q7 to competitors, questions 10 and 11.
66     Parties’ internal documents.
67     Non-confidential replies to questionnaire Q2 to retailers of hearing aids, questions 35.2 and 36 and
       non-confidential replies to questionnaire Q3 to large retail chains, questions 61.2 and 62.
68     Non-confidential replies to questionnaire Q1 to competitors, question 61.
                                                       21
 ---pagebreak---  ---pagebreak--- (118)     The market investigation also confirmed the Parties’ claim that there are no
          barriers to expansion for existing manufacturers, in particular since virtually all
          responding hearing manufacturers indicated that they have sufficient capacity to
          meet an increase in demand of 5-10%.71
(119)     Due to the limited market shares of the Parties, and the presence of strong
          competitors at EEA level, the Commission considers that the Transaction does
          not raise serious doubts as to its compatibility with the internal market with
          regard to horizontal non-coordinated effects in the possible market for the
          production and wholesale of hearing aids at EEA level.
               6.2.2.3.    Competitive assessment: national level
(120)     Based on the Parties’ market share estimates, the Commission finds that with
          respect to the possible national markets for the manufacture and wholesale
          distribution of hearing aids, the Transaction would give rise to horizontally
          affected markets in Austria, Belgium, Bulgaria, Croatia, Czechia, Denmark,
          France, Germany, Greece, Hungary, Iceland, Ireland, Latvia, Lithuania, Malta,
          Luxembourg, the Netherlands, Norway, Poland, Portugal, Romania, Slovakia,
          Slovenia, Spain, Sweden and the United Kingdom.72
Austria
(121)     The distinction between public and private markets as described in recital 49
          above is not applicable for Austria as hearing aids are exclusively dispensed
          through private retail stores (be it independent stores or large chains).
(122)     Austria is a well-developed market with around 92 100 units dispensed through
          around 600 points of sale.
(123)     Austria has a reimbursement system where the National Health Insurance
          subsidises patients from EUR 792 for the purchase of a hearing aid and the
          fitting (or EUR 1 425 in case of binaural hearing aids) to EUR 2 100 (or
          EUR 3 780 in case of binaural hearing aids) every six years.73 To the Parties’
          best knowledge, all their hearing aids, as well as their competitors’ products, are
          eligible for reimbursement. The average sale price (“ASP”) of hearing aids in
          Austria at wholesale level is EUR 198, which is lower than the EU-wide ASP of
          EUR 255. The average retail price of the audiologist is comprised between
          EUR [1 000-1 550].74
(124)     Neither Party has a local presence at wholesale level in Austria. Sivantos is
          active through its German affiliate, Sivantos GmbH, through which it sells
71      Non-confidential replies to questionnaire Q7 to competitors, question 5.
72      The Parties’ activities do not give rise to affected markets in each of Cyprus, Finland and Italy and
        do not overlap in Estonia, as Widex is not active in this EEA country and in Liechtenstein where
        neither Party is active. Moreover, based on the Parties’ market share estimates, no affected market
        arises in Finland even if the public and the private markets for the manufacture and wholesale
        distribution of hearing aids were assessed separately.
73      Including VAT. Special provision for people working in difficult noisy environment or due to
        special audiological requirements: up to EUR 1 750 for one hearing aid, EUR 3 150 in case of
        binaural hearing aids.
74      Parties’ response to the Commission's request for information RFI 19, questions 1 and 3.
                                                          23
 ---pagebreak---  ---pagebreak--- (129)    In addition, no respondent to the market investigation, and in particular retailers
         active in Austria, raised substantiated concerns in relation to the Transaction.76
         One respondent pointed out that, in general, a large number of hearing aid
         manufacturers guarantees a greater choice of products for retailers and end-
         users. However, this respondent also acknowledged that if market conditions
         were to change, it may consider the possibility of entering into contracts with
         other potential suppliers, the number of alternative manufacturers on the market
         post-Transaction being sufficient.77
(130)    The Commission, taking into consideration all of the above, including the results
         of the market investigation, concludes that the Transaction does not raise serious
         doubts as to its compatibility with the internal market in relation to the
         manufacture and wholesale distribution of hearing aids in Austria.
Belgium
(131)    The distinction between public and private markets as described in recital 49
         above is not applicable for Belgium as hearing aids are exclusively dispensed
         through private retail stores (be it independent stores or large multinational
         chains).
(132)    Belgium is a well-developed market with around 103 000 units dispensed
         through around 680 points of sale. Patients suffering from a hearing loss of at
         least 40 dB (moderate hearing loss) are eligible for reimbursement from Belgian
         health insurance of EUR 680 per hearing aid every five years (children receive
         up to EUR 1 300 per ear every three years). The ASP of hearing aids in Belgium
         at wholesale level is EUR 348, which is higher than the EU-wide ASP of
         EUR 255. The average retail price including the fitting fees of the audiologist is
         comprised between EUR [1 000-1 500].78
(133)    Manufacturers who wish to distribute their hearing aids under the public
         reimbursement system in Belgium need to follow a two-step homologation
         process: (i) first, in order to sell hearing aids in Belgium, manufacturers need to
         register the maximum price for their hearing aids with the Ministry of Economic
         Affairs on a product level, and (ii) second, in order to have hearing aids eligible
         for reimbursement in Belgium, manufacturers need to request the listing of the
         hearing aids with RIZIV (part of the Ministry of Health). In practice, the vast
         majority of hearing aids sold in Belgian are registered with both the Ministry of
         Economic Affairs and RIZIV.
(134)    Neither Party has a local presence at wholesale level in Belgium. Both Parties
         sell hearing aids to the [a customer] (who resells part of its stock to independent
         retailers). In addition, Sivantos sells its Signia branded hearing aids to [a
         customer], and its AudioService branded hearing aids to independent retailers.
76     Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 59 and non-
       confidential replies to questionnaire Q3 to large retail chains, questions 82 and 83.
77     Non-confidential minutes of the call with a retailer active in Austria of 31 October 2018.
78     Parties’ response to the Commission's request for information RFI 19, questions 1 and 3.
                                                        25
 ---pagebreak---  ---pagebreak---          doubts as to its compatibility with the internal market in relation to the
         manufacture and wholesale distribution of hearing aids in Belgium.
Bulgaria
(140)    The distinction between public and private markets as described in recital 49
         above is not applicable for Bulgaria as hearing aids are exclusively dispensed
         through retail stores.
               Regulatory background
(141)    While there is a public healthcare financing system in Bulgaria, nearly half of all
         hearing aids purchased in Bulgaria are not covered by any reimbursement.
(142)    The national health insurance scheme provides a flat reimbursement of EUR
         200-220 per hearing aid for all adults every 5-6 years (depending on the
         employment situation). Children benefit from an increased reimbursement rate.
(143)    In order to be eligible for reimbursement, a hearing aid must be registered with
         the Ministry of Health. For this purpose, a hearing aid model has to meet a
         number of technical requirements. In practice, local distributors are the ones that
         carry out this registration process.
(144)    As of 2018, the Bulgarian government introduced a new reimbursement system
         relying on vouchers. Under this new scheme, a patient will be allowed to pay
         with a voucher corresponding to the eligible reimbursement and the retailer
         (instead of the patient) will have to obtain reimbursement from the national
         health insurance system.
               The Parties' and their competitors' market shares in Bulgaria
(145)    Widex’s hearing aids are […] dispensed by [a customer] who sells the […] and
         […] other retailers.81 Sivantos operates in Bulgaria through three third-party
         distributors, [a distributor], [a distributor] and [a distributor], which are also
         active at retail level through their respective retail stores.
(146)    All the other major manufacturers are active in Bulgaria. While Sonova and
         Starkey are active in this country through a local wholesale subsidiary, GN and
         William Demant rely on local third-party distributors, which are typically
         vertically integrated into the retail market.
(147)    The Parties provided market share estimates for all manufacturers active in
         Bulgaria from 2015 to 2017.
81     The Notifying Parties estimate that there are about 200 to 250 retail points of sales in Bulgaria.
                                                       27
 ---pagebreak---  ---pagebreak---  ---pagebreak--- (156)   The market reconstruction undertaken by the Commission slightly differs and
        indicates that the combined market shares of the Parties in Croatia would lead to
        an affected market but would remain below 25%, with a minor increment
        (< 5%) brought about by Sivantos. The Transaction is thus unlikely to raise
        concerns on this market.87
(157)   Post-Transaction, the Parties would continue to be constrained by Sonova, the
        market leader in Croatia, as well as William Demant, and to a more limited
        extent Starkey and GN, as confirmed by the Commission’s market
        reconstruction. Second-tier manufacturers active in Croatia include BHM. The
        Merged Entity would therefore continue to face significant competition from a
        number of strong players in Croatia.
(158)   Finally, no respondent to the market investigation, and in particular retailers
        active in Croatia, raised concerns in relation to the Transaction.88
(159)   The Commission, taking into consideration all of the above, including the results
        of the market investigation, concludes that the Transaction does not raise serious
        doubts as to its compatibility with the internal market in relation to the
        manufacture and wholesale supply of hearing aids in Croatia.
Czechia
(160)   The distinction between public and private markets as described in recital 49
        above is not applicable for Czechia as hearing aids in Czechia are exclusively
        dispensed through authorised ENTs.
(161)   All major manufacturers of hearing aids, as well as a number of second-tier
        players, are active in Czechia. The Parties, GN and Audifon have a direct
        presence through a local wholesale affiliate. By contrast, Sonova, William
        Demant, Starkey and other second-tier players are active through third-party
        distributors.
              Regulatory background
(162)   Contrary to the situation in the majority of EEA countries, hearing aids in
        Czechia can only be dispensed through a regulated number of ENTs (comprised
        between 135 and 145 authorized ENTs). The price of hearing aids in Czechia is
        regulated in the sense that prior to being put on the market every device needs to
        be registered with the public insurance body, at which point in time the price of
        the device is set and cannot be changed by manufacturers over the device’s
        lifetime. The maximum mark-up that suppliers (i.e. manufacturers selling
        hearing aids directly to ENTs and third-party distributors) can apply to the price
        of registered hearing aids is fixed at 15%. ENTs cannot apply any mark-up to
        the wholesale price of hearing aids (i.e. the price at which the hearing aid is
        registered, plus the 15% mark-up of the supplier). ENTs are remunerated for
        providing fitting services with a flat fee.
87     Horizontal Merger Guidelines, paragraph 18.
88     Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 59.
                                                      30
 ---pagebreak--- (163)   Historically, Czechia had been characterized by low reimbursement levels89 and
        a low frequency of registration of new products (limited by law to twice per
        year). Low reimbursement rates translated into few high-end products being sold
        on the market. Since 1 January 2019, the reimbursement level of hearing aids
        has been substantially raised,90 which is expected to shift the market towards
        higher-end products.
(164)   As far as the relationship between hearing aid wholesalers and ENTs is
        concerned, the regulatory framework governing the sale of hearing aids in
        Czechia dictates that ENTs are obliged to offer a choice among at least three
        different manufacturers of hearing aids in order to qualify for reimbursement by
        the health insurance providers.91
(165)   In practice, The Commission finds that ENTs typically follow the VZP
        guidelines and offer hearing aids from at least three different manufacturers for
        patients to choose from.92 A majority of dispensers indeed confirmed that
        “[a]ccording to Czech law, I need to offer different suppliers”93 or that offering
        products from a single supplier “is not possible by law”.94
               The Parties' and their competitors' market shares in Czechia
(166)   All the main manufacturers of hearing aids, as well as a number of second-tier
        players, are active in Czechia. The Parties, GN and Audifon have a direct
        presence through a local wholesale affiliate. By contrast, Sonova, William
        Demant and Starkey are active through third-party distributors.95 Moreover,
        Widex has a very small96 presence at retail level since Widex is the part-time
89    CZK 2 700 for patients with mild to moderate hearing losses; CZK 3 900 for patients with
      moderate to severe hearing losses; CZK 5 100 for patients with severe to profound hearing losses.
      The Notifying Parties explain that the vast majority of hearing aids dispensed in Czechia are
      nevertheless (fully or partially) covered by the reimbursement scheme.
90    CZK 6 087 (for adults) and CZK 8 696 (for children below 18 years old) for hearing loss of at
      least 30dB (i.e. even mild hearing losses are covered by the increased reimbursement level).
91    Official guidelines of the National Insurance Company (Všeobecná zdravotní pojistovna – VZP),
      owned and managed by the State: “For every hearing impaired insured person, it is necessary to
      ensure subjective testing of a hearing aid of the same category from at least three manufacturers
      listed in the Payment Catalog.” (convenience translation of extract provided on page 28 of the
      official VZP guidelines.)
92    Non-confidential replies to questionnaire Q2 to retailers of hearing aids, questions 16 and 18;
      Non-confidential replies to questionnaire Q8 to ENTs active in Czechia, questions 6 and 7;
      websites of common customers of the Notifying Parties (www.prosluch.cz/ceny.ph,
      http://www.poliklinika-budejovicka.cz/foniatrie,           http://www.orlvary.cz/en/sluchadla html,
      http://www.foniatrie-uh.cz/sluzby/sluchadla/) consulted on 29 January 2019.
93    Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 16.
94    Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 18.
95    While the Transaction brings together two out of the four hearing aid manufacturers with local
      wholesale operations, results of the market investigation did not confirm that a local presence was
      critical for being successful in Czechia and ENTs who responded to the market investigation
      unanimously confirmed that they would still continue dispensing hearing aids of a particular
      manufacturer even in the absence of a local wholesale presence. Non-confidential replies to
      questionnaire Q8 to ENTs active in Czechia, question 11.
96    In 2017, Widex’s market share was less than [0-5]% of the Czech retail market. While the
      Transaction theoretically gives rise to a vertically affected relationship between the upstream
      wholesale market and the downstream retail market, customers and input foreclosure concerns are
      unlikely to arise due to Widex’s immaterial activity in the retail market.
                                                       31
 ---pagebreak---  ---pagebreak---        likely lead to a higher attractiveness of the Czech market and potentially to new
       market entries and/or increased efforts by established market players. Finally,
       they argue that the Parties are not close competitors, as Sonova and GN offer a
       similar range of products to Widex in Czechia and that, in any event, the
       Transaction would not lead to the elimination of an important competitive force
       in this country.
             The Commission’s assessment
(170)  First, the Commission notes that all major players, some of which having a local
       presence (like Audifon with both a wholesale and retail presence), are active in
       Czechia alongside the Parties. Besides the major players, second-tier
       competitors such as Audifon, BHM, Horentek and NewSound (China) and a
       couple of local players such as Anticer and Fonika are active in Czechia.100 The
       current relatively higher market share of Widex ([50-60]% according to the
       Parties; lower according to the Commission’s market reconstruction) was
       explained during the market investigation by respondents as stemming from its
       historical first-mover advantage. Respondents explain that Widex was the first
       hearing aid manufacturer to enter the Czech market in the 1990s101 and thus
       effectively started its business activity in Czechia with a 100% market share.
       The erosion of Widex’s market share is illustrated by sales of current
       competitors active in Czechia. For instance, Sonova’s distributor of hearing aids
       entered the Czech market 9 years ago102 and currently holds a market share of
       more than 8%.
(171)  Second, the competitive landscape in Czechia is expected to be reshuffled as a
       result of the entry into force of a new regulation in January 2019. The increase
       of the reimbursement level is expected to shift demand to higher-end products,
       which in turn will render the Czech market more attractive to manufacturers. In
       addition, suppliers can now register hearing aids on a monthly basis (rather than
       just twice a year). This likely effect was largely confirmed during the market
       investigation.103 ENTs who responded to the market investigation shared their
       intention to dispense higher-end and more expensive hearing aid products,
       potentially from alternative manufacturers, as a result of the new regulation.104
(172)  Third, the fact that ENTs propose hearing aids from at least three suppliers (as
       imposed by the official VZP guidelines in order for an ENT to qualify for
       reimbursement by health insurance providers) further guarantees the ability of
       patients to switch between suppliers. In this respect, respondents to the
       Commission’s market investigation indicated that price plays a significant role
       and, should the Merged Entity increase prices post-Transaction, they would
       have sufficient choice of products by other manufacturers to offer to their
       patients generally unwilling (or unable) to pay extra amounts.105 The fact that,
       ENTs offer products from several suppliers, implies that ENTs who currently
100   Annexes 165-167 to the Form CO.
101   Non-confidential minutes of the call with a competitor of 19 November 2018.
102   Non-confidential minutes of the call with a third-party distributor active in Czechia of 21
      November 2018.
103   Non-confidential replies to questionnaire Q8 to ENTs active in Czechia, question 22.
104   Non-confidential replies to questionnaire Q8 to ENTs active in Czechia, question 18.
105   Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 43.
                                                     33
 ---pagebreak---        offer the two Parties’ products to their patients will likely introduce new
       manufacturers into their portfolio post-Transaction.
(173)  One third-party distributor considers that the Transaction would reinforce the
       Merged Entity’s capability “to reach out to even more ENTs and allocate
       significant funds to engage in additional marketing activities (in many cases
       focused on existing technologies, and neglecting the benefits of new generations
       of products)”106 However, such outcome may actually increase the competitive
       pressure existing in the market. As explained above, the new regulatory system
       in Czechia is expected to facilitate the introduction of hearing aids including
       newer technologies. Given that ENTs typically provide products from three
       different manufacturers, the combination of Widex and Sivantos is likely to lead
       ENTs who dispense products from both to introduce new manufacturers in their
       portfolio.
(174)  The Commission, taking into consideration all of the above, including the results
       of the market investigation, concludes that the Transaction does not raise serious
       doubts as to its compatibility with the internal market in relation to the
       manufacture and wholesale supply of hearing aids in Czechia.
Denmark
(175)  With 158 000 hearing aids sold in 2017, Denmark is the ninth largest market for
       hearing aids in the EEA. The Danish hearing aid market is around 50% public
       (sales of hearing aids to a public procurement authority based on tendering
       procedures) and 50% private (sales of hearing aids to private retail stores based
       on bilateral negotiations). In line with the market definitions presented in recital
       49 above, the Commission assesses the impact of the Transaction on the public
       and private markets for the manufacture and wholesale distribution of hearing
       aids separately.
(176)  According to the Parties’ best estimates, the ASP of hearing aids at wholesale
       level in the private sector was EUR 284 per hearing instrument (unit) and EUR
       236 per hearing instrument (unit) in the public sector. The average retail price
       however varies significantly: while hearing aids are provided free of charge on
       the public market, the price of hearing aids is approximately EUR […] on the
       private retail market.107 Patients in the private sector will however receive a
       reimbursement of EUR 552 for one ear and EUR 870 for both ears, every four
       years.
(177)  All major hearing aid manufacturers except for Starkey are present in
       Denmark.108 Widex is active in Denmark with both a wholesale subsidiary and a
       retail presence. Sivantos only has a wholesale presence in Denmark, through a
       local subsidiary.
106   Non-confidential minutes of the call with a third-party distributor active in Czechia of 21
      November 2018.
107   Parties’ response to the Commission's request for information RFI 19, question 3.
108   Starkey recently entered the private retail market in Denmark through a third-party distributor.
                                                      34
 ---pagebreak---  ---pagebreak---         several categories, ranging from A to D, depending on the patients' needs and
        use of the hearing aids.109
(182)   As part of its selection process, AMGROS pre-qualifies suppliers whose
        products meet the technical requirements set for each product category. It then
        selects the three to five bidders (depending on the category) offering the lowest
        prices. 110 Suppliers selected by AMGROS are publicly ranked according to the
        price of their hearing aids (from the cheapest to the most expensive) within each
        of the tender categories. Once listed, the price of hearing aids is fixed for each
        category for the duration of the tender. Qualified suppliers may introduce newer
        versions of their hearing aids (in replacement of older models listed by
        AMGROS) every 6 months but at the same price as agreed upon in the
        framework contract.
(183)   Contracts resulting from the AMGROS’s tenders typically run for two to four
        years: an initial period of two years is provided with the possibility for
        AMGROS of prolonging it by 1+1 years. Therefore, contracts resulting from the
        latest AMGROS’s tender will run at least until August 2019. According to
        AMGROS, they are however likely to be extended until August 2021.111
(184)   ENTs dispense hearing aids from the AMGROS list. In theory, they must
        prescribe products within the relevant AMGROS category and according to the
        ranking, unless they can prove that the device does not meet the patient’s needs.
        In practice, categories are not mutually exclusive and ENTs have a margin of
        discretion in determining to which category a patient belongs. 112 In addition,
        ENTs may also dispense hearing aids outside of the AMGROS framework; this
        situation is rare and typically occurs with returning patients used to a specific
        brand of hearing aids, or for paediatric hearing aids. This practice is however
        declining and mostly limited to some niche product categories.
(185)   All major global manufacturers participate in AMGROS tender with one or
        more affiliates, except for Starkey, which is currently not present on the public
        segment of the Danish market.
109   For instance, within the level 2 (hearing aids for patients with tinnitus), category 2A addresses
      very high complexity tinnitus, category 2B addresses high complexity tinnitus, 2C moderate
      complexity tinnitus and 2D less complex tinnitus.
110   Since AMGROS allows companies to submit multiple bids through different affiliates within a
      same tender category (subject to the participation with different products), in practice there are
      often less than 3 to 5 hearing aid suppliers in each tender category. As an example […].
111   Non-confidential minutes of the call with AMGROS of 3 December 2018.
112   Non-confidential replies to questionnaire Q10 to ENTs in Denmark, questions 5 and 6.
                                                        36
 ---pagebreak---  ---pagebreak---  ---pagebreak--- (194)  As explained above, AMGROS’s tenders are used to select preferred suppliers
       following a competitive process ultimately based on price competition. As a
       result of this process, competition on the public market in Denmark first takes
       place “for the market” (to be listed by AMGROS) and, “in the market”, once
       listed by AMGROS, in order for manufacturers’ products to be dispensed by
       ENTs.
(195)  The Commission investigated the extent to which the AMGROS tender makes
       the Danish public market competitive. To this end, AMGROS provided the
       Commission with share data for the 12 months preceding the entry into force of
       the 2017 tender and the 12 months following the entry into force of the 2017
       tender. This data enabled the Commission to assess the extent to which
       AMGROS’s tenders have had an impact of the competitive landscape of the
       public market in Denmark. It shows that GN, who was ranked in only one tender
       category in the 2014 tender (category accounting for only [0-5]% of the total
       number of hearing aids on the public market in Denmark)115, qualified for 11 out
       of the 21 tender categories of the 2017 tender (categories accounting for more
       than [20-30]% of the total number of hearing aids on the public market in
       Denmark) and increased significantly its market position on the public market
       within a short period of time. Conversely, while William Demant was selected
       in 14 tender categories out of 24 tender categories in 2014 (categories
       accounting for almost [70-80]% of the total number of hearing aids on the public
       market in Denmark), it was less successful in the 2017 tender and secured
       position in only four categories (categories accounting for slightly more than
       half of the total number of hearing aids on the public market in Denmark). This
       had a direct impact on its market share which decreased in 2018.
(196)  These market share fluctuations evidence the importance of being selected by
       AMGROS in order to be successful on the public market. Securing a position in
       the AMGROS tender is crucial to increase sales and gain exposure on the public
       market. Consequently, suppliers have an incentive to bid with a low price; any
       other strategy would put the supplier at risk of not being listed at all by
       AMGROS. This is confirmed by the results of the market investigation. In this
       respect, one participant stressed that the key factor to be successful in
       AMGROS’s tenders is “to offer low prices”.116 This is explained by the fact that
       only the three to five suppliers with the lowest price (potentially the same
       undertaking as manufacturers are allowed to place several bids through different
       affiliates or distributors) will be selected.
(197)  The volatility of the AMGROS tender results (and as a result of the
       manufacturers’ market shares) illustrates the contestability of the public market
       in Denmark: the 2014 and 2017 tender results in particular show that previously
       successful manufacturers can lose most of their winning positions and
       previously small players can become important suppliers from one tender to the
       next. Competition is also strong within each individual tender categories: each
       tender category generally comprises a sufficient number of alternative suppliers
       (either actual competitors who have been selected by AMGROS or potential
       competitors whose bid was not ultimately selected) who will continue to be a
115   See Economic analysis submitted by the Parties, Annex 185 to the Form CO.
116   Non-confidential replies to questionnaire Q7 to competitors, questions 31 and 32.
                                                     39
 ---pagebreak---         significant competitive constraint on the Merged Entity. A less competitive price
        strategy by the Merged Entity post-Transaction (i.e. in future tenders) would
        likely translate into an increased risk of losing winning positions, and
        consequently increase the market shares of other manufacturers.
(198)   In that regard, the data provided by the Parties (in line with AMGROS’s data)
        enabled the Commission to assess the level of competition in the market: while
        Sivantos was selected in almost all categories of both the 2017 and the 2014
        tenders (each time being represented in product categories accounting for
        virtually all sales on the public market), its market share fluctuated within each
        tender period. Similarly, respondents to the market investigation pointed out that
        William Demant recently launched an aggressive marketing campaign to
        promote its newer products.117 Thus, despite being listed in fewer categories in
        2017 (compared to the 2014 tender) and as a result having lost market share
        following the entry into force of the 2017 tender, William Demant is expected to
        re-gain market share in the short term primarily by increasing its share in the
        categories in which it was selected. ENTs also indicate that, since listed
        manufacturers are allowed to update their product twice a year within the
        framework of the AMGROS tenders, manufacturers that introduce newer
        products, tend to be rewarded by increased prescriptions from ENTs in the
        categories for which they have been selected.118
(199)   There are however four tender categories (2C for moderate complexity tinnitus
        as well as the three categories belonging to the level 4) where the Parties were
        the only manufacturers selected in the 2017 tender. The Commission first notes
        that these are ‘niche’ categories characterised by low sales volumes (together
        accounting for less than 5% of the total sales of hearing aids on the public
        market in Denmark in 2017). Second, the Commission recalls that it is not
        possible to change the price of a product during the entire duration of the tender
        that is in this case likely to run until September 2021.119
(200)   Finally, as concerns the future tenders, the definition of individual categories
        regularly evolves with each tender, and AMGROS can design categories
        ensuring it will receive bids from a sufficient number of manufacturers.
        Historically, there has been a trend in AMGROS tenders towards a reduction of
        the number of categories (from 32 in 2012, to 24 in 2014, and 21 in 2017). In
        future tenders, AMGROS would thus be able to redefine the categories where
        only the parties were successful in the 2017 tender, with a view to attracting
        more bidders. Moreover, even if the categories were to remain unchanged, the
        market investigation indicated that the Merged Entity would continue to be
        subject to sufficient competitive constraints.
(201)   Specifically, as regards category 2C three products have been selected in the
        current tender, namely products of two affiliates of Sivantos and one affiliate of
        Widex. However, bidding data shows that several other companies have
        products responding to the technical requirements of this category and indeed
        submitted a bid for this category. Although in this specific tender they were not
117   Non-confidential minutes of the call with an ENT active in Denmark of 7 December 2018; non-
      confidential minutes of the call with an ENT active in Denmark of 14 December 2018.
118   Non-confidential minutes of the call with an ENT active in Denmark of 14 December 2018.
119   Non-confidential minutes of the call with AMGROS of 3 December 2018.
                                                     40
 ---pagebreak---         successful, in the future tenders they will exert a competitive constraint on the
        Merged Entity.
(202)   This is also true concerning categories 4A, 4B, and 4D (CROS/Bi-CROS
        categories) for which three products have been selected in each of these
        categories in the current tender, namely products of either two affiliates of
        Sivantos and one affiliate of Widex or two affiliates of Widex and one affiliate
        of Sivantos. However, the market investigation revealed that Sonova, who was
        the only manufacturer supplying CROS/Bi-CROS hearing aids to the public
        market in Denmark prior to the 2017 tender, still enjoys a relatively important
        market presence due to its reputation on the market120 and despite not having
        been listed by AMGROS.121 Sonova is also expected to exert a strong
        competitive constraint on the Parties in future tenders. In addition, other
        manufacturers, such as William Demant offers an alternative solution to
        traditional CROS/Bi-CROS hearing aids in order to treat unilateral hearing loss;
        to the best of William Demant’s knowledge, his competing product qualify for
        CROS/Bi-CROS tender’s categories.122 Finally, other manufacturers not
        currently active on the public market in Denmark (e.g. Starkey and second tier
        manufacturer BHM) have CROS/Bi-CROS products in their portfolios and
        could participate, either directly or through a third-party distributor, in future
        tenders.123
(203)   Finally, respondents to the market investigation did not raise substantiated
        concerns in relation to the Transaction.
(204)   From the point of view of ENTs, which largely determine the commercial
        success of manufacturers whose products are listed by AMGROS, the market
        investigation did not point to any manufacturer being more successful in terms
        of the quality of its products, breadth of its portfolio, services or prices,
        compared to other players.124 ENTs are equipped with the fitting software of all
        manufacturers selected by AMGROS and usually do not have a single preferred
        supplier. The ENTs having responded to the market investigation considered
        that all manufacturers active in Denmark constitute credible suppliers of hearing
        aids on the public market.125
120   One ENT indicated that “[a]s concerns CROS/BiCROS devices more particularly, the ENT Doctor
      does not expect the transaction to have an impact on the availability or price of these products
      since Sonova is the leading and preferred hearing aid supplier of CROS/BiCROS devices in
      Denmark”; Non-confidential minutes of the call with an ENT active in Denmark of 7 December
      2018.
121   One ENT active in Denmark explained that “CROS/BiCROS devices cover the majority of hearing
      aids within the 5% products prescribed by ENTs outside the AMGROS lists (this is explained by
      the fact that Sonova was the first company to introduce CROS/BiCROS solutions; patients whose
      first hearing aids were from Sonova typically request the same brand when renewing their
      hearing aids)”; Non-confidential minutes of the call with an ENT active in Denmark of 12
      December 2018.
122   Non-confidential replies to questionnaire Q7 to competitors, question 7.1.3.
123   Non-confidential replies to questionnaire Q1 to competitors, question 4 and non-confidential
      replies to questionnaire Q7 to competitors, question 6.
124   Non-confidential replies to questionnaire Q10 to ENTs in Denmark, questions 18 and 19.
125   Non-confidential replies to questionnaire Q10 to ENTs in Denmark, question 17.
                                                     41
 ---pagebreak--- (205)    Moreover, while AMGROS noted the reduction in the number of players active
         on the public market in Denmark, it also indicated that the market would remain
         competitive, with other players being able to constrain the Merged Entity.
         According to AMGROS, if a manufacturer were to increase its price in the next
         tender, AMGROS believes it would be able to select alternative suppliers with
         lower prices and comparable product quality.126
(206)    The Commission, taking into consideration all of the above, including the results
         of the market investigation, concludes that the Transaction does not raise serious
         doubts as to its compatibility with the internal market in relation to the
         manufacture and wholesale supply of hearing aids in Denmark.
France
(207)    The distinction between public and private markets, as described in recital 49
         above, is not applicable for France as hearing aids are exclusively dispensed
         through private retail stores (be it independent stores or large multinational
         chains).
(208)    France is one of the largest markets for hearing aids in the EEA with around
         753 000 units sold in 2017 and more than EUR 240 million in turnover. Due to
         an increase in the proportion of over 65-year olds, who are most likely to require
         a hearing aid, the market for hearing aids in France has been growing strongly
         and steadily for the last 20 years with an average annual market growth rate of
         6%.
(209)    The market is entirely private, with a flat reimbursement of EUR 120 per
         hearing aid provided by the French social security. 127 Optional complementary
         healthcare providers offer an average reimbursement of EUR 400 per hearing
         aid.128
(210)    The ASP of hearing aids in France at wholesale level is EUR 314, which is
         higher than the EU-wide ASP of EUR 255. The average retail price including
         the fitting fees of the audiologist reaches EUR 1 500.129
(211)    Despite the low reimbursement rate, the high average retail price, and the high
         co-payments that need to be made by patients, the penetration rate in France is
         relatively high. Premium hearing aids form a larger proportion of the French
         market than other major European markets, since those patients who can afford
         a hearing aid, and have to make significant co-payments in any event, often opt
         to buy the best devices.130
(212)    A recent governmental proposal, which entered into force on 1st January 2019,
         provides for a gradual introduction by 2021 of a full reimbursement by the
126    Non-confidential minutes of the call with AMGROS of 24 October 2018.
127    For patients under the age of 20 years, the reimbursement levels are more generous. Moreover,
       patients receiving social assistance (so-called "CMU-C") are offered basic equipment whose sale
       price is limited to EUR 700 per device, which are fully covered by the French social security.
128    Annex FR8 to the Form CO. According to Ministry of Health, 95% of population is covered by
       complementary healthcare insurance.
129    Price data have been provided by the Parties in the Form CO.
130    Parties’ response to the Commission's request for information RFI 18.
                                                        42
 ---pagebreak---        Social Security and optional complementary healthcare providers of certain
       types of hearing aids with certain pre-defined characteristics (that would make
       them of comparatively high quality).131 As from 1st January 2019, the “out-of-
       pocket” amounts that patients must pay already decreased by approximately
       EUR 300. This is due to the fact that, since that date, the French social security
       reimbursement has increased (from EUR 200 to EUR 300 per ear) and the price
       of certain devices has decreased (it should not exceed EUR 1 300 compared to
       the previous average of EUR 1 500). By 2021, these devices will be provided to
       patients free of charge.
(213)  Hearing aids in France are dispensed by private retail stores of varying sizes and
       business models, which amount to approximately 5 200 points of sale across the
       country. The French retail market is characterized by certain large chains
       (including Amplifon), some of whom are owned by hearing aid manufacturers
       Audition Santé owned by Sonova or Audika owned by William Demant), as
       well as optical chains who have entered the hearing aid market (including
       Optical Center and Alain Afflelou) and a large number of independent stores,
       many of whom are organised in one or more buying groups. According to the
       Parties, buying groups and franchise chains form the largest channel in France
       (at around 38% in volume), followed by independent retailers and manufacturer
       owned retail stores (both around 20% by volume), optical chains (12% by
       volume), and national chains (11% by volume).
             The Parties' and their competitors' market shares in France
(214)  All major manufacturers are present on the French market through local
       wholesale affiliates. In addition, Sonova, William Demant and Widex are
       vertically integrated into retail.
(215)  Sivantos is active in France through two wholesale affiliates: Sivantos (offering
       the Signia and A&M brands) and Biotone (offering the Rexton and Audio
       Service brands). Sivantos is also indirectly active at retail level through its
       online platform audibene which refers patients to local audiologists. In 2017,
       […] hearing aids were sold by independent audiologists following a referral by
       audibene.
(216)  Widex is active in France through its wholesale affiliate Widex France SASU,
       through which it distributes hearing aids under the Widex brand. Widex is also
       active on the French retail market with 38 points of sale in France under the
       SoluSons brand. Moreover, Widex is also financing a smaller chain, […] (28
       points of sale) […]. The chain has a sister company, an […] (with 55 points of
       sale), […].
(217)  The Parties provided market share estimates for all manufacturers active in
       France from 2015 to H1 2018.
131   Annexes FR8 and FR9 to the Form CO.
                                              43
 ---pagebreak---  ---pagebreak--- (221)  Second, the Parties are not close competitors to each other. The market
       investigation confirms that all hearing aid manufacturers constitute credible
       suppliers and that no competitor is more innovative than others.132 Several
       respondents to the market investigation pointed out that Sonova and William
       Demant (rather than Widex) are largely seen as closer competitors to Sivantos,
       in terms of portfolio breadth, product quality, services and pricing. This is
       mostly due to the fact that these three manufacturers are the three largest players
       active in France while Widex’s position on the market is rather limited.
(222)  Third, customers can switch among suppliers with relative ease. Contracts with
       retailers are always contestable and can be easily terminated given that they are
       generally entered into for a period of one year.133 Independent retailers are
       typically not subject to exclusivity clauses, meaning they can progressively
       insert new suppliers into their product mix and they typically carry products
       from at least three suppliers, which enable them to easily re-allocate the share of
       wallet of their suppliers.134 In this respect, one respondent to the market
       investigation specified that "Audiologists can influence [patients] on their
       choice. That's why [retailers] can easily switch from one supplier to another and
       that's the reason why I consider being a price maker".135
(223)  This also applies to larger chains and buying groups that generally follow a
       multi-brand strategy and can therefore switch by simply increasing or
       decreasing volumes from a certain supplier without the adjustment or
       amendment of their contracts being required. In this respect, Sivantos explained
       that it used to supply approximately 80% of Amplifon's volumes in France 10
       years ago but now supplies approx. […] of its French volumes. Similarly,
       Sivantos was delisted from […] after Sivantos […] and its volume with […]
       dropped [significantly] in 2018 following the launch of a new tendering
       procedure by the buying group. The constraint exerted by customers was further
       confirmed during the market investigation. As an example, one of the Parties’
       customers indicated in response to the market investigation that if the Merged
       Entity were to increase its price by 5-10% post-Transaction, it would not
       continue to purchase the same quantity of hearing aids from the Merged Entity
       and would increase its share of wallet of Sonova's products.136
(224)  Finally, since Sivantos generated more than […]% of its sales in France with
       large specialised ([…]) and optical ([…] and […]) chains, it could not afford to
       raise its prices or reduce the quality/choice of its products and services without
       the risk of losing these customers and seeing the share of wallet of its products
       decrease. Similarly, Widex generated [20-30]% of its sales in France with these
       large purchasers and could not afford to raise its prices or reduce the
       quality/choice of its products and services without the risk to lose these
       customers and/or see the share of wallet of its products decrease.
132   Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 38 and 39 and
      non-confidential replies to questionnaire Q3 to large retail chains, question 64 and 66.
133   Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 6.
134   Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 32.1.
135   Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 22.
136   Non-confidential replies to questionnaire Q3 to large retail chains of hearing aids, question 70.1
                                                      45
 ---pagebreak--- (225)  Fourth, the Transaction does not eliminate an important competitive force on the
       hearing aids market in France. Widex is today the smallest player on the French
       market and the removal of this competitor will hardly change the competitive
       landscape. Widex can hardly be regarded as a maverick, as it has been active in
       France for more than 40 years and focuses on supplying its products mainly
       through […] and […]. In addition, Widex is not regarded as offering any must-
       have products on the market.137
(226)  Fifth, all hearing aid retailers (customers) responding to the market investigation
       indicated that they expect the impact of the Transaction to be either positive or
       neutral.138 The vast majority of respondents consider that, post-Transaction,
       there will still be a sufficient number of competing manufacturers to exert a
       competitive constraint on the Merged Entity. As a result, prices are unlikely to
       increase since competitors would react immediately and gain market shares at
       the expense of the Merged Entity.
(227)  The Commission, taking into consideration all of the above, including the results
       of the market investigation, concludes that the Transaction does not raise serious
       doubts as to its compatibility with the internal market in relation to the
       manufacture and wholesale supply of hearing aids in France.
Germany
(228)  The German hearing aid market is entirely private and therefore the split
       between public and private markets is not applicable. The German market is the
       second biggest in Europe by volume. In 2017, 1.26 million hearing aids were
       dispensed through over 6 300 points of sale. The market is predicted to grow in
       the next years.
(229)  In the German hearing aid market reimbursement is available for hearing aids. A
       reform in 2013 increased the level of reimbursement of EUR 750 to EUR 800
       per hearing aid, meaning that around 40% of patients barely have to pay for their
       hearing aid.
(230)  Similar to other EEA markets, a patient in Germany suffering from hearing
       impairment must receive a prescription from an ENT based on an audiological
       test which the ENT performs. The patient is then fitted with a hearing aid by an
       authorised audiologist. There is also a legal requirement in Germany that
       patients must be offered a minimum of three different devices to test in their
       everyday lives, i.e. outside of the shop environment. Patients test these devices
       for 40 days on average, during which they can compare the different hearing
       aids, figure out the right price point for their needs and finally work with their
       audiologist on fitting their requested hearing aid. The three devices will usually
       be from three different brands or suppliers (meaning the audiologist is de facto
       required to carry a selection of hearing aids) and the manufacturers themselves
       carry the cost of these trials (including the “demo” hearing aids given to patients
       in store to try on), most importantly the cost of refurbishing the hearing aid
137   Non-confidential replies to questionnaire Q2 to retailers of hearing aids, questions 43 and 58 and
      non-confidential replies to questionnaire Q3 to large retail chains, questions 70.2 and 81.
138   Non-confidential replies to questionnaire Q2 to retailers of hearing aids, questions 59 and 60 and
      non-confidential replies to questionnaire Q3 to large retail chains, questions 82 and 83.
                                                      46
 ---pagebreak---       which the patient has tested but not chosen. The Parties estimate that on average
      there are 2.4 test devices for each one that is bought.
(231) The retail market comprises (i) independent retailers accounting for [5-10]% of
      the total units sold; (ii) buying groups bringing together independent
      audiologists to benefit from greater scale and accounting for [50-60]% of the
      total units sold, which have around 890 POS in the case of Dialog, 470 POS in
      the case of Meditrend, 200 POS in the case of Proakustik and 530 POS in the
      case of Hörex; (iii) large regional or national chains which have between 20 and
      50 stores located in one or two regions and account for [5-10]% of the total units
      sold; (iv) international chains, which typically have more than 150 POS across
      the country and account for [10-20]% of the total units sold and include chains
      such as Amplifon with 475 POS or Kind with 630 POS; (v) store-within-store,
      non specialist retailers like optical retailers which have entered the hearing aid
      market and account for [0-5]% of the total units sold; and (vi) manufacturer-
      owned retail outlets which account for [10-20]% of the total units sold, for
      example Sonova which owns 800 POS under the AudioNova, Geers, Lindacher,
      Vitakustik and Fiebing brands. Furthermore, larger chains and all purchasing
      groups also increasingly purchase privately labelled hearing aids from
      manufacturers in bulk, which they sell under their own brand.
(232) Sivantos is only active in sales to end-consumers through its online affiliate
      audibene, and cooperates with independent brick and mortar audiologists to
      make sales to end-customers. Widex is not active in retail in Germany.
            The Parties' and their competitors' market shares in Germany
(233) All major hearing aid manufacturers sell into Germany. There are 13 established
      hearing aid brands in Germany.
(234) Sivantos is active in Germany through its wholesale affiliate Sivantos GmbH.
      Sivantos’ channel strategy mainly focuses on independents and buying groups
      with […]% and […]% of its sales, as well as large chains, which account for
      around […]% of sales volume. Sivantos sells hearing aids under the brands
      Signia and Audio Service.
(235) Widex is active in the German wholesale market through its German affiliate,
      Widex Hörgeräte GmbH. Widex makes over […]% of its sales to buying groups
      and about […]% to national chains and key accounts. Widex is not active in the
      German retail market.
(236) Sivantos is active in the German retail market through audibene. audibene is an
      online business based in Berlin, founded in 2012 and taken over by Sivantos’
      owner EQT in 2015. audibene had a market share of about [0-5]% in the
      German market in 2017. It provides a platform for end customers to understand
      their precise needs and possible suitable hearing aids. audibene nowadays
      employs around 800 employees in nine countries out of which 200 are working
      for the German market.
(237) Regulatory restrictions in place in Germany prevent sales of hearing aids over
      the internet without a visit to a certified audiologist, and in order to get any
      reimbursement patients are required to get their hearing aids fitted by an
      audiologist. audibene has roughly 1 000 partner audiologist shops in Germany,
                                              47
 ---pagebreak---  ---pagebreak---         groups, while Sivantos has both high-end (Signia) and entry-level (Audio
        Service) brands and generally covers a larger variety of price points within the
        market and is much more present with independent audiologists that are not in
        buying groups. The Parties further submit that there are no impediments to entry
        or expansion and in this respect large optician chains, like Fielmann or Apollo
        Optik have entered the German hearing aid market. Furthermore, the Parties
        argue that in recent years large retail chains have started selling private label
        hearing aids which they purchase from hearing aid manufacturers.
              The Commission’s assessment
(243)   First, the Commission notes that the Transaction brings together the third and
        fourth largest manufacturers in the market. The Merged Entity would become
        the second largest in the German wholesale market for hearing aids with a
        market share of [20-30]%. William Demant, with a market share of [30-40]%,
        will continue to be the largest manufacturer and Sonova, which is also a
        vertically integrated player in the German market, with a market share of [20-
        30]% will be quite close to the Merged Entity’s size. Furthermore, players such
        as GN ([5-10]% market share), Starkey ([0-5]% market share), and smaller
        players like Kind, which has a strong retail network in Germany, also impose a
        competitive constraint on the Parties. Furthermore, the Commission observes a
        certain dynamic in the evolution of market shares in Germany (see Table 11)
        which shows that Sivantos has lost about [5-10] percentage points in two years.
        Contrary to this William Demant or GN have respectively observed a [5-10]
        percentage point and [0-5] percentage point increase. The fluctuation of the
        market shares supports the idea that there is competition in the market. Widex,
        has also increased its sales by [0-5] percentage point between 2015 and 2017.
(244)   Second, the Commission notes that the Parties are not particularly close
        competitors in the German market, with Widex focusing on the premium
        segment compared to Sivantos, which covers a larger range of price points. The
        market investigation has confirmed this.139 In particular, several respondents to
        the market investigation pointed out that Sonova and William Demant (rather
        than Widex) are largely seen as closer competitors to Sivantos, in terms of
        portfolio breadth, product quality, services and pricing. Similarly, several
        respondents to the market investigation pointed out that Sonova and William
        Demant (rather than Sivantos) are largely seen as closer competitors to Widex,
        in terms of portfolio breadth, product quality, services and pricing.
(245)   Third, retailers multisource from a large number of manufacturers, often more
        than three, and the market investigation has revealed that retailers have switched
        in the past and still have the ability to switch across the different
        manufacturers.140 Retailers, both large and small have switched in the past. For
139   Non-confidential minutes of the call with a retailer active in Germany of 30 October 2018; non-
      confidential minutes of the call with another retailer active in Germany of 30 October 2018; non-
      confidential minutes of the call with a third retailer active in Germany of 30 October 2018 and
      non-confidential replies to questionnaire Q2 to retailers of hearing aids, questions 38 to 40, 59 and
      60.
140   Non-confidential replies to questionnaire Q2 to retailers of hearing aids, questions 15, and 31 to
      37.
                                                      49
 ---pagebreak---  ---pagebreak--- (251)   Post-Transaction, the Parties would continue to be constrained by market leader
        Sonova ([30-40]%), as well as William Demant ([10-20]%), GN ([10-20]%),
        and Starkey ([5-10]%). The market in Greece is largely price-driven and second
        tier manufacturers active in Greece include BHM and Eartechnic. The Merged
        Entity would therefore continue to face significant competition from a number
        of strong players in Greece.
(252)   No respondent to the market investigation raised concerns with respect to the
        Transaction in Greece, and market participants confirmed that the Greek market
        was characterised by “very low price[s]” 142, fuelled by the presence of several
        second-tier players on top of all major manufacturers.
(253)   The Commission, taking into consideration all of the above, including the results
        of the market investigation, concludes that the Transaction does not raise serious
        doubts as to its compatibility with the internal market in relation to the
        manufacture and wholesale supply of hearing aids in Greece.
Hungary
(254)   The distinction between public and private markets as described in recital 49
        above is not applicable to Hungary as hearing aids are exclusively dispensed
        through the private market.
(255)   Both Sivantos and Widex have a local wholesale presence in Hungary. Among
        the other major hearing aid manufacturers, Sonova and Starkey are also active at
        wholesale level with their own local subsidiaries, while GN and William
        Demant are active through third-party distributors. Each of Widex, Sivantos and
        Sonova are also active at the retail level, operating directly their own points of
        sales.143
(256)   As shown in the table below, based on the Parties’ estimates, the Parties’
        combined market share in Hungary is below 25% in 2017 and would even be
        below the thresholds for affected markets in 2015 and 2016. The market
        reconstruction undertaken by the Commission confirms that the Parties’
        combined market share is below 25%,144 with a limited increment brought about
        by Sivantos. The Transaction is thus unlikely to raise competition concerns on
        this market.145
142   Non-confidential replies to questionnaire Q1 to competitors, question 72.
143   The Hungarian retail market does not constitute a horizontally affected market as the Parties’ retail
      market share is below 20% both at national level and when considering the narrowest plausible
      geographic market definition of catchment areas with a radius of a 30-minute drive.
144   The market reconstruction is conservative, as it does not include shares from local players such as
      Victofon or Protone.
145   Horizontal Merger Guidelines, paragraph 18.
                                                      51
 ---pagebreak---  ---pagebreak---  ---pagebreak---           currently also procure hearing aids from a third supplier, considers that William
          Demant, Sonova and GN will exert a sufficient competitive constraint on the
          Merged Entity post-Transaction. It also explained that barriers to enter the
          Icelandic market are relatively low and new entrants could easily start supplying
          hearing aids in this country151
(267)     In light of the above, the Commission considers that the Transaction does not
          raise serious doubts as to its compatibility with the internal market in Iceland.
Ireland
(268)     The Irish hearing market is split between public sales, administered by the
          Ireland’s National Health Service (or “HSE”), which accounts for around 43%
          of hearing aids dispensed to patients in the country, with the remaining 57%
          being dispensed via private retailers, including both independent shops, and
          large chains such as Amplifon and Specsavers.
(269)     Neither Sivantos nor Widex has a local wholesale presence in Ireland. Hearing
          aid manufacturers, including Widex, typically serve the Irish market via their
          UK wholesale subsidiary.
                Regulatory background
(270)     In Ireland, sales of hearing aids fall either under (i) a public tender by the HSE,
          which dispenses hearing aids to patients on low income via around 12 major
          hospitals; or (ii) a private retail channel.
(271)     The public market in Ireland is a tender based system designed by the HSE. The
          HSE launched its first tender process in 2013, based on which hearing aids are
          provided through the public system. A new public tender was scheduled to be
          launched by the end of 2018 but has been since put on hold.
(272)     The 2013 HSE tender provides for three lots of hearing aids: paediatric hearing
          aids, adult hearing aids, and CROS/Bi-CROS hearing aids.152 The paediatric
          hearing aids lot was sub-divided into the following four categories: new-born /
          preschool / primary school age / second-tier school and higher education age,
          and the lot for adults’ hearing aids into the following two categories: standard
          and poor dexterity). Each sub-category of these two lots was then further
          subdivided into (i) mild/moderate, (ii) severe and (iii) profound.
(273)     Under the Irish tender system, only one hearing aid supplier by sub-category
          (e.g. hearing aids for new-born with a severe hearing loss) is chosen. This
          supplier signs a contract for a period of 3 years with the option to extend the
          contract for two further periods of up to 12 months.
151     Non-confidential minutes of the call with a public clinic in Iceland of 12 November 2018.
152     Other categories include audiology accessories, audiological assessment & fitting equipment, and
        hearing aid moulds.
                                                       54
 ---pagebreak---  ---pagebreak---  ---pagebreak---         2019 and involves a similar process as the 2013 tender.155 The Merged Entity’s
        market share could thus drop drastically if Sivantos does not submit a
        competitive bid.
(285)   Second, within the public market, the Parties are not particularly close
        competitors. Widex is only a marginal player on the public market, which did
        only bid for paediatric hearing aids in the 2013 HSE tender, whereas Sivantos
        tendered for multiple categories, and was only awarded tenders in the adult
        hearing aid categories, for which Widex did not bid. In the paediatric segments
        awarded to Widex, three to four other hearing aid manufacturers in addition to
        Sivantos also systematically submitted bids.
(286)   Third, while Widex was retained in several paediatric categories, it only sold
        […] hearing aids in 2017, resulting in a marginal market share (and thus a
        marginal increment) of less than [0-5]%. As a consequence of its […]
        performance on the public market in Ireland, Widex decided […] and […]156.
        Widex’s strategy is further illustrated by its internal documents which indicate a
        […].157 Therefore, regardless of the Transaction, the very limited overlap
        between the Parties on the public market in Ireland would have ceased to exist.
(287)   In light of the above, the Commission considers that the Transaction does not
        raise serious doubts as to its compatibility with the internal market with regard
        to horizontal non-coordinated effects in the public market for the production and
        wholesale of hearing aids in Ireland.
               Private wholesale market
(288)   The Commission considers that neither Sivantos nor Widex have a local
        wholesale presence in Ireland. Sivantos is active via a local distributor, [a
        customer], which provides hearing aids and related services to retailers in
        Ireland (including Specsavers)158 Widex serves the Irish market via its UK
        wholesale subsidiary and offers its products through its own retail stores, as well
        as to third party retailers (including Specsavers).
(289)   The Irish private market comprises around 200 points of sales, including both
        independent retailers, manufacturer-owned retailers as well as large chains,
        including in particular Specsavers and Amplifon. William Demant owns the
        largest retailer in Ireland (Hidden Hearing). Widex is also active at the retail
        level via its retail subsidiary Bloom, which acquired Celtic Hearing and
        Bonavox. Widex thus operates three full-time retail outlets in Ireland.
(290)   The Parties and their main competitors' market shares on the private market for
        the manufacture and wholesale distribution of hearing aids in Ireland are
        included in the Table below:
155   The HSE tender was process was put on hold in November 2018 to allow the HSE to refine its
      specification and should restart in 2019.
156   Parties’ response to the Commission's request for information RFI 16, question 17. While a new
      tender had been launched by the HSE at the end of 2018, and participants had submitted a bid, the
      tender has then been put on hold for an indefinite period of time.
157   Parties’ response to the Commission's request for information RFI 14.
158   As […], the Parties have limited information regarding the sales made by the company in Ireland.
                                                      57
 ---pagebreak---  ---pagebreak---          equipment, training and marketing costs as such costs or delays. 162 The ability of
         retailers to switch suppliers is further evidenced by the fluctuation of the Parties’
         market shares over the last years. For instance, Widex’s market share steadily
         increased between 2015 and 2017, in particular due to its […]. Sivantos’ market
         share decreased over the same period as a result of […].
(295)    Finally, retailers active in Ireland, did not raise merger-specific concerns in
         relation the Transaction and its impact on the Irish private retail market.163 Some
         market participants stated that the Merged Entity may terminate Sivantos’
         distribution arrangement with [a customer], and instead serve the Irish market
         directly, possibly via the UK, which could impact the quality of services
         provided. However, this concern is not merger specific. Currently, neither
         Sivantos nor Widex serve the Irish market through a local wholesale entity.
         Widex serves the market from the UK, and Sivantos could already decide to
         supply the Irish market directly, including via its UK subsidiary, pre-
         Transaction.164
(296)    In light of the above, the Commission considers that the Transaction does not
         raise serious doubts as to its compatibility with the internal market with regard
         to horizontal non-coordinated effects in the private market for the production
         and wholesale of hearing aids in Ireland.
               Conclusion
(297)    The Commission, taking into consideration all of the above, including the results
         of the market investigation, concludes that the Transaction does not raise serious
         doubts as to its compatibility with the internal market in relation to the
         manufacture and wholesale supply of hearing aids in Ireland.
Latvia
(298)    The Latvian hearing aid market is small, accounting for around 7 000 hearing
         aids, and is split around 70% public and 30% private.165 The Parties, as well as
         other hearing aid manufacturers, do not have a local presence in Latvia and are
         active through distributors, which usually operate one or more retail outlets and
         offer hearing aids into the public tender. From the point of view of the hearing
         aid manufacturers, there is no distinction between the private and the public
         Latvian market. As opposed to other countries involving public tenders, in
         Latvia, neither the Parties nor any of their competitors are directly active in the
         public tender. Bids are only submitted by third-party distributors of hearing aid
         manufacturers. As a result, the distinction between public and private markets
         for hearing aids discussed in recital 49, is not particularly relevant for Latvia.
162    Non-confidential replies to questionnaire Q11 to retailers in Ireland, question 7.
163    Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 59. Non-
       confidential replies to questionnaire Q11 to retailers in Ireland, questions 20 and 21.
164    Non-confidential replies to questionnaire Q11 to retailers in Ireland, questions 20 and 21.
165    Non-confidential minutes of the call with a representative of the public authority of 7 December
       2018.
                                                        59
 ---pagebreak---  ---pagebreak---              The Parties’ view
(304)  The Parties claim that the Transaction does not raise any competition concern in
       particular because (i) they are only active via independent distributors, and (ii)
       their combined market share in 2017 was exceptionally high and is not a good
       indication of their market power.
             The Commission’s assessment
(305)  Under the assumption of an overall market for the manufacture and wholesale
       distribution of hearing aids, the Commission finds that while the Parties’ own
       market share estimates as per Table 18 appear high, the market reconstruction
       conducted by the Commission indicates that the Parties significantly
       overestimated their combined market share in 2017, which in facts remains
       below 50%. The Transaction would only bring about a minor increment from
       Widex (below 5%).
(306)  Furthermore, Sivantos’ market share increased significantly in 2017, which
       derives from a large order (of around […] units) from its main customer, […], as
       a result of the latter being selected in the public tender to supply hearing aids to
       adults. The fact that an order of this magnitude was unusual is evidenced by the
       company’s market share over the two previous years (in 2015 and 2016), which
       were over three times as small, and further confirmed by sales achieved by
       Sivantos in 2018, which were all made to […], and also reflect two orders in
       June and October respectively as a result from the public tender award, similarly
       as for 2017.
(307)  Tender-driven markets are prone to market share fluctuations, and high market
       shares in a given year are not necessarily evidence of market power. This is also
       indirectly the case for the overall wholesale market in Latvia, as the Parties’
       customers bid for the public tender. The market investigation indicates that
       hearing aid manufacturers do not influence whether their distributors participate
       or not in public tenders.167
(308)  Furthermore, local distributors are able to switch supplier of hearing aid. Some
       distributors multi-source, such as Hearing Systems, which offers both GN and
       Sonova products. Similarly, Sivantos’ second Latvian distributor besides
       [Sivantos’ main customer], […] also sells Unitron (Sonova) products. None of
       Sivantos’ local distributors are bound by exclusivity obligations. This is in
       particular the case of […], whose orders accounted for most of the overall
       Latvian wholesale market in 2017 and 2018, and is not either contractually
       bound to purchasing certain volumes from Sivantos. […] considers that
       alternative manufacturers will remain on the market post-Transaction.168
       Similarly, Widex’s distributor indicated that it could procure hearing aids from
       another supplier in the future should it decide to do so.169
167   Non-confidential minutes of the call with a retailer active in Latvia of 5 December 2018.
168   Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 37.
169   Non-confidential minutes of the call with a retailer active in Latvia of 5 December 2018.
                                                      61
 ---pagebreak--- Public market for the wholesale distribution of hearing aids in Latvia
(309)    In the hypothetical public market segment, the Parties would, post-Transaction,
         continue to face competition from well-established players such as GN, William
         Demant, Sonova and Starkey, whose distributors all participated in the most
         recent Latvian public tenders. Market shares of most hearing manufacturers
         fluctuate over the years, depending on the distributors that ultimately win the
         public tenders. A representative for the Latvian Deaf Association confirmed that
         most global hearing aid brands were represented in the most recent tender,170
         and appear to have also participated in the previous tenders.
(310)    The Parties are not particularly close competitors on the hypothetical public
         segment in Latvia, as evidenced by the fact that the Parties’ distributors do not
         submit bids the same categories of the public tenders. [Sivanto’s main
         customer], which only sells Sivantos products via the public tender, exclusively
         focused on tenders for hearing aids for adults, whereas Widex’s only distributor
         […] focuses on the paediatric tender, and did not bid in the adult tenders in the
         last three tender periods. Prices are considerably higher in the paediatric
         categories (EUR […]) than in the adult categories (EUR […]), while the
         wholesale price of Widex hearing aids in Latvia is at least EUR […], meaning
         Widex distributors could […] tenders in […] categories at […]. As a result,
         Widex’s distributor is generally unable to bid in […]categories.
Private market for the wholesale distribution of hearing aids in Latvia
(311)    In the hypothetical private market segment, the activities of the Parties’
         distributors do not give rise to any affected market in Latvia.171
(312)    Moreover, similarly as in the public segment, the Parties’ distributors have
         different strategies on the private market. Widex’s distributor focuses on […]
         hearing aids as a commercial strategy, and only sells around […] hearing aids a
         year on the private retail market (corresponding to less than [0-5]% of the
         estimated private wholesale market in Latvia),172 whereas Sivantos does not
         market […] in Latvia.
Conclusion
(313)    Finally, irrespective of the hypothetical split into private and public segments,
         no respondent to the market investigation, and in particular local distributors in
170    Non-confidential minutes of the call with a representative of the public authority of 7 December
       2018.
171    Based on (i) the Parties’ best estimate of their respective distributors’ sales into private and public
       segments as provided in the Parties’ reply to RFI 21, (ii) the Parties’ estimate of the total size of
       the overall market in Latvia as well as (iii) the proportion between the public and private markets
       as provided in the non-confidential minutes of the call with a representative of the public
       authority, the Parties’ combined market share in the hypothetical private segment for the
       manufacture and wholesale distribution of hearing aids in Latvia remains below 20%.
172    Non-confidential minutes of the call with a retailer active in Latvia of 5 December 2018.
                                                         62
 ---pagebreak---          Latvia, raised specific competition concerns in relation the Transaction and its
         potential impact on the Latvian market.173
(314)    The Commission, taking into consideration all of the above, including the results
         of the market investigation, concludes that the Transaction does not raise serious
         doubts as to its compatibility with the internal market in relation to the market
         for the manufacture and wholesale distribution of hearing aids in Latvia or in
         either of its hypothetical public and private segments.
Lithuania
(315)    The distinction between public and private markets as described in recital 49
         above is not applicable for Lithuania as hearing aids are all sold by
         manufacturers to third-party distributors who act as local retailers.
               Regulatory background
(316)    Lithuania has a public healthcare financing system, in which compulsory
         healthcare insurance is regulated by the National Health Insurance Fund
         (“NHIF”). The NHIF operates a reimbursement system for hearing aids, with
         contracts running on an annual basis from January to December. Approximately
         90% of the hearing aids sold in Lithuania are (at least partially) covered by some
         reimbursement. Only approximately 10% of the total volume of hearing aids
         (typically higher-priced products) are purchased by patients without any
         reimbursement.
(317)    The public system in relation to the supply of hearing aids recently changed
         from a tender-based to a list-based system.174 Under the previous scheme, the
         NHIF was in charge of the organisation of public tenders. One supplier (retailer)
         by tender category (based on the severity of the hearing loss) was selected every
         two to three years and became the sole supplier of that type of hearing aids in
         the public market until the launch of the next tender. As from March 2017, all
         suppliers (retailers) who want their hearing aids to be eligible for reimbursement
         must introduce a request to the NHIF.
(318)    In practice, under the new procurement system, the NHIF sets a maximum
         reimbursement amount for each of the nine categories of hearing aids. In order
         to qualify a hearing aid within a specific category, each retailer must offer at
         least one product that (i) meets the technical requirements of that category and,
         (ii) is fully reimbursed. If a retailer offers one product meeting those two
         conditions, it can then qualify more products that meet the technical
         requirements of that category, at a price that exceeds the maximum
173    Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 59. Non-
       confidential minutes of the call with a retailer active in Latvia of 5 December 2018.
174    Contrary to other EEA countries that rely on a list-based system (such as Czechia), the Lithuanian
       system does not establish one single list of registered hearing aid products, but publishes one list
       per retailer on its official website (cf. http://www.vlk.lt/veikla/veiklos-sritys/klausos-
       aparatai/kusigytklausoapara/Puslapiai/default.aspx consulted on 11 February 2019). While four (of
       the eight registered) retailers carry products of one single brand, two carry products of different
       brands from the same manufacturer and two carry several brands from different manufacturers. In
       practice, there are no common brands between retailers as, according to the official website, each
       brand (that is represented in the NHIF system) is exclusively carried by one retailer.
                                                         63
 ---pagebreak---         reimbursement amount.175 The technical requirements are reviewed (and
        upgraded) every two to three years to ensure that the fully reimbursed products
        include the latest technical features.
(319)   According to the NHIF, this new system increases the choice of hearing aids
        available to patients since patients can now choose between different products
        within each category.176
(320)   The average wholesale price of hearing aids in Lithuania is EUR 94, while the
        reimbursement usually varies from EUR 55 to EUR 160. Patients choosing
        hearing aids that exceed the maximum reimbursement amounts have to pay the
        difference from their own pocket. Hearing aids are reimbursable every five
        years for adults and up to every three years for children.177
             The Parties' and their competitors' market shares in Lithuania
(321)   Despite the relatively small size of the Lithuanian market, all major hearing aids
        manufacturers, as well as second-tier players such as Audifon and BHM sell
        hearing aids in Lithuania. None of the manufacturers active in Lithuania has a
        local presence: each of them sells its products to local third-party distributors,
        which are active at retail level.
(322)   Widex has one Lithuanian distributor, Surdotechnika, which sells hearing aids
        under the Widex brand through its own retail stores at an average wholesale
        price of EUR […].
(323)   Sivantos is active in Lithuania through three distributors, UAB Klausos
        Technika (supplying hearing aids under the Signia (formerly Siemens), A&M
        ([…]) and Rexton brands in Lithuania), UAB Laudata (supplying hearing aids
        under the Rexton brand in Lithuania […]) and UAB Opera Klausos (supplying
        hearing aids under the AudioService brand […]). All Sivantos’ distributors are
        non-exclusive, and at least Opera and Laudata also sell other brands,
        respectively Unitron and Audifon. Sivantos’ average wholesale price in
        Lithuania reaches EUR […].
(324)   The Parties provided market shares’ estimates for all players active in Lithuania
        from 2015 to 2017.
175   The NHIF explained that this rule applies to each retailer (and not per manufacturer or brand). See
      non-confidential minutes of the call with the NHIF of 6 December 2018.
176   Non-confidential minutes of the call with the NHIF of 6 December 2018.
177   Ibidem.
                                                     64
 ---pagebreak---  ---pagebreak--- (328)   The market investigation confirmed that the atypically high market share of
        Sivantos in 2017 was due to large wholesale orders placed by its new178
        distributor [Sivanto’s customer] as a result of the procurement reform
        implemented in March 2017. [Sivanto’s customer] explained that, at the time of
        the legislative change in 2017, they were one of the few companies having
        products (Sivantos’ AudioService branded products) meeting the pricing
        conditions for full reimbursement.179 As a result of both the introduction of the
        new list-based system and the fact that [Sivanto’s customer] started stocking
        AudioService products in 2017, sales of AudioService branded products
        increased significantly and Sivantos’ market share grew proportionately. This
        observation is also confirmed by the NHIF, which indicated that “this may be
        linked to the fact that other suppliers at the time chose not to supply products for
        the listing price that was set / had no products that could be fully reimbursed to
        offer (and therefore, they [couldn’t] qualify any products in the categories
        concerned)”.180 The high fluctuation of market shares and the fact that the
        increase of Sivantos’ market shares (and the corresponding decrease of William
        Demant’s and Sonova’s market shares) occurred during the period in which a
        number of William Demant and Sonova products were not eligible for
        reimbursement illustrate the competitive constraint exerted by competitors on
        the Parties. The Commission considers that such ability of competitors to fill in
        a gap in the market demonstrates the degree of competitive pressure in the
        market for hearing aids in Lithuania.
(329)   Moreover, substantially more hearing aid products are listed in the 2019 NHIF
        list than in 2017 (when the new list-based system was introduced) and will exert
        a competitive pressure on the Parties post-Transaction. More specifically and
        contrary to the situation in 2017, the list published by the NHIF in 2019181
        counts, for each individual category, a minimum of three additional
        manufacturers (on top of the Parties) whose products will remain available to
        patients post-Transaction. In fact, in the first four categories (for children),
        William Demant (Oticon, Bernafon), Sonova (Unitron, Phonak) and GN
        (ReSound) products are represented, while in the remaining categories (for
        adults), in which the Parties’ products overlap, William Demant (Oticon),
        Sonova (Phonak), GN (ReSound) and Starkey (Starkey) products are
        represented on top of the Parties’ products.
(330)   Therefore, the Commission considers that, although the 2017 market share
        figures are more appropriate than the 2015 or 2016 figures to assess the future
        market conditions under the new NHIF system, these figures largely
        overestimate the Merged Entity’s (and, in particular, Sivantos’) actual market
        power in Lithuania.182
178   As this distributor started to introduce the AudioService brand shortly before being registered on
      the NHIF list, the Commission understands that it had to place a large first-time order in order to
      build its initial stock and be able to immediately serve the market.
179   Non-confidential minutes of the call with a retailer active in Lithuania of 6 November 2018.
180   Non-confidential minutes of the call with the NHIF of 6 December 2018.
181   http://www.vlk.lt/veikla/veiklos-sritys/klausos-aparatai/kusigytklausoapara/Puslapiai/default.aspx
      consulted on 11 February 2019
182   This is confirmed by Sivantos’s estimate of its 2018 market share which dropped by [5-10]% in
      Lithuania between 2017 and 2018 (Parties’ reply to RFI21).
                                                       66
 ---pagebreak---  ---pagebreak---        underestimating the market shares of others (Sonova). In addition, the market
       investigation revealed that second-tier players are also active in Luxembourg.184
(337)  The Parties’ combined market share in Luxembourg being below 25%, the
       Transaction is unlikely to raise concerns on this market.185
(338)  Post-transaction, the Parties will continue to face significant competition from
       the market leader, Sonova, with a [50-60]% market share and its own route to
       market with the audiology retail chain Lapperre. In addition, the Parties will be
       constrained by William Demant, which is active in Luxembourg through a third-
       party distributor, and the German hearing aid manufacturer Audifon (Kind),
       who has a retail presence in Luxembourg. Moreover, despite not being directly
       or indirectly (through third-party distributor) active in Luxembourg, Starkey and
       GN’s hearing aids are also available on the Luxemburgish market, illustrating
       the low barriers to entry and the ease with which retailers can start distributing
       new brands of hearing aids. The Merged Entity would therefore continue to face
       significant competition in Luxembourg.
(339)  Finally, the market participants who participated in the market investigation, and
       in particular retailers active in Luxembourg, did not raise any concerns in
       relation the Transaction.
(340)  In light of the above, the Commission considers that the Transaction does not
       raise serious doubts as to its compatibility with the internal market in
       Luxembourg.
Malta
(341)  The Maltese hearing aid market is split between public sales, administered
       through tenders organised by the public hospital and which account for around
       40% of hearing aids dispensed to patients in Malta, with the remaining 60%
       being dispensed via approximately ten private independent retailers. While the
       Maltese social system does not generally provide for reimbursement, financial
       aid is granted by the government exclusively for children and disabled patients
       with special needs. The financial aid in such cases is organised by the local
       Ministry of Health and applies to hearing aids supplied through the public
       hospital. The public tenders are structured around three different categories
       based on the severity of hearing loss into (i) mild-to-moderate, (ii) moderate-to-
       severe and (iii) severe-to-profound. Each tender category covers limited
       amounts of between 60 to 350 devices and is put out to tender every two to three
       years. Over this period, the retailer who won the tender in a given category is the
       sole supplier of hearing aids belonging to this category. Some hearing aids are
       however also dispensed through the public hospital without financial aid and
       with full out-of-pocket payment by the patient.
(342)  No hearing aid manufacturer has a local wholesale or retail presence in Malta.
       The Parties each serve the Maltese market via two separate local third-party
       distributors who are vertically integrated into the retail market and
       independently decide whether to participate or not in public tenders organized
184   Non-confidential replies to questionnaire Q3 to large retail chains, questions 1 and 4. .
185   Horizontal Merger Guidelines, paragraph 18.
                                                     68
 ---pagebreak---  ---pagebreak--- (346)    In light of the above, the Commission considers that the Transaction does not
         raise competition concerns on the overall market for the manufacture and
         wholesale distribution of hearing aids in Malta.
Public market for the wholesale distribution of hearing aids in Malta
(347)    To the Parties’ knowledge, only one of Sivantos’s local distributors sold a
         limited amount ([…] hearing aid devices) of products to the Maltese public
         hospital in 2016. As a result, the activities of the Parties’ distributors do not
         overlap in the public segment over 2015-2017.
Private market for the wholesale distribution of hearing aids in Malta
(348)    In the hypothetical private market segment covering around 60% of the total
         market, the Parties estimate that their combined market shares amount to [20-
         30]% in 2015, [5-10]% in 2016 and [30-40]% in 2017.187
(349)    The Commission’s market reconstruction for the Parties’ 2017 market share in
         the private segment does, however, not substantiate the Parties’ best estimate
         and shows that the Merged Entity’s combined market share would in any event
         (and under a conservative approach) remain below 30%.
(350)    Post-Transaction, the Merged Entity would continue to face competition from
         multiple global players including Sonova, William Demant, Starkey as well as
         second-tier manufacturers.
(351)    While one respondent to the Commission’s market investigation considers that
         patients’ choice may become more limited post-Transaction, retailers active in
         Malta consider that having access to two to three different suppliers is sufficient
         to cover the full range of products, including latest innovations, at reasonable
         price points.188 Given that, post-Transaction, four global competitors as well as
         second-tier players remain active on the Maltese market, the Transaction is
         unlikely to significantly affect the competitive dynamics in the hypothetical
         private segment of the market for the wholesale distribution of hearing aids in
         Malta.
Conclusion
(352)    In general terms, irrespective of a hypothetical split into private and public
         segments, market participants in Malta confirmed that no particular impact of
         the Transaction could be expected in the market for the manufacture and
         wholesale distribution of hearing aids in Malta.189 One respondent to the
         Commission’s market investigation explained that the Maltese market is
         characterised by “considerable price competition”.190
187    The Parties were unable to provide specific market share estimates per competitor in the
       hypothetical private market for the wholesale distribution of hearing aids in Malta.
188     Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 19.
189     Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 59.
190     Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 21.
                                                       70
 ---pagebreak--- (353)   The Commission, taking into consideration all of the above, including the results
        of the market investigation, concludes that the Transaction does not raise serious
        doubts as to its compatibility with the internal market in relation to the
        manufacture and wholesale supply of hearing aids in Malta or in either of its
        hypothetical public and private segments.
The Netherlands
(354)   The distinction between public and private markets as described in recital 49
        above is not applicable for the Netherlands as hearing aids are exclusively
        dispensed through retail stores (be it independent stores or large multinational
        chains).
(355)   The Netherlands is a well-developed market with around 300 000 units sold in
        2017 in approximately 1 100 points of sale. The ASP of hearing aids at
        wholesale level in the Netherlands is at EUR 198, which is lower than the EU-
        wide ASP at EUR 255, while the average retail price reaches EUR [870-
        1 000].191
(356)   Similarly to other EEA countries, a patient suffering from hearing impairment in
        the Netherlands need to visit an ENT or an audiologist at a private dispenser in
        order to be provided with a prescription determining the category of hearing aid
        for which the patient is eligible to receive reimbursement.
(357)   Reimbursement in the Netherlands used to be among the most generous in the
        EEA, with reimbursements up to EUR 500 per hearing aid (including services
        provided by the audiologists). However, in 2013, there was a reform within the
        reimbursement system that significantly reduced sales, since reimbursement is
        now linked to the severity of the hearing loss.
(358)   Today, there are five categories of hearing aids based on the severity of the
        patient's hearing loss and the need for a high performing hearing aid (category 5
        being prescribed to people with severe hearing loss and high necessity for a high
        performing hearing). Preconditions of reimbursement are that the patient
        chooses a hearing aid within the prescribed hearing aid category, and that he/she
        obtains the hearing aid in the shop of a dispenser that has a contract with an
        insurance company (about 83-85% of hearing aids in the Netherlands are
        dispensed through shops that have contracts with a health insurance company).
        The reimbursement is administered by the Dutch Ministry of Health, and
        subsidies are provided by health insurance companies which act privately, but
        are directly linked to the Dutch government by the Ministry of Health.
(359)   Health insurance providers reimburse 75% of the retail price of a hearing aid
        within the category for which the patient qualifies (patients paying the
        remaining 25%). The maximum price per hearing aid differs per insurance
        company, based on the contract in place between the insurance company and
        retailers, being specified that the majority of these contracts are won following
        tender procedures organised by health insurance companies where price is a key
        driver. The Parties argue that since reimbursement rates have been reduced,
        indirect pressure is mounting on manufacturers of hearing aids: even though
191    Parties’ response to the Commission's request for information RFI 19, questions 1 and 3.
                                                      71
 ---pagebreak---  ---pagebreak--- (365)   The market share estimates of the Parties are overall in line with the
        Commission’s market reconstruction and the difference will not impact the
        competitive assessment.
              The Parties’ view
(366)   According to the Parties, the Dutch market is highly competitive, with strong
        manufacturers, such as GN (the largest player on the market) as well as William
        Demant and Sonova. The Parties also submit that, since the 2013, health
        insurance companies have exerted a downward pressure on wholesale prices:
        according to the Parties, wholesale prices of hearing aids in the Netherlands are
        lower than the EU average and have in fact decreased by up to 10% per year
        over the past three years.
              The Commission’s assessment
(367)   First, the Commission notes that the Parties do not have a particularly large
        market share and a number of strong competitors would remain in the market
        post-Transaction. The Merged Entity would continue to face vigorous
        competition from GN, with a [20-30]% market share, as well as Sonova ([20-
        30]% market share) and William Demant ([20-30]% market share), with their
        own route to market, and Starkey ([0-5]% market share). In addition, the Parties
        provided market share data showing that during the period 2012-2016, William
        Demant’s market share increased from [20-30]% to [30-40]% (and then dropped
        to [20-30]% in 2017) and GN’s market share grew from [10-20]% to [20-30]%,
        illustrating the dynamics in the market and the degree of competitiveness of the
        marketplace.
(368)   Second, customers can switch among suppliers with relative ease. Contracts
        with retailers are always contestable and can be easily terminated given that they
        are generally entered into for a period of one year or can be terminated at any
        moment by the retailer.192 Independent retailers are typically not subject to
        exclusivity clauses, meaning they can progressively insert new suppliers into
        their product mix and they typically carry products from at least three suppliers,
        which enable them to easily re-allocate the share of wallet of their suppliers.193
        This also applies to larger chains that generally follow a multi-brand strategy
        and can therefore switch by simply increasing or decreasing volumes from a
        certain supplier without the adjustment or amendment of their contracts being
        required.194 In this respect, Sivantos explained that […] decided to […]
        Sivantos' products in the Netherlands (in favour of […]’s products) following
        Sivantos' decision […] at the time of the implementation of the new
        reimbursement system in 2013.
(369)   Third, the Parties are not close competitors. The market investigation confirms
        that all hearing aid manufacturers constitute credible suppliers and that no
        competitor is more innovative than others.195 While Widex generates the
192   Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 6.
193   Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 15.
194   Non-confidential replies to questionnaire Q3 to large retail chains, question 24.
195   Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 18 and non-
      confidential replies to questionnaire Q3 to large retail chains, question 23.
                                                       73
 ---pagebreak---         majority ([…]%) of its sales with independent retailers, Sivantos only generated
        […]% through this channel of distribution and focuses its efforts towards large
        chains ([…]%) and buying groups ([…]%). This is further illustrated by the fact
        that, other than large chains ([…]), the Parties' do not have any common
        customers.
(370)   Fourth, the replies to the market investigation expressed a relatively neutral
        position concerning the potential impact of the Transaction.196 The vast majority
        of respondents consider that, post-Transaction, there will still be a sufficient
        number of competing manufacturers to exert a competitive constraint on the
        Merged Entity.
(371)   The Commission, taking into consideration all of the above, including the results
        of the market investigation, concludes that the Transaction does not raise serious
        doubts as to its compatibility with the internal market in relation to the
        manufacture and wholesale supply of hearing aids in the Netherlands.
Norway
(372)   The distinction between public and private markets as described in recital 49
        above is not applicable for Norway.197
               Regulatory background
(373)   Similarly to other Nordic countries like Denmark and Sweden, Norway offers
        hearing aids directly through its public healthcare system and the Norwegian
        market is characterised by the use of tendering procedures.
(374)   Public tenders are administered by the Norwegian Labour and Welfare
        Administration (“NAV”), a public procurement body in charge of organising
        tenders every two to four years to select the hearing aids dispensed at public
        hospitals and clinics. All hearing aids dispensed through the public system are
        subject to the same fixed reimbursement level (EUR 620 in 2018, including 25%
        VAT). In practice, the vast majority of hearing aids are provided free of charge
        to patients.
(375)   Contracts resulting from NAV’s tenders run for two to four years: an initial
        period of two years with the possibility for NAV to extend it twice by one year.
        Contracts resulting from the latest NAV tender will run until September 2019. A
        new tender has been launched on 16 December 2018; participants had until 31
        January 2019 to submit their bids. The results of the tender are expected to be
        published in April 2019 and the new contracts are expected to be signed in May
        2019.
196   Non-confidential replies to questionnaire Q2 to retailers of hearing aids, questions 59 and 60 and
      non-confidential replies to questionnaire Q3 to large retail chains, questions 82 and 83.
197   Virtually all sales of hearing aids in Norway are made through the public system, and the Parties’
      (marginal) sales outside of the public system are made by the Parties directly to patients (in most
      instances, this concerns sales of replacement hearing aids not covered by the public system). As a
      result, a distinction between public and private markets in Norway is irrelevant for the purpose of
      the present case.
                                                      74
 ---pagebreak--- (376)   NAV structures the tender process around product categories. There were eight
        different categories in the most recent tender launched in 2014 (with contracts
        resulting from this tender entering into force on 1 October 2015), 14 categories
        in the 2011 tender, and two categories in the 2009 tender. In each category,
        hearing aids must meet specific and detailed technical requirements to address
        specific hearing loss problems.
(377)   As part of its selection process, NAV assigns a score to each product tendered,
        based on a point system for technical features (typically 70% of the final note)
        and prices (typically 30% of the final note). Each participant can submit
        multiple bids (one bid per product) within a same category. Products with the
        best price/quality ratio are selected and ranked from the highest to the lowest
        score. The number of products selected in each category is at the discretion of
        NAV. For instance, 23 products were selected in category 4 (concerning so-
        called “Mini” hearing aids) of the 2014 tender, while 24 products were rejected
        due to low ranking of price/performance and five products were not qualified.
        On the other hand, all 14 products which tendered for category 3 (concerning
        so-called “Superpower” RIC hearing aids) were ultimately selected. Participants
        typically do not know in advance how many bids will be selected within each
        category.
(378)   The new tender that was published in December 2018 contains 18 products
        categories. The segmentation into more categories aims at making it easier for
        small suppliers to fulfil the technical requirements set by NAV (instead of broad
        categories covering several types of products) and therefore to participate in the
        tender. In this tender, NAV also gives more importance to price (which accounts
        for 35-45% of the final note in most categories and up to 100% of the note for
        five categories, therefore increasing competition between manufacturers and
        exerting a downward pressure on prices).
(379)   In practice, due to the lower importance given to price in the 2014 tender (30%
        of the final note to quality a product), the reimbursement level determined by
        NAV acts as a focal point that eliminates price competition (everyone just bids
        at the level that NAV reimburses).198 According to the Parties, the approximate
        ASP of hearing aids in Norway in 2017 was EUR 468 per hearing instrument.
        According to NAV, the high level of prices in Norway compared to other EEA
        countries with similar functioning (such as Denmark) is explained by the fact
        that (i) the reimbursement level acts as a focal point, (ii) only the most advanced
        hearing aids including the latest technological features are offered to patients,
        and (iii) additional services are included for the price, such as the possibility for
        patients to try hearing aids for a period of up to six months free of charge.199 The
        level of price is however expected to decrease (at least for some product
        categories) due to the new selection criteria set by NAV in the ongoing tender.
(380)   After the tender contract is awarded, public hospitals and clinics can procure the
        hearing aids listed by NAV directly from the suppliers (who in turn will invoice
198   According to NAV, hearing aids are usually priced close to the maximum level of reimbursement
      (73.6% of the products are priced below the reimbursement level, 16.6% of the products are priced
      at the reimbursement level, and only 9.8% of the products are priced above the reimbursement
      level). See non-confidential minutes of the call with NAV of 26 October 2018.
199   Non-confidential minutes of the call with NAV of 26 October 2018.
                                                       75
 ---pagebreak---  ---pagebreak---  ---pagebreak--- (388)  An analysis of the Parties’ position within each product category shows that the
       Parties are not close competitors and other strong players will continue to
       constrain the Merged Entity post-Transaction. While in several categories the
       Parties’ combined market share remains moderate (below 30%), with the
       presence of other strong competitors, in the other categories, the data provided
       by NAV shows that the Parties are not each other’s closest competitor. Indeed,
       even if Widex holds a market share of [40-50]% in category 4; the Transaction
       would not bring about a significant change on the market since the increment
       brought about by Sivantos would be minimal, amounting to [0-5]%, and the
       Merged Entity would continue to face the competition of strong players such as
       Sonova with a market share of [30-40]%, and Starkey with a market share of
       [10-20]%. The same holds true for the tender category 8 (concerning tinnitus
       therapy instruments) where Sivantos holds a market share of [50-60]%; the
       Transaction would not bring about a significant change on the market since the
       increment brought by Widex would be minimal, amounting to [0-5]% and the
       Merged Entity would continue to face the competition of strong players such as
       Sonova with a market share of [10-20]%, William Demand with a market share
       of [10-20]%, as well as GN and Starkey with a market share below 10% each.
(389)  In addition, according to the NAV, the increase in the number of categories
       (from 8 to 18) is expected to attract smaller suppliers who will be able to meet
       the technical requirements set by NAV and thus to participate in the tender. The
       relatively higher importance given to price is also expected to increase price
       competition between manufacturers and exert a downward pressure on price
       levels in Norway.
(390)  Finally, as concerns future tenders, the market investigation indicated that the
       Merged Entity will continue to be subject to sufficient competitive constraints.
       Specifically, NAV considers that “all manufacturers are perceived by NAV as
       being innovative companies and they all compete fiercely” and that “a sufficient
       number of hearing aid suppliers will remain active on the market and ensure its
                           204
       competitiveness”.
(391)  As regards competition in the market, an analysis of the Parties’ position within
       each of the 2014 tender category between 2016 and 2017 illustrates the
       competitiveness of the Norwegian market: while Sivantos’s market share
       decreased significantly in category 8 in favour of William Demant’s share,
       Widex’s market share dropped dramatically in favour of Sonova in category 8.
       This high fluctuation of market shares and the increase of (i) Sivantos’ market
       shares (and the corresponding decrease of William Demant’s market shares) and
       (ii) Widex’s market shares (and the corresponding decrease of Sonova’s market
       shares) illustrate the competitive constraint exerted by competitors on the
       Parties.
(392)  The Commission, taking into consideration all of the above, including the results
       of the market investigation, concludes that the Transaction does not raise serious
       doubts as to its compatibility with the internal market in relation to the
       manufacture and wholesale supply of hearing aids in Norway.
204   Non-confidential minutes of the teleconference with NAV dated 26 October 2018.
                                                    78
 ---pagebreak--- Poland
(393)  The Polish hearing aid market is entirely private and therefore the split between
       public and private is not applicable. The Polish market had a total market size of
       159 000 units in 2017. The market has been growing over the past years at a rate
       of 5-7% per year. There are approximately 2 200 points of sale. Half of these
       retail stores are retails chains and independent audiologists whereas the other
       half is owned fully or partly by manufacturers.
(394)  In the Polish hearing aid market reimbursement is available for hearing aids via
       public health programmes administered by the National Health Fund (NFZ) on
       behalf of the Ministry of Health in Poland. The NFZ provides a flat
       reimbursement of EUR 166 per hearing aid for all adults every five years. For
       children, there is an increased reimbursement rate of EUR 444 per hearing aid.
       Patients suffering from binaural hearing loss can receive up to full
       reimbursement. Repairing costs are not reimbursed, but manufacturers must
       provide a 30-month manufacturer guarantee in order to qualify from
       reimbursement.
(395)  Similar to other EEA markets, a patient in Poland suffering from hearing
       impairment must receive a prescription from one of the approximatively 4 500
       ENTs in order to benefit from reimbursement. Hearing aids are sold by private
       hearing aid clinics (retail stores), and the clinic takes care of the reimbursement.
       Nearly all hearing aid purchases are made on the basis of an ENT prescription,
       and almost all patients “top up” their hearing aids by paying an amount that
       exceeds the reimbursement rate. Approximately 40% of all patients with NFZ
       prescriptions apply for an additional reimbursement from the State Fund for
       Rehabilitation of Disabled Persons, which is administrated by the Ministry of
       Social Affairs of Poland. As the waiting list is long (up to one year), this
       application can delay the fitting of the hearing aid. Only a very limited number
       of users pay for their hearing aids entirely by themselves without
       reimbursement. This is, for example, the case for users who have lost a hearing
       aid.
(396)  The retail market comprises (i) a number of manufacturer owned retail stores:
       the Sluchmed chain (between 300-450 POS and owned by William Demant), the
       Audiofon chain (roughly 300 POS and owned by Widex), the Geers chain
       (roughly 200 POS and owned by Sonova), the MarMed chain (roughly 50 POS
       and owned by Starkey) and Kind which owns 85 POS, (ii) buying groups and
       franchise chains like Amplifon with around 60 POS and (iii) independent retail
       stores.
             The Parties' and their competitors' market shares in Poland
(397)  All six major manufacturers of hearing aids and Audifon (Kind) are present in
       Poland. In addition, a number of smaller competitors, such as the Spanish
       manufacturer Microson, the Chinese manufacturer AST, and the Austrian
       manufacturer BMH, are also active in Poland.
(398)  Sivantos is active in Poland through its wholesale affiliate Sivantos Sp. z.o.o.
       and sells hearing aids under the brands Signia and Audio Service. Sivantos sells
       the majority of its volume to independent retailers (approximately 70%) of sales
                                                79
 ---pagebreak---  ---pagebreak---                Competitive assessment: the Commission’s view
(403)    First, the Commission notes that the Transaction combines the third and fourth
         player in the market and creates a new number one with roughly a [30-40]%
         market share. Post-Transaction, the Merged Entity would continue to face
         competition from William Demant ([20-30]%), Sonova ([20-30]%), GN ([0-
         5]%), Starkey ([0-5]%) with their own route to market. Smaller companies such
         as Kind are also present in the Polish heading aid market with a direct route to
         market.
(404)    Second, the Parties’ closeness is limited as they target different routes to market.
         Whereas Widex sells mostly to […] with [a vast majority] of its total sales in
         2017 in Poland and the rest of its sales to […], Sivantos is mostly focused on
         sales to […] retailers for [the vast majority] of its total sales in 2017 in Poland.
         Furthermore, there is a very limited subset of common customers. These
         common customers usually also carry additional brands from different
         manufacturers.
(405)    In addition, no respondent to the market investigation, and in particular retailers
         active in Poland, raised substantiated concerns in relation to the Transaction.
(406)    The Commission, taking into consideration all of the above, including the results
         of the market investigation, concludes that the proposed Transaction does not
         raise serious doubts as to its compatibility with the internal market in relation to
         the manufacture and wholesale supply of hearing aids in Poland.
Portugal
(407)    The Portuguese hearing market is split between public sales, which account for
         around 10% of hearing aids dispensed to patients in the country, with the
         remaining 90% being dispensed via private retailers, including both independent
         shops, and large chains such as GAES/Amplifon.
(408)    The public market typically offers lower-end hearing aids that can be distributed
         free of charge through public hospitals. Public hospitals in Portugal collect (at
         least three) quotes from retailers before prescribing hearing aids to a specific
         patient. In addition, there is one national tender covering less than 1% of the
         total hearing aid market in Portugal which takes place annually. In both cases,
         price is the key factor for hearing aid manufacturers to be retained. Widex does
         not participate in the per-patient “tenders”. The company previously participated
         in the national tender, but has not done so in any of the last three years due to a
         substantial price drop. Sivantos did not register any sales to the public sector in
         Portugal over the last three years. As a result, there is no overlap on the public
         market in the Portugal between the Parties, and the competitive assessment in
         the present section focuses on the private wholesale market.
(409)    Sivantos does not have a local presence in Portugal, whereas Widex is active
         both at wholesale and retail level.205 Out of the other major hearing aid
         manufacturers active in Portugal, only GN operates through a local wholesale
205   There is no vertically affected market in Portugal due to the Parties’ limited market share (below
      30%) on both the upstream and downstream markets.
                                                     81
 ---pagebreak---  ---pagebreak---  ---pagebreak---         competition from all global competitors and a number of second-tier players
        including the Japanese-based manufacturer RION and BHM.213, 214
(419)   In Romania, the Parties are not close competitors. First, they serve opposite
        extremities of the performance level spectrum. Sivantos mainly sells products of
        its lower-end brands AudioService ([…]%) and A&M ([…]%). Only […]% of
        Sivantos sales in Romania in 2017 covered higher-end (Signia) products in
        2017. Sivantos sales in Romania focus on the least technologically advanced
        products of Sivantos’ portfolio, while the vast majority of Widex products cover
        higher-end products of the Widex brand ([…]%).215 Only […]% of Widex’ sales
        in Romania correspond to Widex’s lower-end brand Coselgi. The Parties’
        differentiated strategies in Romania are further reflected in the very different
        average wholesale prices achieved by either Party: in 2017, Widex achieved an
        average wholesale price of EUR […] while Sivantos achieved an average
        wholesale price of only EUR […].216
(420)   Second, the Parties do not share any common distributor and use different routes
        to market. While Widex’s distributor Sonorom is marginally active in the
        wholesale market and acts as Widex’s exclusive distributor mostly in its own
        retail stores, Sivantos’ distributors are more largely active at wholesale
        distribution level and commercialise some Sivantos products in their own retail
        stores.
(421)   Third, the market investigation confirmed that the Parties are not particularly
        close competitors in Romania. In particular, no respondent identified either
        Party as being particularly close to the other. On the contrary, Sonova, GN and
        William Demant were quoted by distributors and retailers as Sivantos’s and
        Widex’s closest competitors.217 More specifically, one market participant in
        Romania notes that “Sivantos and Widex are on the opposite spectrum of
        amplification philosophy - Widex is traditionally more conservator, more noise
        reduction savvy, whereas Sivantos is more aggressive, more intrusive”.218
(422)   Moreover, distributors in Romania typically enjoy the possibility of switching
        between several hearing aid suppliers. Unlike Widex’s distributor […], several
        distributors active in Romania, including Sivantos’ distributor Soundservice,219
        carry multiple brands, which allows distributors to readily switch between
        hearing aids of different manufacturers and reallocate their respective share of
213   Non-confidential replies to questionnaire Q1 to competitors, question 4.
214   The Notifying Parties explain that the Chinese manufacturer LiSound is actively selling hearing
      aids in Romania via online sales channels, but this information could not be confirmed during the
      Commission’s market investigation. Similarly, the Notifying Parties claim that the Turkish
      manufacturer Eartechnic is present in Romania, but this information could not be confirmed.
215   Assessment based on the Parties’ response to the Commission's request for information RFI 12,
      question 4.
216   This compares to ASP of major competitors ranging between EUR 40 and EUR 180. In other
      terms, Sivantos products are sold within the ASP range achieved by competitors, while Widex is,
      by some distance, the most expensive hearing aid wholesale active in Romania.
217   Non-confidential replies to questionnaire Q2 to retailers of hearing aids, questions 39 and 40.
218   Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 59.
219   Soundservice distributes products of the AudioService (Sivantos), Phonak (Sonova), Sonic
      (William Demant) and Audifon (Kind) brands (http://www.soundservice ro/produse-proteze-
      auditive, consulted on 24 January 2019).
                                                     84
 ---pagebreak---          wallet. For instance, in 2017, the Romanian distributor of the Phonak (Sonova)
         brand stopped distributing Sonova products and reallocated its purchases in
         favour of other manufacturers. While Widex’s distributor […] exclusively
         carries Widex products, its contract with Widex does not contain any exclusivity
         clause.
(423)    Finally, no market participant raised particular concerns with respect to the
         Transaction in Romania. More specifically, respondents do not expect any
         particular effect of the Transaction on the wholesale market in Romania.220
(424)    In light of the above, the Commission considers that the proposed Transaction
         does not raise serious doubts as to its compatibility with the internal market with
         regard to horizontal non-coordinated effects in the market for the production and
         wholesale of hearing aids in Romania.
Slovakia
(425)    The distinction between public and private markets as described in recital 49
         above is not applicable for Slovakia as there are no public tenders in Slovakia
         and hearing aids are exclusively prescribed by ENTs and sold via authorized
         retailers.
(426)    All major hearing aid manufacturers, with the exception of Widex, are active in
         Slovakia through third-party distributors or sell directly to Slovakian retailers
         from wholesale affiliates located in neighbouring countries.
               Regulatory background
(427)    In Slovakia, hearing aids are eligible for reimbursement via both public and
         private health insurance schemes, up to a fixed level of EUR 250 for one
         customised hearing aid. Insurance schemes, both public and private, use
         standard contracts with hearing aid distributors, for which there are no tenders or
         negotiations.
(428)    To qualify for reimbursement, hearing aids must be registered in an official list
         at a fixed price (consisting of a base price negotiated between hearing aids
         manufacturers and distributors, as well as a 20% profit margin and VAT). Once
         the price of a specific hearing aid model has been fixed accordingly at national
         level, it cannot be modified. The registration process, which is carried by the
         hearing aid manufacturers’ local affiliate or distributor involves low fees, but is
         complex and takes around 6-9 months on average.
(429)    Patients must visit an ENT and obtain a prescription to benefit from the
         reimbursement scheme. The ENT examines the patient, then may conduct tests
         using two different hearing aid brands and/or provides the patient with a list of
         suitable hearing aids, and then provides the patient with a prescription for a
         specific hearing aid model. ENTs are prohibited by law from selling hearing
         aids directly to customers or from receiving payment from suppliers based on
220    Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 59.
                                                      85
 ---pagebreak---  ---pagebreak---                The Commission’s assessment
(434)    All major players, except Starkey, are active in Slovakia along the Parties.
         While the Merged Entity would take over Widex’s place as the largest player in
         the Slovakian market, it would continue to face strong competitors such as
         Sonova ([20-30]% market share), GN ([20-30]% market share) and William
         Demant ([10-20]% market share). According to the Parties, Starkey is expected
         to be currently exploring opportunities for entering the market through a local
         distributor. Besides the major players, second tier competitors such as Audifon
         also offer products on the Slovakian market.
(435)    Furthermore, the increment brought by the Transaction remains limited (below
         5%). Among the major hearing aid manufacturers, Sivantos is the smallest
         player in Slovakia through one single exclusive third-party distributor.
(436)    In addition, Sivantos and Widex have very different market positioning in
         Slovakia and, as a result, do not appear as particularly close competitors. The
         Commission’s comparative assessment of performance levels in Slovakia in fact
         shows that Sivantos is offering a high proportion of lower-end products, while
         Widex focuses on middle-class products.
(437)    Finally, no respondent to the market investigation, and in particular retailers
         active in Slovakia, raised specific competition concerns in relation to the
         Transaction and its impact on the Slovakian market.224
(438)    The Commission, taking into consideration all of the above, including the results
         of the market investigation, concludes that the Transaction does not raise serious
         doubts as to its compatibility with the internal market in relation to the
         manufacture and wholesale supply of hearing aids in Slovakia.
Slovenia
(439)    The distinction between public and private markets as described in recital 49
         above is not applicable for Slovenia as hearing aids are exclusively dispensed
         through private retailers.
(440)    Out of all the major manufacturers of hearing aids, only Widex has a direct
         presence through a local wholesale affiliate. Other players, including Sivantos,
         are either active through third-party distributors or sell directly to Slovenian
         retailers from wholesale affiliates located in neighbouring countries. Widex is
         also active on the retail market, with 10 points of sale in Slovenia.
(441)    The Health Institute of Slovenia (the "HIS") provides reimbursements of up to
         EUR 300 for the purchase and fitting of hearing aids. If the price of hearing aids
         exceeds the reimbursement level, patients need to pay for the difference. The
         Parties estimate that a majority of patients in Slovenia pay up to an additional
         EUR 300 for hearing aids. Only 10% of patients procure hearing aids outside of
         the reimbursement system (without any reimbursement).
224    Non-confidential minutes of calls with a retailer active in Slovakia of 7 November 2018 and non-
       confidential minutes of the call with a retailer active in Slovakia of 21 November 2018.
                                                         87
 ---pagebreak---  ---pagebreak---        between the Parties as Sivantos is only indirectly active in Slovenia via a
       distributor.
             The Commission’s assessment
(447)  As can be seen in Table 28, the Parties estimate that, in 2017, their combined
       market share would be higher than 50% (60% under the market reconstruction).
       Other players whose products are supplied (directly or indirectly) in Slovenia
       include William Demant, Sonova, and GN. In addition, the market investigation
       confirmed that Starkey entered the Slovenian market in 2018 through a third-
       party distributor vertically integrated into retail.226 It also revealed that BHM
       was marginally present in the country.
(448)  […] Austria-based retailer Neuroth, the leader of the retail market in Slovenia,
       which operates 21 points of sale in the country. Neuroth benefits from a strong
       brand recognition due in particular to its aggressive marketing activities.227 In its
       Slovenian outlets, Neuroth offers Sivantos products, […], but also products from
       Sonova and William Demant. Neuroth does not market Widex products in
       Slovenia, although it did so in the past.
(449)  Sivantos sales to Slovenia are indirect, and the company does not have the
       ability to single-handedly increase or decrease its supply to the Slovenian
       market, or modify the relevant prices, should it decide to do so. Sivantos sales to
       Neuroth take place within the framework of a […] contract that covers […],
       which are much larger end markets than Slovenia. Under the […] contract, […].
(450)  On […]. As a result, the expected share of supply of Sivantos to customers in
       Slovenia is expected to decrease […].228. By contrast, sales of hearing aids from
       other manufacturers (in particular William Demant’s and Sonova’s, which are
       currently dispensed by Neuroth in Slovenia) are expected to grow proportionally
       to the decrease of Sivantos’ market share.
(451)  Furthermore, a sufficient number of alternative manufacturers will remain active
       in Slovenia post-Transaction. All the main manufacturers of hearing aids, are
       active in Slovenia, as well as second-tier manufacturers such as BHM to a very
       limited extent. Starkey entered the Slovenian market in 2018, which has had a
       positive impact on the competitive landscape.229 All of the major hearing aid
       manufacturers have hearing aids eligible for reimbursement in Slovenia.
(452)  Finally, no respondent to the market investigation, and in particular retailers in
       Slovenia, raised credible concerns in relation the Transaction and its impact on
       the Slovenian market.230
(453)  The Commission, taking into consideration all of the above, including the results
       of the market investigation, concludes that the Transaction does not raise serious
226   Non-confidential minutes of the call with a retailer active in Slovenia of 19 December 2018.
227   Non-confidential minutes of the call with a retailer active of 19 December 2018.
228   […].
229   Non-confidential minutes of the call with a retailer active of 19 December 2018.
230   Non-confidential replies to questionnaire Q3 to large retail chains, question 82. Non-confidential
      minutes of the call with a retailer active of 19 December 2018.
                                                        89
 ---pagebreak---  ---pagebreak---                The Parties’ view
(459)   The Parties argue that the Transaction will not impede effective competition in
        Spain in particular because neither Sivantos nor Widex has a local presence in
        Spain, and because all major hearing aid manufacturers are present in the
        Spanish market, which is characterised by strong countervailing buyer power by
        large chains, in particular GAES/Amplifon.
               The Commission’s assessment
(460)   Widex does not have a local presence in Spain, whereas Sivantos started a direct
        wholesale business in September 2018 with the acquisition of AS Iberica, a
        historic distributor of Sivantos products.231 Widex is only active through two
        exclusive distributors, which are local partners in which Widex holds a […].
        With the exception of Starkey, all of the other major hearing aid manufacturers
        operate through a local wholesale presence in Spain. Widex and Starkey use
        local third-party distributors, which are typically vertically integrated into the
        retail market.232
(461)   Sivantos is mainly active in Spain through GAES, which operates the largest
        hearing aids retail chain in Spain, and also manufactures its own hearing aids
        under the Microson brand. GAES holds exclusive sales rights over the higher-
        end Signia and Rexton brands in Spain. GAES has been acquired by Amplifon
        in December 2018.233 Sivantos also sells hearing aids to other third-party
        distributors which are active at the retail and/or wholesale levels.
(462)   While it will become the main player on the market, the Merged Entity’s market
        share would remain below 40%. The Merged Entity would continue to face
        strong competition from all global competitors, including in particular GN as
        well as Sonova and William Demant. The Merged Entity would also, to a more
        limited extent, face competition from a number of second-tier players including
        in particular Spain-based Microson (GAES), as well as BHM, and Eartechnic.
(463)   Also, the Parties are not particularly close competitors based on their customers’
        profile. While Widex distributes its products via local partners in which it holds
        a minority stake, Sivantos focuses its activity on GAES, the largest hearing aid
        retailer in Spain, to which Widex makes no sales.
(464)   Furthermore, Sivantos’ main customer, GAES, which accounts for [the vast
        majority] of Sivantos’ sales in Spain, enjoys a significant degree of
        countervailing buyer power. GAES is the biggest player at the retail level by far,
        with over 600 point of sales in Spain, and accounts for over 40% of the total
        retail share. It carriers other brands than Sivantos’ in its shops, including Starkey
        and also manufactures hearing aids under the Microson brands that it sells in its
        shops. In December 2018, Amplifon, which accounts for over 10% of the total
        Spanish retail share, acquired GAES, meaning the Merged Entity represents
231   https://www.sivantos.com/2018/09/05/as-iberica-joins-sivantos-group-and-continues-as-sivantos-
      iberica/.
232   Non-confidential replies to questionnaire Q1 to competitors, question 3.
233   http://corporate.amplifon.com/amplifon-completes-the-acquisition-of-gaes.
                                                     91
 ---pagebreak---         over 50% of the retail market in Spain, and as such represents a critical
        distribution channel for hearing aid manufacturers. […].
(465)   Several distributors, including Sivantos’ main customer, carry multiple brands,
        which allows them to switch between hearing aids of different manufacturers
        and reallocate their respective share of wallet. Widex’s local partners on the
        other hand only carry Widex products.
(466)   Finally, no respondent to the market investigation, and in particular retailers
        active in Spain, raised substantiated concerns in relation the Transaction and its
        impact on the Spanish market.234 235
(467)   In light of the above, the Commission considers that the Transaction does not
        raise serious doubts as to its compatibility with the internal market with regard
        to horizontal non-coordinated effects in the market for the production and
        wholesale of hearing aids in Spain.
Sweden
(468)   The Swedish market for hearing aids is large with a total market size of
        approximately 190 000 units in 2017 and a growth rate of 9% in 2016 and 6% in
        2017. The Swedish market is around 80% public (sales of hearing aids to
        regional public procurement authorities based on tendering procedures) and 20%
        private (sales of hearing aids to private retail stores based on bilateral
        negotiations). In line with the market definitions presented in recital 49, the
        Commission assesses the impact of the Transaction on the public and private
        markets for hearing aids separately.
(469)   According to the Parties’ best estimates, the ASP of hearing aids at wholesale
        level in the private sector was EUR 177 per hearing instrument (unit) and in the
        public sector EUR 132 per hearing instrument (unit).
(470)   All major hearing aid manufacturers are present in Sweden, but Starkey does not
        participate in the public tenders. Both Widex and Sivantos have a direct local
        presence at wholesale level with the establishment of an affiliate. However, for
        both Parties, the stock of hearing aids and the back office are in Denmark.
              The Parties' and their competitors' market shares in Sweden
Overall market for manufacture and wholesale distribution of hearing aids in Sweden
(471)   The Parties and their main competitors' market shares on the overall market for
        manufacture and wholesale distribution of hearing aids in Sweden are included
        in the table below:
234    Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 59.
235    Non-confidential replies to questionnaire Q6 to associations for the hearing impaired, question 23.
                                                      92
 ---pagebreak---  ---pagebreak---  ---pagebreak---  ---pagebreak--- (486)    Moreover, an analysis of the Parties’ position within each of the most recent
         tenders organised by the seven Swedish regions shows that there is certain
         degree of competition in the market. Sonova, GN and William Demant are all
         frequent bidders and winners in the different tenders organized in the Swedish
         regions. The Merged Entity would therefore continue to be constrained by a
         sufficient number of players post-Transaction.
(487)    Finally, no respondent to the market investigation, and in particular the public
         procurement authorities, raised substantiated concerns in relation the
         Transaction and its impact in Sweden.237
(488)    The Commission, taking into consideration all of the above, including the results
         of the market investigation, concludes that the Transaction does not raise serious
         doubts as to its compatibility with the internal market in relation to the
         manufacture and wholesale supply of hearing aids in Sweden.
United Kingdom
(489)    The UK is the EEA’s largest market for hearing aids, with over 1.7 million units
         sold in 2017. The overall framework for the provision of hearing aids in the UK
         is characterized by the preponderance of public sales, administered via the UK’s
         National Health Service (or “NHS”), which account for over 80% of hearing
         aids dispensed to patients in the UK. The remaining 20% are dispensed via
         private retailers, including both independent shops, and large chains such as
         Amplifon and Specsavers.
(490)    While Sivantos offers products to the NHS, Widex virtually offers no hearing
         aids to the public market.238 Widex entered the UK market in 2010, and is fully
         focused on the private market, largely due to […]. This situation is not expected
         to change in the foreseeable future, as Widex […]. As a result, there is no
         overlap on the public market in the UK between the Parties, and the competitive
         assessment in the present section focuses on the private wholesale market.
(491)    The Parties, as well as all of the major hearing aid manufacturers (including
         Starkey) operate in the UK private wholesale market through a local wholesale
         affiliate. In addition, several manufacturers are also vertically integrated into
         retail. This is the case of Widex, which offers its products through its own
         Bloom / Regional Hearing retail stores, as well as to third party retailers,239 but
         also of Sonova (through its joint venture with Boots) and William Demant
         (through Hidden Hearing). Conversely, Sivantos targets third party retailers.
237    Non-confidential replies to questionnaire Q4 to public purchasers of hearing aids, question 35.
238    Over the last three years, […] Widex hearing aids were sold via the public market, representing
       less than [0-5]% of the total sales over the period.
239    There is no vertically affected market in the UK due to the Parties’ limited market share (below
       30%) on both the upstream and downstream markets.
                                                         96
 ---pagebreak---  ---pagebreak--- (495)   Retailers in the UK can easily switch between several hearing aid suppliers.244
        They usually carry multiple brands from different manufacturers, which allows
        them to switch hearing aid manufacturers and reallocate their respective share of
        wallet with a short period of time.
(496)   Finally, respondents to the market investigation, and in particular retailers active
        in the UK, did not raise substantiated concerns in relation the Transaction and its
        impact on the UK market.245
(497)   The Commission, taking into consideration all of the above, including the results
        of the market investigation, concludes that the Transaction does not raise serious
        doubts as to its compatibility with the internal market in relation to the
        manufacture and wholesale supply of hearing aids in the UK.
        6.2.3.     Downstream market for the retail distribution of hearing aids
(498)   In the EEA, the Parties’ activities only overlap at retail level in Hungary.
        However, the Hungarian retail market does not constitute a horizontally affected
        market as the Parties’ retail market share is below 20% both at national level
        and when considering the narrowest plausible geographic market definition of
        catchment areas with a radius of a 30-minute drive.
(499)   Therefore, the Commission concludes that the Transaction does not raise serious
        doubts as to its compatibility with the internal market in relation to the market
        for the retail distribution of hearing aids in Hungary.
6.3.    Vertical non-coordinated effects
        6.3.1.     Legal framework
(500)   The Commission guidelines on the assessment of non-horizontal mergers under
        the Council Regulation on the control of concentrations between undertakings246
        (the "Non-Horizontal Merger Guidelines") distinguish between two main ways
        in which vertical mergers may significantly impede effective competition,
        namely input foreclosure and customer foreclosure.
(501)   For a transaction to raise input foreclosure competition concerns, the Merged
        Entity must have a significant amount of market power upstream.247 In assessing
        the likelihood of an anticompetitive input foreclosure strategy, the Commission
        has to examine whether (i) the Merged Entity would have the ability to
        substantially foreclose access to inputs, (ii) whether it would have the incentive
        to do so and (iii) whether a foreclosure strategy would have a significant
        detrimental effect on competition downstream. Concerns are likely to arise only
        where all three conditions are fulfilled.248
244   Non-confidential replies to questionnaire Q2 to retailers of hearing aids, questions 3.3 and 4.3.
245   Non-confidential replies to questionnaire Q2 to retailers of hearing aids, question 59. Also see
      Non-confidential replies to questionnaire Q4 to public purchasers of hearing aids, question 35.
246   OJ C 265, 18.10.2008, p. 6 to 25, paragraph 30.
247   Non-horizontal Merger Guidelines, paragraph 35.
248   Non-horizontal Merger Guidelines, paragraph 32. These points, while analysed separately are
      closely intertwined.
                                                     98
 ---pagebreak--- (502)  For a transaction to raise input foreclosure competition concerns, the Merged
       Entity should be in a position to restrict access of upstream competitors to a
       significant customer base as a result of the transaction. Similarly as for the
       assessment of input foreclosure concerns, in assessing the likelihood of an
       anticompetitive input foreclosure strategy, the Commission has to examine
       whether (i) the Merged Entity would have the ability to foreclose upstream
       competitor's access to clients downstream, (ii) whether it would have an
       incentive to do so and (iii) whether such a foreclosure strategy would have a
       significant detrimental effect on customers.249 Concerns are likely to arise only
       where all three conditions are fulfilled.
       6.3.2.    Competitive assessment
(503)  Hearing aid manufacturers supply their products (either directly or through
       third-party distributors) at the wholesale level to hearing aid dispensers
       (upstream market). Hearing aid dispensers then serve patients at the retail level,
       typically through audiology shops, hospitals or clinics (downstream market).
(504)  All hearing aid manufacturers are, at least to some extent, vertically integrated at
       the retail level. Depending on the EEA country, the individual degree of vertical
       integration of the various manufacturers can be very different. In general terms,
       hearing aid manufacturers are only occasionally present downstream in Eastern
       European countries and in smaller markets while they tend to operate retail
       stores in larger national markets. This trend has accelerated over the last years,
       in particular with Sonova's acquisition of Audionova (active in 10 countries
       including Belgium, Denmark, Germany, France, Italy, Luxembourg, Poland, and
       Portugal in the EEA), in September 2016 and William Demant's acquisition of
       Audika (active in Belgium and France) in November 2015.
(505)  Sivantos has marginal retail activities in the EEA, focused on Austria, Hungary
       and the Netherlands. Widex, on the other hand, owns and/or operates retail
       shops in each of Denmark, France, Hungary, Ireland, Poland, Portugal,
       Slovenia, and the United Kingdom.
(506)  Moreover, since 2015, Sivantos operates the online platform audibene in
       Germany, France and the Netherlands. This online platform refers potential
       customers to partner audiologists. When a sale is made following a referral,
       audibene earns the purchase price and pays the audiologist a fitting fee (which
       varies according to the price level of the device). audibene has grown
       dramatically in recent years and now has around […] partner audiologists in
       Germany, […] in the Netherlands and […] in France. Despite the dramatic rise
       of audibene in recent years, only a marginal number of hearing aids were sold
       through audibene in France ([…] units) and the Netherlands ([…] units) in 2017,
       accounting for less than […]% of the total volume of hearing aids sold in each
       of these countries. Similarly, sales of hearing aids through audibene in Germany
       only accounts for less than […]% of the total sales of hearing aids in Germany
       in 2017.
(507)  An overview of the vertically affected markets arising from the Transaction is
       provided in the table below.
249   Non-horizontal Merger Guidelines, paragraph 59.
                                                  99
 ---pagebreak---  ---pagebreak---        competing hearing aid suppliers at the manufacture and wholesale level in each
       of the vertically affected markets. More specifically, the Parties will continue to
       face competition from at least three other major manufacturers, including global
       market players such as Sonova, William Demant, GN, and/or Starkey, as well as
       second-tier players such as Audifon and BHM (particularly in Czechia, Poland
       and Slovakia).
(513)  The Commission finds that in the present case, any foreclosure strategy
       conducted at a national level would likely divert wholesale sales towards rival
       manufacturers while only leading to marginal benefits at the retail level due to
       the Parties’ limited market share downstream, and the competition they face in
       every relevant market. The market investigation indeed confirms the ability of
       retailers to switch between hearing aid suppliers within a short period of time, in
       particular due to the fact that the vast majority of retailers rely on multi-sourcing
       strategies.250 Retailers usually carry multiple brands from different
       manufacturers, which allows them to switch hearing aid manufacturers and
       reallocate their respective shares of wallet within a short period of time, should
       supply conditions from the Merged Entity deteriorate post-Transaction.
(514)  This is further reinforced by the fact that Widex’s products typically generate
       higher margins than Sivantos products. As such, an input foreclosure strategy
       that would imply ceasing to supply Sivantos products to third parties and instead
       offer these Sivantos products in Widex shops would negatively impact the
       Merged Entity's margin.
(515)  As regards Slovenia more particularly, where Widex holds a market share of
       [30-40]% downstream, input foreclosure risks can also be excluded since
       Sivantos’s only customer in Slovenia, Neuroth, […], and Widex only sells its
       products in its own retail shops.
(516)  As a result, the Parties would lack the ability and the incentive to foreclose
       competing retailers in each of the affected market of Table 34. Accordingly, the
       Commission concludes that the Transaction does not raise serious doubts as to
       its compatibility with the internal market relative to input foreclosure risks.
            6.3.2.2.    Commission assessment - Customer foreclosure
(517)  The Commission considers that the Transaction does not give rise to any
       customer foreclosure risk due to very limited retail presence of the Parties when
       compared to their wholesale activities. In most countries, the national market
       share of Sivantos or (mostly) Widex, is around or below 5%. The only
       exceptions are Poland and Slovenia, where Widex’s share on the national retail
       market reaches [10-20]% and [30-40]% respectively. Furthermore, with the
       exception of Hungary (which, nevertheless, is not a vertically affected market as
       the Parties’ combined market share remains largely below 30% both at the
       upstream and downstream levels), the Parties’ activities do not overlap at retail
       level.
(518)  As a result, the Commission finds that the Transaction would not lead to any
       reinforcement of the Parties' downstream market presence downstream, limiting
250   Non-confidential replies to questionnaire Q2 to retailers of hearing aids, questions 3.3 and 4.3.
                                                     101
 ---pagebreak---        the impact of the Transaction on any incentive to foreclose its upstream
       competitors by leveraging its downstream retail presence. Accordingly, the
       Commission concludes that the Transaction does not raise serious doubts as to
       its compatibility with the internal market relative to customer foreclosure risks.
            6.3.2.3.  Conclusion
(519)  In light of the above, the Commission concludes that the Transaction does not
       raise serious doubts as to its compatibility with the internal market as regards
       vertical effects in relation to the retail distribution of hearing aids
6.4.   Horizontal coordinated effects
       6.4.1.    Legal framework
(520)  According to the Horizontal Merger Guidelines, horizontal concentrations may
       also significantly impede effective competition by way of coordinated effects.
       Such situation would occur if the Transaction would (a) increase the likelihood
       that firms are able to coordinate successfully, or (b) make existing coordination
       easier, more stable or more effective, either by making the coordination more
       robust or by reinforcing its effects, for example by facilitating the detection of
       deviation, limiting the ability and incentives of some market players to deviate
       and allowing more efficient retaliation.251 Coordination may take various forms,
       such as setting prices above the competitive level, limiting production or
       capacity, dividing the market, or by allocating contracts in bidding markets.252
       In assessing whether it would be possible to reach terms of coordination and
       whether the coordination is likely to be sustainable, the Commission takes
       account of all the changes that a transaction is likely to bring about.
(521)  In general, according to case law of the European courts, three features of the
       market may provide indications as to whether coordination is likely to be
       sustainable. First, the coordinating firms should be able to monitor to a
       sufficient degree whether the terms of coordination are being adhered to.
       Second, coordinating firms are more likely to adhere to coordinated behaviour if
       the incentives not to deviate deter them from departing from the coordinated
       action. 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 the results expected from the coordination or the effect of their
       reaction would be too small to effectively counterbalance the effect of potential
       coordination on the relevant market.253
(522)  Coordination is more likely to emerge in markets where it is relatively simple to
       reach a common understanding on the terms of coordination. 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 coordination. 254 In addition,
       firms may find it easier to coordinate if they are relatively symmetric, especially
251   Horizontal Merger Guidelines, paragraph 42.
252   Horizontal Merger Guidelines, paragraph 40.
253   See Case T-342/99 Airtours v Commission, recital 62 ; and Case C-413/06 P Bertelsmann and
      Sony Corporation of America v Impala, recital 123.
254   Horizontal Merger Guidelines, paragraph 45.
                                                   102
 ---pagebreak---        in terms of cost structures, market shares, capacity levels, and levels of vertical
       integration.255 Market transparency resulting from publicly available key
       information or, for example, from information exchanged through structural
       links between competitors may further facilitate coordination.256
       6.4.2.    The Parties’ view
(523)  The Parties submit that the characteristics of the hearing aid market indicate that
       the Transaction does not raise coordinated effects concerns because: (i) the
       characteristics of the hearing aid markets are not conducive for reaching a
       common understanding on the terms of coordination, (ii) the low level of data
       transparency in the market for hearing aids would prevent the possibility to
       monitor competitors’ behaviour in order to detect any deviation from a potential
       coordinated agreement and ensure enforcement of the agreement, (iii) no
       credible deterrent mechanism could be implemented since rivals on the market
       would lack access to pricing information required to enable retaliation against
       another potential cheating rival and the terms and conditions of already existing
       contracts would limit the scope for effective punishment, and (iv) retailers and
       potential entrants would be able to counter-act any attempt at coordination.
       6.4.3.    The Commission’s assessment
(524)  The Commission considers that in the present case the above conditions are not
       met, and thus the Transaction will not result in the creation or strengthening of
       coordination leading to serious doubts on any of the markets concerned by the
       Transaction. The Commission considers so for the following reasons.
(525)  First, the markets affected by the Transaction involve the sales of hundreds of
       differentiated products through a variety of distribution channels (be it private
       retailers including independent retail stores, multinational audiology chains,
       optical chains as well as buying groups or public procurement authorities). The
       importance and frequency of innovation in the hearing aid industry translates,
       for each manufacturer, into the introduction of new product ranges every 18-30
       months as well as smaller upgrades of products, which further reinforces
       product differentiation and asymmetry on the market.
(526)  In addition, the price and market characteristics of hearing aids (i.e.
       reimbursement levels, registration requirements, etc.) vary significantly in each
       EEA country. The industry is increasingly characterized by national regulatory
       changes (such as the reforms in the Netherlands in 2013, in Lithuania in 2017 or
       in Czechia and France in 2019) and/or the intervention of public authorities (e.g.
       the public procurement authorities in Norway and in Denmark have a large
       margin of discretion in the design of tender requirements, which in practice
       change with each new tender) that brings an element of instability to the market.
(527)  Furthermore, the relevant market structures make price coordination or market
       sharing (by bids or customers) unlikely. Market shares may be subject to sudden
       and large shifts between competitors due to sourcing decisions in particular from
       key accounts, including large retail chains and/or public authorities where
255   Horizontal Merger Guidelines, paragraph 48.
256   Horizontal Merger Guidelines, paragraph 47.
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 ---pagebreak---        relevant. The market investigation indicated that such customers regularly
       reallocate the share of supply of hearing aids manufacturers.257
(528)  Companies in the hearing aid industries are typically not symmetric, in
       particular in relation to cost structures,258 market shares, or vertical integration
       into retail. While some companies, including the Parties, are only active on the
       hearing aid markets, others, such as Starkey, William Demant and Sonova are
       also active on neighbouring markets, such as cochlear implants, PSAPs, bone-
       conducting systems and/or diagnostic equipment, which they sell to some of the
       same customers. Other players are primarily active in the retail distribution of
       hearing aids, and have a more limited activity in the manufacture and wholesale
       distribution of hearing aids, such as Audifon (Kind) and Microson
       (GAES/Amplifon).
(529)  For the reasons mentioned in recitals 525 to 528, it would be difficult for the
       Merged Entity and its competitors to reach common terms of coordination.259
(530)  Second, most national hearing aid markets are characterized by a low level of
       transparency, limiting or preventing potential coordination between competitors
       and making deviations from a coordinated outcome harder to detect. In private
       markets, supply contracts are negotiated bilaterally with no transparency on
       pricing and often include rebates/bonus/discounts to incentivise retailers to sell
       their products. Prices are typically confidential and differ per country, as well as
       per customer (for instance between large chains and small independent
       retailers).260 For public tenders, although the winning bid’s price may become
       public, the infrequency of tenders, which typically cover a minimum of two
       years, as well as changes in the subsequent tenders’ design limit the relevance of
       ex post price information.261 The differentiation of hearing aid products, as well
       as the variety of distribution channels (from large specialized retail chains,
       optical chains, buyer groups, to independent retailers) also hinder the ability of
       competitors to effectively and sufficiently monitor each other’s behaviours.
(531)  For the above reasons, it would be difficult for the Merged Entity and its
       competitors to effectively monitor deviations from any coordinated outcome on
       the markets for the manufacture and wholesale distribution of hearing aids.
(532)  Third, retaliation against undertakings deviating from a coordinated outcome
       would only be possible after a significant time lag, in particular for public
       tenders, and would include an element of uncertainty, in particular for
       negotiation with private customers (given the pricing mechanism determined
       through bilateral negotiations and these customers’ bargaining power).
(533)  In addition, third parties not involved in a potential coordination would likely
       react to any coordination attempt by others. Customers would likely retaliate in
       the event of coordination between hearing aid manufacturers. In a number of
       EEA countries, a small number of key customers account for substantial
257   Non-confidential replies to questionnaire Q3 to large retail chains, question 58.
258   See Widex’s 5(4) documents, Annex 34.
259   Horizontal Merger Guidelines, paragraph 45.
260   Horizontal Merger Guidelines, paragraph 50.
261   Non-confidential replies to questionnaire Q4 to public purchasers of hearing aids, question 8.
                                                     104
 ---pagebreak---       volumes of sales. These customers would likely have a particularly strong
      interest to undermine any attempt at coordination by hearing aid manufacturers.
      Second-tier hearing aid suppliers would likely react by increasing their sales.
      Moreover, major manufacturers who are not yet present in a particular EEA
      market would likely react by entering the market. This is particularly true for
      Central and Eastern European countries, where hearing aids are typically less
      advanced in performance levels, and may thus be provided (or increasingly
      provided) by second-tier manufacturers.
(534) For the above reasons, it would be difficult for the Merged Entity and its
      competitors to benefit from sufficient deterrent mechanisms to enforce any
      coordinated outcome on the market for the manufacture and wholesale
      distribution of hearing aids.
(535) The Commission concludes that the Transaction does not raise serious doubts as
      to its compatibility with the internal market relative to risks of horizontal
      coordinated effects.
7.    CONCLUSION
(536) For the above reasons, the European Commission has decided not to oppose the
      notified operation and to declare it compatible with the internal market and with
      the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of
      the Merger Regulation and Article 57 of the EEA Agreement.
                                                   For the Commission
                                                   (Signed)
                                                   Margrethe VESTAGER
                                                   Member of the Commission
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