CELEX: 32020M9771
Language: en
Date: 2020-08-07 00:00:00
Title: Commission Decision of 07/08/2020 declaring a concentration to be compatible with the common market (Case No COMP/M.9771 - HITACHI / HONDA / HIAMS / KEIHIN / SHOWA / NISSIN KOGYO) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                 Brussels, 7.8.2020
                                                                 C(2020) 5556 final
                                                                                  PUBLIC VERSION
                                                                   In the published version of this decision,
                                                                   some information has been omitted
                                                                   pursuant to Article 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                                                                   possible the information omitted has been
                                                                   replaced by ranges of figures or a general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.9771 — Hitachi/Honda/HIAMS/Keihin/Showa/Nissin Kogyo
                     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 7 July 2020, the European Commission received notification of a proposed
          concentration pursuant to Article 4 of the Merger Regulation by which Hitachi, Ltd.
          (“HTL”, Japan) and Honda Motor Co., Ltd. (“Honda”, Japan) acquire within the
          meaning of Article 3(1)(b) and 3(4) of the Merger Regulation joint control of the
          whole of Hitachi Automotive Systems, Ltd (“HIAMS”, Japan), Keihin Corporation
          (“Keihin”, Japan), Showa Corporation (“Showa”, Japan) and Nissin Kogyo Co., Ltd
          (“Nissin Kogyo”, Japan)3. Honda and HTL are designated hereinafter as the
          “Notifying Parties” or “Parties to the proposed transaction”. HIAMS, Keihin, Showa
          and Nissin Kogyo are designated hereinafter as the “Targets”.
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”).
3     Publication in the Official Journal of the European Union No C234, 16.07.2020, p. 8.
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--- 1.       THE PARTIES
(2)      HTL is a multinational conglomerate company and is the ultimate parent company of
         the Hitachi group of companies. HTL is a highly diversified company, mainly active
         in the manufacture and sale of products and services in the IT, energy, industry,
         mobility and smart life sectors.
(3)      Honda is the parent company of the Honda group of companies, and is active in the
         production and distribution of automobiles, motorcycles and power products.
(4)      HIAMS is active in the production and supply of automotive products and
         technologies. HIAMS is wholly owned by HTL.
(5)      Keihin is active in the manufacture and supply of electrification systems for hybrid
         and electric vehicles, engine management systems for gasoline and natural gas
         vehicles, and products for fuel cells. As at 31 March 2019, Honda owned 41.35% of
         the voting rights in Keihin and was Keihin’s major shareholder, albeit it did not exert
         control over Keihin.4 The remainder of Keihin’s shares are widely held. Keihin is
         currently not controlled by any company or person for the purpose of the Merger
         Regulation.5
(6)      Showa is active in the manufacture and supply of components for automobiles,
         motorcycles and outboard motors. As at 31 March 2019, Honda owned 33.5% of the
         voting rights in Showa and was Showa’s major shareholder, albeit it did not exert
         control over Showa.6 The remainder of Showa’s shares are widely held. Showa is
         currently not controlled by any company or person for the purpose of the Merger
         Regulation.7
(7)      Nissin Kogyo is active in the manufacture and supply of integrated braking systems
         for vehicles. As at 31 March 2019, Honda owned 34.86% of the voting rights in
         Nissin Kogyo and was Nissin Kogyo’s major shareholder, albeit it did not exert
         control over Nissin Kogyo.8 The remainder of Nissin Kogyo’s shares are widely
         held. Nissin Kogyo is currently not controlled by any company or person for the
         purpose of the Merger Regulation.9
(8)      Although prior to the concentration Honda did not exercise control over Keihin,
         Showa and Nissin Kogyo, it had a strong purchase relationship with them and was a
         major customer for most of the products giving rise to an affected market.
4   Attendance rates to shareholders’ meetings of the past three years show that Honda’s voting ratio over
    total voting rights exercised was below majority. Form CO, paragraph 1.35.
5   Form CO, paragraph 1.35.
6   Attendance rates to shareholders’ meetings of the past three years show that Honda’s voting ratio over
    total voting rights exercised was below majority. Form CO, paragraph 1.37.
7   Form CO, paragraph 1.37.
8   Attendance rates to shareholders’ meetings of the past three years show that Honda’s voting ratio over
    total voting rights exercised was below majority. Form CO, paragraph 1.39.
9   Form CO, paragraph 1.39.
                                                          2
 ---pagebreak--- 2.       THE CONCENTRATION
2.1.     Interrelated transactions
(9)      The concentration is accomplished by way of purchase of shares. Pursuant to a
         single agreement entered into between the Parties on 30 October 2019 (the
         Management Integration Agreement),10 Honda will conduct tender offers for the
         shares it does not already own in Keihin, Showa and Nissin Kogyo (the “First
         Step”). Thereafter, each of Keihin, Nissin Kogyo and Showa will be amalgamated
         into HIAMS (“the Absorption Merger”) to form one company (the “Integrated
         Company”). In consideration, common shares representing 33.4% of the voting
         rights in the Integrated Company will be allotted to Honda (“the Second Step”). .11
(10)     Both the First Step and the Second Step have been agreed upfront by the Parties
         simultaneously, in a single agreement and are economically mutually dependent, in
         that as a matter of commercial reality the First Step would not occur absent the
         Second Step.12 Pursuant to Article 7.1.1 of the Management Integration Agreement,
         the Parties have agreed that the Second Step will occur promptly after the First Step.
         In this regard, pursuant to the Commission Consolidated Jurisdictional Notice under
         Council Regulation (EC) No 139/2004 on the control of concentrations between
         undertakings13 (“Consolidated Jurisdictional Notice” or “CJN”), indications of
         interdependence of transactions may be statements of the parties (such as those
         referenced in the press release relating to the proposed transaction)14 and
         simultaneous entry into the relevant agreements.15
10  Form CO, Annex 3.1.
11  Pursuant to Article 7.1.1 of the Management Integration Agreement, the Parties have agreed that the
    Second Step will occur promptly after the First Step.
12  Form CO, paragraph 1.42.
13  OJ C 95, 16.4.2008, p. 1.
14  According to the press release: “Hitachi, Ltd. (TSE: 6501, “Hitachi”), Honda Motor Co., Ltd. (TSE: 7267,
    “Honda”), Hitachi Automotive Systems, Ltd. (“Hitachi Automotive Systems”), Keihin Corporation
    (TSE: 7251, “Keihin”), Showa Corporation (TSE: 7274, “Showa”), and Nissin Kogyo Co., Ltd.
    (TSE: 7230, “Nissin”) hereby announce that these six companies have each resolved in their board of
    directors meetings held today that, on the precondition that permits and licenses, etc. can be obtained
    from the respective countries’ relevant authorities, including notification or approvals for business
    combination to or by the respective countries’ competition authorities, (a) Honda will conduct tender
    offers targeting the common shares of Keihin, Showa, and Nissin (collectively, the “Tender Offer”), (b)
    Honda will make each of Keihin, Showa, and Nissin its wholly-owned subsidiary (collectively, “Making
    the Target Companies Wholly-Owned Subsidiaries”), and (c) Hitachi Automotive Systems, Keihin, Showa,
    and Nissin will conduct an absorption-type merger in which Hitachi Automotive Systems will be the
    ultimate surviving company and Keihin, Showa, and Nissin will each be an ultimate disappearing
    company (the “Absorption-type Merger”), and will conclusively conduct a management integration (the
    “Integration”) to strengthen development and distribution of global and competitive solutions in the
    CASE area. These six companies have also entered into a basic contract regarding management
    integration (the “Basic Contract”). […] After the Tender Offer and Making the Target Companies
    Wholly-Owned Subsidiaries, the Absorption-type Merger of Hitachi Automotive Systems (a wholly-owned
    subsidiary of Hitachi) as the ultimate surviving company of the absorption-type merger and Keihin,
    Showa, and Nissin as the ultimate disappearing companies in the absorption-type merger will be
    implemented. Honda and Hitachi have agreed in the Basic Contract that in the Absorption-type Merger,
    common shares of the Integrated Company will be allotted to Honda as the consideration for the merger,
    in a merger ratio where the number of voting rights of the Integrated Company held by Hitachi and
    Honda will account for 66.6% and 33.4% of the number of voting rights held by all shareholders of the
    Integrated Company, respectively.” See Form CO, Annex 3.3.
15  CJN, paragraph 43.
                                                          3
 ---pagebreak--- (11)    The First Step will not therefore bring about a change of control on a lasting basis
        for the purpose of Article 3(1) of the Merger Regulation. Accordingly, the proposed
        transaction (comprising the First Step and the Second Step) constitute a single
        concentration for the purpose of the Merger Regulation.16
2.2.    Full-function
(12)    The Integrated Company will operate as a full-function joint venture in that it will
        play an active role on the market and will be economically autonomous from HTL
        and Honda from an operational viewpoint:17
        (a)     The Integrated Company will consist of four entities that already operate
                autonomously on the market, with access to sufficient resources including
                finance, staff, and assets (tangible and intangible) to conduct their business
                activities on a lasting basis. The Integrated Company will continue to have
                its own sales team, R&D resources, and production facilities to manufacture
                and supply its products to the market. In addition, the Integrated Company
                will have a management dedicated to its day-to-day operations. […] the
                Integrated Company will establish […] as the deliberative and decision-
                making body for important managerial issues of the Integrated Company, and
                the members […] will include […] appointed by […].
        (b)     The Integrated Company will continue to operate as a market-facing
                business, providing automotive components to third party customers, and so
                it is not the case that the Integrated Company's activities will be limited to
                carrying out a specific function for HTL or Honda.
        (c)     The Integrated Company will consist of entities that already have a track
                record of operating autonomously on the market, with their own customer
                base. The Parties' intention is that the Integrated Company will continue to
                be reliant on third party sales. Reflective of this, it is not the intention that
                the Integrated Company will be heavily reliant on sales to Honda. For
                example, Honda currently accounts for [Percentage of HIAMS’ sales of
                component parts accounted for by Honda]% of HIAMS’ total sales of
                component parts and, on a weighted average basis, the Targets’ combined
                total sales to the Parents account for approximately [Percentage of Parents’
                sales of component parts accounted for by the Targets]% of their total sales.18
                Furthermore, sales between the Targets and their Parents will be at arm’s
                length, on normal commercial conditions:19 as confirmed by the Notifying
                Parties, [Details of supply and purchase arrangements of the Parties],
                therefore, Honda will be supplied by the Targets on the same terms as other
                third parties.20
        (d)     The Integrated Company will be formed by the amalgamation of four pre-
                existing entities that already operate on the market and the Parties' intention
16  Consolidated Jurisdictional Notice, paragraph 43.
17  Form CO, paragraphs 1.51 to 1.55.
18  Reply to question 1 of RFI 21.
19  Reply to RFI 19.
20  Reply to question 1 of RFI 21.
                                                      4
 ---pagebreak---                 is that the Integrated Company will continue to operate on the market on a
                lasting basis.
2.3.    Joint control
(13)    Pursuant to an agreement entered into between HTL and Honda on 30 October 2019
        (the “Subsidiary Integration Agreement”),21 HTL will own 66.6% and Honda will
        own 33.4% of the voting rights of the Integrated Company.
(14)    The Subsidiary Integration Agreement provides that HTL will have the right to
        appoint the majority of directors to the board of directors of the Integrated Company
        (the “Integrated Company Board”): the Integrated Company Board shall have six
        directors in total, of which HTL may nominate four and Honda may nominate two.
        [Description of provisions in the agreement entered into between HTL and Honda].22
(15)    [Description of provisions in the agreement entered into between HTL and Honda].23
(16)    The Notifying Parties note that similar procedures for the approval of the annual
        business plan and budget were used in a previous joint venture between HIAMS and
        Honda in Case COMP/M.8485 – Hitachi Group / Honda / JV. In that case, the
        Commission concluded that the joint venture in question was jointly controlled by
        HIAMS and Honda […]. On that basis, the joint venture fell within the jurisdiction
        of the Merger Regulation, and was notified to and approved by the Commission.24
        The Notifying Parties have confirmed that [Description of provisions in the
        agreement entered into between HTL and Honda].25
(17)    Pursuant to the CJN and the Commission’s decisional practice, joint control can be
        exercised on a de facto basis, where as a matter of practice the shareholders must
        reach a common understanding in determining the commercial policy of the joint
        venture.26 According to the CJN, “[…] collective action can occur on a de facto
        basis where strong common interests exist between the minority shareholders to the
        effect that they would not act against each other in exercising their rights in relation
        to the joint venture”27 and “[i]ndicative for such a commonality of interests is a high
        degree of mutual dependency as between the parent companies to reach the strategic
        objectives of the joint venture. This is in particular the case when each parent
        company provides a contribution to the joint venture which is vital for its operation
        (e.g. specific technologies, local know-how or supply agreements)”.28 Pursuant to the
        CJN, de facto joint control may also arise as a result of decision making procedures
        – such as those envisaged under [Description of provisions in the agreement entered
        into between HTL and Honda] – which are “tailored in such a way as to allow the
21  Form CO, Annex 3.2.
22  Form CO, paragraph 1.45.
23  Form CO, paragraphs 1.46 and 1.47.
24  Form CO, paragraph 1.49.
25  Reply to RFI 18.
26  CJN, paragraph 78.
27  CJN, paragraph 76.
28  CJN, paragraph 77.
                                                   5
 ---pagebreak---         parent companies to exercise joint control even in the absence of explicit agreements
        granting veto rights”.29
(18)    In the case of the Integrated Company there will be a strong commonality of
        interests between the shareholders, consistent with the arrangements in relation to
        the proposed transaction requiring that [Description of provisions in the agreement
        entered into between HTL and Honda].30 This commonality of interests is reflected
        in the following elements:
        (a)      Importance of Honda as a customer of the Integrated Company: while the
                 specific products and volumes that the Integrated Company will supply to
                 Honda has still to be determined, the Parties consider that the proportion of
                 their total sales of component parts that Honda currently accounts for
                 provides a reasonable proxy for the expected importance of Honda as a
                 customer of the Integrated Company. Honda accounts for approximately
                 [Percentage of HIAMS' sales of component parts accounted for by Honda]%
                 of HIAMS' total sales of component parts. However, for each of Showa,
                 Keihin and Nissin Kogyo the proportion of sales that Honda accounts for is
                 significantly higher:
                 –        Keihin: Honda accounts for approximately [Percentage of total sales
                          of component parts accounted for by Honda]% of its total sales of
                          component parts;
                 –        Showa: Honda accounts for approximately [Percentage of total sales
                          of component parts accounted for by Honda]% of its total sales of
                          component parts;
                 –        Nissin Kogyo: Honda accounts for approximately [Percentage of total
                          sales of component parts accounted for by Honda]% of its total sales
                          of component parts.
        (b)      Importance of the IP licensed by Honda to the Integrated
                 Company:[Licensing practices of Honda].31 [Licensing practices of Honda]:
                 –        Keihin: [Licensing practices of Honda].
                 –        Showa: [Licensing practices of Honda].
                 –        Nissin Kogyo: [Licensing practices of Honda].
        (c)      Importance of the corporate functions provided by Honda to the Integrated
                 Company: [Description of future corporate functions and supply arrangement
                 between Honda and the Integrated Company].
29 CJN, paragraph 77.
30 Form CO, paragraph 1.50.
31 In addition to these existing licences, it is expected that Honda and the Integrated Company will enter into
   further licensing agreements. The precise details are still to be determined, but these are expected to relate
   to [Details of the licensing agreements between Honda and the Integrated Company]. The IP licences
   that will exist between Honda and the Integrated Company will therefore likely be directly related to
   [Description of provisions in the agreement entered into between HTL and Honda].
                                                            6
 ---pagebreak---          (d)     Importance of the Honda personnel transferred to the Integrated
                 Company. [Details of employment arrangements with Honda]:
                 –        Keihin: [Details of employment arrangements with Honda].
                 –        Showa: [Details of employment arrangements with Honda].
                 –        Nissin Kogyo: [Details of employment arrangements with Honda].
(19)     Because of the strong commonality of interests between Honda and the Integrated
         Company, Honda will exercise de facto joint control over the Integrated Company
         together with HTL [Description of commercial arrangement between HTL and
         Honda].
(20)     As a result of the proposed concentration, the Integrated Company will be jointly
         controlled by HTL and Honda.
3.       EU DIMENSION
(21)     The undertakings concerned have a combined aggregate world-wide turnover of
         more than EUR 5 000 million (HTL: EUR […] million; Honda: EUR […] million;
         Keihin: EUR […] million; Showa: EUR […] million; Nissin Kogyo: EUR […]
         million).32 At least two of them has an EU-wide turnover in excess of
         EUR 250 million (Hitachi: EUR […] million33; Honda: EUR […] million; Keihin:
         EUR […] million; Showa: EUR […] million; Nissin Kogyo: EUR […] million), but
         not each of the undertakings concerned achieves more than two-thirds of its
         aggregate EU-wide turnover within one and the same Member State. The notified
         operation therefore has an EU dimension within the meaning of Article 1(2) of the
         Merger Regulation.
4.       COMPETITIVE ASSESSMENT
(22)     The concentration gives rise to affected markets only in the original equipment
         manufacturers (OEM) segment. Therefore, the affected markets cited in this decision
         refer only to the OEM segment.34
4.1.     Number of horizontally affected markets
(23)     Worldwide, the activities of the Notifying Parties and the Targets result in two
         horizontally affected markets in relation to the following components for use in
         motorcycles: floating calipers and brake pads (as an assembled product), and brake
32  Turnover calculated in accordance with Article 5 of the Merger Regulation.
33  The turnover for HIAMS is consolidated within the turnover of the HTL Group.
34  The Notifying Parties have confirmed that no affected markets would arise for any plausible market
    segmentation from their sales of motorcycle and automotive component parts in the independent
    aftermarket (“IAM”), under any plausible geographic market definition. They also confirmed that no
    affected markets would arise from sales of components for general purpose applications or automotive
    component parts for heavy commercial vehicles. Reply to question 5 of RFI 1 of 16 April 2020.
                                                          7
 ---pagebreak---  ---pagebreak--- (25) In the EEA, the activities of the Parties and the Targets result in vertically affected
     markets due to market shares exceeding 30% in an upstream component market in
     relation to floating calipers and brake pads (as an assembled product) for use in
     motorcycles.
(26) Worldwide, the activities of the Parties and the Targets result in vertically affected
     markets due to market shares exceeding 30% in an upstream component market in
     relation to airflow sensors for use in passenger cars, and the following components
     for use in motorcycles: engine control units “ECUs”, carburettors, fuel pump
     modules, injectors, brake master cylinders, floating calipers and brake pads (as an
     assembled product), and shock absorbers.
(27) Given Honda’s market share of [30-40]% in the downstream market for motorcycles
     at worldwide level, the following markets are also vertically affected.
        i.   In the EEA and worldwide additional vertically affected markets are:
     -    Electronic throttle bodies (upstream) – motorcycles (downstream)
     -    Anti-lock braking systems (“ABS”) (upstream) – motorcycles (downstream)
     -    Brake pads (as a non-assembled component) (upstream) – motorcycles
          (downstream)
     -    Floating calipers (non-assembled) (upstream) – motorcycles (downstream)
     -    Panel brakes (upstream) – motorcycles (downstream)
       ii.   Additional vertically affected markets at worldwide level only:
     -    Combined brake systems “CBS” (upstream) – motorcycles (downstream)
     -    Fixed calipers and brake pads (assembled) (upstream) – motorcycles
          (downstream)
     -    Fixed calipers (as a non-assembled component) (upstream) – motorcycles
          (downstream)
     -    Drivetrain systems (shaft drive) (upstream) – motorcycles (downstream)
     -    Handle lever brackets (upstream) – motorcycles (downstream)
     -    Speed meter gears (upstream) – motorcycles (downstream)
4.3. Market definition
(28) The Targets are active in the manufacture and sale of motorcycle and automotive
     components such as engine management and injection systems (airflow sensors,
     ECUs, carburettors, fuel pump modules, injectors and electronic throttle bodies),
     braking systems (brake master cylinders, calipers and brake pads, ABS, CBS, panel
     brakes) and anti-vibration systems (shock absorbers) and others (drivetrain systems,
     speed meter gears and handle lever brackets for motorcycles).
(29) Some components are only used in motorcycles, some only in passenger cars, and
     some in both: airflow sensors are only used in cars, whereas carburettors, panel
     brakes, handle lever brackets, CBS, speed meter gears and drivetrain systems are
     only used in motorcycles. All other components are parts of passenger cars and
     motorcycles, although the Parties do not produce all these components for passenger
     cars and motorcycles (the second column of Table 1 shows which products the
     Parties produce for passenger cars, which for motorcycles and which for both).
                                                9
 ---pagebreak--- (30)      In the market for automotive parts and components, the transaction gives rise to one
          vertically affected market, namely airflow sensors.
(31)      In the market for motorcycle parts and components, the transaction gives rise to two
          horizontally affected and 19 vertically affected markets for the sale of components
          (see paragraphs (24) and (27)). Below the Commission provides an analysis of the
          market definition for those products where market shares at upstream level exceed
          30%.
4.3.1. Automotive and motorcycle parts and components overall
4.3.1.1. Product market
          (A)        The Commission’s decisional practice
(32)      The Commission has consistently defined the relevant product market for the
          manufacture and supply of automotive components on a product-by-product basis,38
          and has left open whether there may be a wider market comprising automotive
          components, modules and systems, or separate markets for “components” and
          “modules”.39 Within the market for automotive parts and components, the
          Commission has also further made the following segmentations:40 (a) depending on
          the type of vehicles for which the product is supplied (Light Vehicles and Heavy
          Commercial Vehicles);41 and (b) depending on the distribution channel to which the
          product is supplied (OEMs and independent aftermarket (IAM)42).
(33)      The Commission has not specifically addressed the product market for the
          manufacture and sale of motorcycle components.
          (B)        The Notifying Parties’ views
(34)      The Notifying Parties do not contest the product market definition for automotive
          components described in the Commission’s precedents cited above.43
(35)      The Targets produce components both for small motorcycles (with an engine size
          below 250cc) and for large motorcycles (with an engine size above 250cc).
          However, the Notifying Parties submit that components for use in motorcycles of all
          sizes should be considered to belong to the same product market. This is because,
          from the demand side perspective, components for use in all sizes of motorcycles are
38  Case COMP/M.7420 ZF/TRW, paragraph 9; Case COMP/M.6714 U-Shin/Valeo CAM, paragraph 6.
39  The term “modules” refers to a number of pre-assembled individual components that fulfil a certain
    function in the vehicle and are delivered to the original equipment manufacturers (OEMs) as a single unit.
    Case COMP/M.7182 Visteon Corporation/Automotive Electronics Business of Johnson Controls,
    paragraphs 14-18; Case COMP/M.6714 U-Shin/Valeo CAM, paragraph 6; Case COMP/M.5799
    Faurecia/Plastal, paragraphs 7- 12.
40  Case COMP/M.7420 - ZF/TRW, paragraph 10.
41  The Parties only sell de minimis volumes of automotive component parts for heavy commercial vehicles
    (i.e., vehicles above six tons) and confirm that no affected markets would arise for any plausible market
    segmentation from their sales of component parts for automotive component parts for heavy commercial
    vehicles. Therefore this Decision will not further discuss these.
42  As mentioned in footnote 34, no affected market would arise for the IAM market under any plausible
    product and geographic market definition. Therefore this segmentation will not be further discussed in this
    Decision.
43  Reply to RFI 7.
                                                           10
 ---pagebreak---         substitutable, due to the fact that the structure, size and shape of such components
        are the same, regardless of the size of motorcycle that they are used in. From the
        supply side, suppliers are easily able to switch production between manufacturing
        components for different sizes of motorcycles, within a short time frame and without
        requiring a large amount of capital investment, as the production processes for all
        components (regardless of size of motorbike for end use) is very similar.44
(36)    The Notifying Parties note that for components used in both passenger cars and
        motorcycles, supply-substitutability suggests that a broader market definition might
        be considered. The Notifying Parties submit that such substitutability applies for
        brake master cylinders, floating calipers, fixed calipers, brake pads, ECUs, fuel
        pump modules, injectors and electronic throttle bodies.45 On the other hand, the
        Notifying Parties submit that there is no supply side substitutability for ABS for
        passenger cars and for motorcycles, and for shock absorbers for passenger cars and
        for motorcycles.46 Finally, the Notifying Parties submit that airflow sensors are only
        supplied for passenger cars, while carburettors, panel brakes, CBS, speed meter
        gears and drive train systems are only supplied for motorcycles.47
        (C)        The Commission’s assessment
(37)    The Commission considers that for the purpose of the present case, its decisional
        practice related to automotive components, as outlined in paragraph (32) can be
        maintained. In its market investigation, the Commission tested whether this practice
        can be applied to the motorcycle components it investigated in a similar way. The
        results of the market investigation showed that whereas from a demand-side
        perspective some markets can be further segmented into types of each components,
        the same companies usually produce all different types of these products.48
(38)    The Commission also investigated the argument of the Parties that no sub-
        segmentation between components for small motorcycles and components for large
        motorcycles should be made. A majority49 of customers and competitors considers
        that components for small motorcycles are not the same as components for large
        motorcycles.50 Several respondents and a majority of competitors noted that all
        components being investigated differ between small and large motorcycles in
        performance and size and are therefore not substitutable, for instance “large
        motorcycles have different suspensions and brakes due to different performances
        and mass. In case of ECUs, smaller bikes have simpler engines and less electronic
        functionalities. […] In terms of contribution margin, large motorcycles are more
        likely to use more expensive [components]”51 However, there appears to be supply-
44 Form CO, paragraph 1.464
45 Reply to question 4 of RFI 7.
46 In view of the time and expenses for manufacturers to switch manufacturing lines for products for use in
   motorcycles and for use in passenger cars, the Notifying Parties do not consider that there is supply side
   substitutability (Reply to question 4 of RFI 7).
47 Reply to question 4 of RFI 7.
48 Replies to question 6 of questionnaire to customers and question 6 of questionnaire to competitors.
49 “Majority” in this Decision stands for more than 50% of the participants in the market investigation who
   replied to the question (excluding those that replied “other”, or “I do not know”).
50 Replies to question 4 of questionnaire to customers and replies to question 4 of questionnaire to
   competitors.
51 Non-confidential reply to question 4.1 of questionnaire to competitors.
                                                          11
 ---pagebreak---        side substitutability as the market investigation confirmed that the same companies
       manufacture components for both small and large motorcycles.52 A customer
       summarised that “in general all components for large 2wheelers are also used for
       small 2wheelers but size, function and characteristics can differ”.53
(39)   The Commission also investigated the argument of the Parties that no sub-
       segmentation between components for motorcycles and components for passenger
       cars should be made. The market investigation was inconclusive as to whether the
       component markets should be divided by passenger car and motorcycle component.
       In particular, a majority of respondents in the market investigation confirmed that
       components for passenger cars differ from components for use in motorcycles.54 As
       a customer explained, “The principle and general functionality of the listed
       components are comparable for 2wheeler and 4wheeler but you cannot use the same
       ECU, Fuel pump... for both vehicle types”.55 Competitors confirmed this as well:
       “Technical and functional characteristics, performances and liabilities of
       automotive components for passenger cars are generally different from components
       for motorcycles.”56
(40)   However, there appears to be a high degree of supply-side substitutability between
       automotive and motorcycle components. A majority of respondents in the market
       investigation confirmed that the same companies that produce the motorcycle
       components in question also produce these components for passenger cars (ECUs,
       fuel pump modules, injectors, brake master cylinders, floating calipers and shock
       absorbers).57 As a competitor confirmed, “Normally, production technologies of car
       and motorcycle parts are the same.”58
(41)   In conclusion, the Commission will leave open whether one product market exists
       for automotive and motorcycle components. As for automotive components (i.e. not
       used in motorcycles), the Commission will retain the product market definition
       provided in its past decisional practice as described in paragraph (32). For
       components that are also, or exclusively used in motorcycles, it can be left open
       whether a distinction should be made between components for large and for small
       motorcycles.59
52 Replies to question 6 of questionnaire to customers and question 6 of questionnaire to competitors.
53 Non-confidential reply to question 4.1 of questionnaire to customers.
54 Replies to question 2 of questionnaire to customers and replies to question 2 of questionnaire to
   competitors.
55 Non-confidential reply to question 2.1 of questionnaire to customers.
56 Non-confidential reply to question 2.1 of questionnaire to competitors.
57 Replies to question 3 of questionnaire to customers and replies to question 3 of questionnaire to
   competitors.
58 Non-confidential reply to question 3.1 of questionnaire to competitors.
59 The Notifying Parties confirmed that their market shares for components for large and small motorcycles
   separately do not materially differ from the market shares of each particular component market as a
   whole. Therefore, the competitive analysis focuses on the Integrated Company’s market share for the
   specific component market as a whole. (Reply to question 1 of RFI 9.) Where an affected market arises
   only under a narrower product market definition (for small motorcycles), it will be discussed in the
   competitive analysis.
                                                         12
 ---pagebreak--- 4.3.1.2. Geographic market
        (A)        The Commission’s decisional practice
(42)    In previous decisions, the Commission has found that the geographic markets for the
        manufacture and supply of OEM automotive components are at least EEA-wide, and
        possibly worldwide, but has left open the precise definition.60 In a recent case, the
        existence of at least EEA-wide markets was justified as follows: i) the Parties
        operated worldwide; ii) OEMs increasingly source products at worldwide level; iii)
        within the EEA, transport costs are not significant; iv) product regulation and safety
        standards are set at EEA level; v) there are no obstacles to intra-EEA trade and vi)
        prices are similar throughout the EEA.61
(43)    The Commission has not specifically addressed the geographic market for the
        manufacture and sale of motorcycle components.
        (B)        The Notifying Parties’ views
(44)    The Notifying Parties consider the markets for the manufacture and supply of all
        automotive and motorcycle components discussed in this Decision to be worldwide
        in scope. According to the Notifying Parties, this worldwide market definition
        follows from the fact that transport costs are low: in many cases, the Notifying
        Parties estimate that transport costs per unit amount to [Percentage of the price of the
        component comprised of transport costs]% of the price of the component. In
        addition, the Notifying Parties submit that there are no specific trade barriers and
        these products are traded globally.62
        (C)        The Commission’s assessment
(45)    The market investigation confirmed that the market for the manufacture and sale of
        OEM automotive and motorcycle components is at least EEA-wide, if not
        worldwide. A vast majority of customers purchase original automotive and
        motorcycle components at a worldwide level.63 Specifically for motorcycle
        components, a majority of customers confirmed that motorcycle components are
        usually shipped globally and that transport costs are low.64 Even though some
        European motorcycle manufacturers purchase a large proportion of components in
        the EEA, they nevertheless make their purchase decisions based on comparisons
        with suppliers worldwide, as a competitor explained: “[company name] in general
        purchases motorcycles components mostly (circa 75%) in Europe; however the
        driver for the choice is also the know-how and quality and competitiveness of the
        components thus various suppliers are located outside Europe”.65
60  Case COMP/M.6714 - U-Shin/Valeo CAM, paragraphs 30-33; Case COMP/M.6207 - Gestamp/ TKMF,
    paragraphs 30-33; Case COMP/M.5799 - Faurecia/Plastal, paragraphs 13-15.
61  Case COMP/M.6714 - U-Shin/Valeo CAM, paragraph 27.
62  Form CO, paragraph 1.181 (for engine management/injection systems); paragraph 1.194 (for braking
    systems); paragraph 1.203 (for shock absorbers).
63  Reply to question 7 of questionnaire to customers.
64  Reply to question 8 of questionnaire to customers.
65  Non-confidential reply to question 9 of questionnaire to competitors.
                                                          13
 ---pagebreak--- (46)    For the purposes of this decision, the Commission therefore considers that it can be
        left open whether the geographic market for manufacture and sale of the automotive
        and motorcycle components under investigation is defined as EEA-wide or
        worldwide, as the proposed transaction does not raise any competition concerns,
        irrespective of the exact market definition adopted.
4.3.2. Automotive airflow sensors
(47)    Airflow sensors are one of the key components of an electronic fuel injection system
        and measure the amount of air entering the car engine. They are not currently used in
        motorcycles.66
4.3.2.1. Product market
        (A)        The Commission’s decisional practice
(48)    The Commission has not previously considered a separate product market for
        manufacture and sale of airflow sensors for automobiles. However, in previous cases
        involving other sensors for automobiles, it considered each type of automotive
        sensor to constitute a separate product market based on its area of employment. This
        concerned, for example, temperature sensors, pressure sensors, fluidity level sensors,
        speed sensors and acceleration sensors. The Commission found that as each of these
        sensors has a different function, namely to measure specific information for the
        vehicle, they are not substitutable from a demand-side perspective. Also, producers
        of sensors cannot easily switch their production from one type of sensor to the other,
        which is why separate product markets per sensor function are justified also from a
        supply-side perspective.67
        (B)        The Notifying Parties’ view
(49)    The Notifying Parties submit that the product market for automotive airflow sensors
        is the narrowest relevant segmentation.68 They note that given the high degree of
        supply-side substitutability, no further sub-segmentation by different variations of
        airflow sensors is necessary. For instance, the equipment required to manufacture
        airflow sensors for gasoline and diesel passenger cars is the same. Therefore,
        manufacturers are able to produce such components without any additional
        investment or time delay.69
(50)    In relation to single/standalone mass airflow sensors and airflow sensors with
        integrated additional features with pressure/humidity,70 manufacturers are able to
        produce these components without significant investments. The Parties estimate that
        it would take [Parties’ estimate of switching costs] to start production of airflow
        sensors with integrated additional features with pressure/humidity.71
66  Form CO, paragraph 1.320.
67  Case COMP/M.4878 - Continental / Siemens VDO paragraphs 38-39 and cases cited therein.
68  Form CO, table 16.
69  Reply to RFI 7, para 1.1.
70  These variants were mentioned by respondents to the market investigation.
71  Reply to RFI 7, para 1.2.
                                                        14
 ---pagebreak---         (C)       The Commission’s assessment
(51)    In line with its previous practice, the Commission considers that each automotive
        sensor fulfilling a different function constitutes a separate product market, and the
        results of the market investigation did not contest this. As for the possibility of a
        further sub-segmentation of airflow sensors, in the market investigation, a
        competitor mentioned the following possible segments of airflow sensors for
        automobiles, confirming that it produces “all different types of air flow sensors with
        customer specific programmable output” and that the different types are “relatively
        easy to produce”:
                –        Gasoline and diesel airflow sensors.
                –        Single/standalone mass airflow sensors and airflow sensors with
                         integrated additional features with pressure/humidity.72
(52)    While there are different types of airflow sensors, the different types are easy to
        produce, so there is supply-wide substitutability. As automotive airflow sensors all
        fulfil the same function, namely measuring the amount of air flowing into the
        engine, demand-side substitutability was also confirmed in the market
        investigation.73 As a respondent in the market investigation explained, “In case of
        sensors, different technologies might be used in order to make the same kind of
        measurement.”74
(53)    Therefore, the Commission concludes that the relevant product market is the market
        for manufacture and sale of automotive airflow sensors.75
(54)    In any event, for the purpose of the present decision, the exact product market
        definition can ultimately be left open76 as the proposed transaction does not raise
        serious doubts as to its compatibility with the internal market under any plausible
        market definition.
72 Reply to question 6 of questionnaire to competitors.
73 Replies to question 6 of questionnaire to competitors and to question 6 of questionnaire to customers.
74 Non-confidential reply to question 2.1 to questionnaire to competitors.
75 Given the low response rate in the market investigation, the Commission enquired whether a further
   segmentation of the market for airflow sensors would give rise to competition concerns. The Notifying
   Parties have confirmed that the Integrated Company’s market share in any of these product sub-
   segmentations do not materially differ from the market shares of the Integrated Company in the airflow
   sensors market as a whole. Therefore, the competitive analysis focuses on the Integrated Company’s
   market share for the market for airflow sensors for use in passenger cars as a whole. (Reply to question 1
   of RFI 9).
76 Between different types of airflow sensors mentioned or an overall market. For the different types of
   airflow sensors, the Notifying Parties have confirmed that the Integrated Company’s market share in any
   of these product sub-segmentations do not materially differ from the market shares of the Integrated
   Company in the market for airflow sensors as a whole (Reply to question 1 of RFI 9).
                                                         15
 ---pagebreak--- 4.3.2.2. Geographic market
        (A)        The Commission’s decisional practice
(55)    The Commission has not previously analysed the market for of airflow sensors for
        passenger cars. In previous cases where the Commission analysed the market for
        automotive sensors, it defined the market as at least EEA-wide.77
        (B)        The Notifying Parties’ view
(56)    As outlined in paragraph (44), the Notifying Parties consider that all markets for
        engine management and injection systems, including the market for airflow sensors,
        should be analysed at a worldwide level for the purpose of this Decision.78
        (C)        The Commission’s assessment
(57)    In line with its decisional practice and the findings of the market investigation
        outlined in paragraph (45), for the purposes of this Decision it can be left open
        whether the geographic market is defined as EEA-wide or worldwide, as the
        proposed transaction does not raise any serious doubts as to its compatibility with
        the internal market under any plausible market definition adopted.
4.3.3. ECUs and electronic throttle bodies
(58)    Like airflow sensors, ECUs and electronic throttle bodies are key components of the
        engine management system.79
(59)    An electronic throttle body is a mechanism that supplies air to the engine, controlled
        by an ECU.80
(60)    Based on information from sensors, an ECU controls the amount and timing of fuel
        flowing through the fuel injectors into the combustion chamber, the amount of air
        passing through the throttle body and the timing of the ignition spark which ignites
        the fuel in engines. ECUs are used in a variety of engines (including diesel and
        gasoline-powered engines for automobiles, motorcycles and general purpose
        engines, such as small ships or power generators).
4.3.3.1. Product market
        (A)        The Commission’s decisional practice
(61)    The Commission has previously identified potential separate markets for the supply
        of ECUs and electronic throttle bodies. The Commission also previously concluded
        that each ECU used in a different area of employment constitutes a separate market.
        For instance, in Continental / Siemens VDO, the Commission found separate markets
77  See e.g. Case COMP/M.5244 - ZF / CHERRY, paragraph 15.
78  Form CO, paragraph 1.181.
79  Form CO, paragraph 1.84.
80  Form CO, paragraph 1.86.
                                                  16
 ---pagebreak---         for (i) gasoline ECUs, (ii) diesel ECUs for passenger cars and light vehicles and
        (iii) diesel ECUs for heavy vehicles.81
        (B)        The Notifying Parties’ view
(62)    The Notifying Parties agree that ECUs and electronic throttle bodies each constitute
        separate product markets and that, within ECUs, a distinction may be drawn between
        ECUs used in gasoline and diesel-powered engines.82 However, the Notifying Parties
        submit that there is no need to conclude on such a distinction in this case as no
        competition concerns arise even on a the narrowest plausible market.83
(63)    The Notifying Parties consider that it would be appropriate to define a single market
        for the supply of ECUs for use in both motorcycles and passenger cars, in view of
        the supply side substitutability between these products. The same should apply to
        electronic throttle bodies.84 Suppliers are easily able to switch production between
        these components for use in motorcycles and passenger cars, within a short time
        frame and without requiring a large amount of capital investment, as the production
        processes for these components is very similar.85
(64)    As outlined in paragraph (35), the Notifying Parties consider that a sub-segmentation
        between ECUs for small and large motorcycles, or electronic throttle bodies for use
        in small large motorcycles, is not justified.
(65)    The Notifying Parties submit that no segmentation is required with regard to
        different types of ECUs, as manufacturers would be able to produce such variations
        without significant additional investment or time delay.86
        (C)        The Commission’s assessment
(66)    The Commission considers that the previous practice to distinguish between diesel
        and gasoline ECUs, and within diesel ECUs for light and heavy vehicles can be
        maintained for the purposes of the present decision.87 It should be noted that these
        distinctions are relevant for ECUs for use in passenger cars, whereas the results of
        the market investigation suggest that different distinctions might be relevant for
        ECUs used in motorcycles. Distinctions mentioned by respondents are the following:
        -    ECUs capable of e-gas and not capable of e-gas,88
81 Case COMP/M.4878 - Continental / Siemens VDO, paragraph 18.
82 HIAMS and Keihin’s activities overlap in the supply of ECUs used in gasoline-powered passenger cars in
   the EEA, but no affected market arises. Keihin supplies ECUs for use in small motorcycles resulting in a
   vertically affected market at worldwide level.
83 Form CO, paragraph 1.165.
84 Reply to RFI 8, paragraph 1.6(v).
85 Reply to RFI 7, Table 11.
86 Reply to RFI 7, paragraph 1.4 and reply to RFI 9.
87 The Notifying Parties confirm that their combined market shares at both an EEA and worldwide level,
   remain below 20% under any of these plausible market definitions for automotive ECUs. (Reply to
   question 10, RFI 1 of 16 April 2020.)
88 Fuel cell vehicles use hydrogen as fuel. They produce electricity and water by mixing hydrogen gas and
   oxygen in the cell stack, and that electricity is used as energy to power the car. The balance between
   hydrogen gas and oxygen has to be properly maintained so that the fuel cell can produce electricity safely
   and efficiently. This ECU is used to regulate such a balance. (Reply to RFI14, Annex 1).
                                                         17
 ---pagebreak---         -    Fuel powered and electric powered ECUs,89
        -    Single cylinder and multi cylinder ECUs, 90
(67)    A majority of respondents confirmed that there is no demand-side substitutability,
        neither between ECUs for passenger cars and for motorcycles,91 nor between small
        and large motorcycles.92 However, the market investigation confirmed supply-side
        substitutability between ECUs for passenger cars and for motorcycles, as
        manufacturers usually produce all types of ECUs,93 and a majority of respondents
        replied that the same suppliers produce all types of ECUs, both for passenger cars
        and motorcycles.94 A competitor explained that “ECU in general are
        engine/customer specific components”. This indicates that ECUs are bespoke
        products (i.e. suppliers manufacture a slightly different type of ECU not only for
        each OEM but for each vehicle model) and therefore a single market for manufacture
        and sale of all ECUs, including ECUs for small/large motorcycles,
        motorcycles/passenger cars and different types as mentioned in the market
        investigation, might be warranted.95
(68)    The market investigation did not find the need for a further segmentation of the
        market for supply of electronic throttle bodies.96 Therefore, the Commission will
        retain its practice to define a separate market for the manufacture and sale of
        electronic throttle bodies.
(69)    In any event, for the purpose of the present decision, the exact product market
        definition can ultimately be left open97 as the proposed transaction does not raise
        serious doubts as to its compatibility with the internal market under any plausible
        market definition.
89 A fuel powered ECU is a component used to control the engine so that the vehicle can be driven. An
   electric powered ECU controls the power-generation and drive motors in hybrid and electric vehicles
   during start off, acceleration, and deceleration. (Reply to RFI14, Annex 1).
90 Replies to question 6 of questionnaire to competitors.
91 Replies to question 2 of questionnaire to customers and replies to question 2 of questionnaire to
   competitors.
92 Replies to question 5 of questionnaire to customers and replies to question 5 of questionnaire to
   competitors.
93 Replies to question 6 of questionnaire to customers and replies to question 6 of questionnaire to
   competitors.
94 Replies to question 3 and 6 of questionnaire to customers and replies to question 3 and 6 of questionnaire
   to competitors.
95 Non-confidential reply to question 2.1 and to question 6 of questionnaire to competitors.
96 Replies to question 6 of questionnaire to customers and replies to question 6 of questionnaire to
   competitors.
97 Between ECUs (i) for small and large motorcycles separately or combined and (ii) for passengers cars and
   motorcycles separately or combined, (iii) the different types mentioned or an overall market. For the
   different types of ECUs, the Notifying Parties have confirmed that the Integrated Company’s market share
   in any of these product sub-segmentations do not materially differ from the market shares of the Integrated
   Company in the market for ECUs as a whole (Reply to question 1 of RFI 9). As for the distinction
   between (i) large and small motorcycles and (ii) motorcycles and passenger car component, the
   competitive analysis focuses on the market definitions under which affected markets would arise.
                                                           18
 ---pagebreak--- 4.3.3.2. Geographic market
         (A)        The Commission’s decisional practice
(70)     In previous cases, the Commission considered the geographic market for the
         manufacture and sale of ECUs to be at least EEA-wide, if not worldwide.98
         (B)        The Notifying Parties’ view
(71)     The Notifying Parties submit that the appropriate geographic market for the supply
         of component parts for all engine management and injection systems, the product
         category including ECUs and electronic throttle bodies, is worldwide. Transport
         costs are low: in many cases, the Notifying Parties estimate that transport costs per
         unit amount to [Percentage of the price of the component comprised of transport
         costs]% of the price of the component part. In addition, there are no specific trade
         barriers and these products are traded globally. In fact, Keihin does not manufacture
         component parts for engine management and injection systems in the EEA and all its
         sales are achieved through import.99
(72)     In any event, the Notifying Parties submit that the geographic market definition can
         be left open as the proposed transaction will not raise any competition concerns,
         irrespective of the exact market definition.100
         (C)        The Commission’s assessment
(73)     The market investigation did not find that the geographic market for the manufacture
         and sale of ECUs and electronic throttle bodies diverges from the general finding
         that the geographic market for automotive and motorcycle components at least EEA-
         wide.101
(74)     In line with its decisional practice and the findings of the market investigation
         outlined in paragraph (45), for the purposes of this Decision it can be left open
         whether the geographic market is defined as EEA-wide or worldwide, as the
         proposed transaction does not raise any serious doubts as to its compatibility with
         the internal market under any plausible market definition adopted.
4.3.4. Carburettors
(75)     A carburettor is a mechanical apparatus used to premix vaporised fuel and air in
         proper proportions and supplying the mixture to a motorcycle internal combustion
         engine.102
98  Case COMP/M.4878 – Continental / Siemens VDO, paragraphs 50-51.
99  Form CO, paragraph 1.181.
100 Form CO, paragraph 1.183.
101 Replies to question 7.1 of questionnaire to customers and replies to questions 8.1. and 9.1 of questionnaire
    to competitors.
102 Form CO, paragraph 1.318.
                                                          19
 ---pagebreak--- 4.3.4.1. Product market
         (A)        The Commission’s decisional practice
(76)     The Commission has not previously considered a product market for the supply of
         carburettors. In cases concerning other components of internal combustion engines,
         the Commission has found that each component constitutes a different product
         market, with a further subdivision based on the size of the engine (as the cases
         concerned the automotive market, the distinction was drawn between components
         for light duty applications and components for heavy duty applications).103
         (B)        The Notifying Parties’ view
(77)     The Notifying Parties submit that the overall market for the manufacture and sale of
         carburettors is the narrowest relevant segmentation.104 The Parties submit that
         carburettors are only used for motorcycles, not any more for passenger cars, and that,
         for the purposes of this Decision, the relevant product market should be the market
         for the manufacture and sale of carburettors for motorcycles.105
(78)     As outlined in paragraph (35), the Notifying Parties consider that a sub-segmentation
         between carburettors for small and large motorcycles is not justified.
         (C)        The Commission’s assessment
(79)     The Commission considers that, in line with its previous decisional practice, the
         relevant market is carburettors for motorcycles, and a further possible distinction
         between carburettors for small and for large motorcycles. This was confirmed by the
         market investigation which found that carburettors for small motorcycles are
         different from carburettors for large motorcycles.106
(80)     However, the market investigation also confirmed that there is a high degree of
         supply-wide substitutability between carburettors for small and for large
         motorcycles, as the same suppliers usually produce all types of carburettors.107
(81)     In any event, for the purpose of the present decision, the exact product market
         definition can ultimately be left open108 as the proposed transaction does not raise
         serious doubts as to its compatibility with the internal market under any plausible
         market definition.
103 Case COMP/M.4456 - MAHLE / DANA EPG, paragraph 8.
104 Form CO, table 16.
105 Form CO, table 20.
106 Replies to question 5 of questionnaire to customers and replies to question 5 of questionnaire to
    competitors.
107 Replies to question 3 and 6 of questionnaire to customers and replies to question 3 and 6 of questionnaire
    to competitors.
108 Between carburettors for small and large motorcycles separately or combined. The competitive analysis
    focuses on the market definitions under which affected markets would arise.
                                                         20
 ---pagebreak--- 4.3.4.2. Geographic market
        (A)       The Commission’s decisional practice
(82)    The Commission has not previously analysed the market for the supply of
        carburettors, or other motorcycle components. For automotive components, the
        Commission found that the geographic markets for the manufacture and supply of
        OEM automotive components are at least EEA-wide, and possibly worldwide, but
        has left open the precise definition (see paragraph (42)).
        (B)       The Notifying Parties’ view
(83)    The Notifying Parties submit that the appropriate geographic market for the supply
        of component parts for engine management and injection systems, the product
        category including carburettors, is worldwide, as explained in paragraph (71).
        (C)       The Commission’s assessment
(84)    In line with its decisional practice and the findings of the market investigation
        outlined in paragraph (45), for the purposes of this Decision it can be left open
        whether the geographic market is defined as EEA-wide or worldwide, as the
        proposed transaction does not raise any serious doubts as to its compatibility with
        the internal market under any plausible market definition adopted.
4.3.5. Fuel pump modules
(85)    A fuel pump module filters fuel from the fuel tank and uses a pump to retrieve fuel
        from the tank and pressurise it. The module features a built-in pressure regulator to
        maintain constant pressure for supply to the injectors.109
4.3.5.1. Product market
        (A)       The Commission’s decisional practice
(86)    The Commission has not previously considered a product market for the supply of
        fuel pump modules. In cases concerning other components of internal combustion
        engines, the Commission has found that each component constitutes a different
        product market, with a further subdivision based on the size of the engine (as the
        cases concerned the automotive market, the distinction was drawn between
        components for light duty applications and components for heavy duty
        applications).110
        (B)       The Notifying Parties’ view
(87)    The Notifying Parties submit that the relevant product market is the market for the
        supply of fuel pump modules without any further segmentation per type.111 With
        regard to fuel pump modules for motorcycles with different tank shapes and sizes,
        top-mount/bottom-mount, mounted inside/outside fuel tank, the Notifying Parties
109 Form CO, paragraph 1.90.
110 Case COMP/M.4456 - MAHLE / DANA EPG, paragraph 8.
111 Form CO, paragraphs 1.175 and 1.235.
                                                   21
 ---pagebreak---          submit that manufacturers would be able to produce such variations without
         significant additional investment or time delay.112
(88)     The Notifying Parties consider that it would be appropriate to define a single market
         for the supply of fuel pump modules for use in both motorcycles and passenger cars,
         in view of the supply side substitutability between these products. 113 Suppliers are
         easily able to switch production between components for use in motorcycles and
         passenger cars, within a short time frame and without requiring a large amount of
         capital investment, as the production processes for these components are very
         similar.114
(89)     As outlined in paragraph (35), the Notifying Parties consider that a sub-segmentation
         between fuel pump modules for small and large motorcycles is not justified.
         (C)        The Commission’s assessment
(90)     In the market investigation, some respondents mentioned the following possible
         segments of fuel pump modules:
             -   Fuel pump modules for different tank shapes and sizes, top-mount/bottom-
                 mount, mounted inside/outside fuel tank
             -   Low and high flow rate115
(91)     A majority of respondents in the market investigation confirmed that there is no
         demand-side substitutability, neither between fuel pump modules for passenger cars
         and for motorcycles, nor between these inputs for small and large motorcycles,116
         The reason is that fuel pump modules for motorcycles have “different flow and
         pressure requirements, different geometry”117 than fuel pump modules used in
         passenger cars, so that they are not substitutable. However, as fuel pump modules
         are less complex than most other products discussed in the market investigation,
         such as brake components, they “need less effort to interchange”.118
(92)     The market investigation confirmed supply-side substitutability as a majority of
         respondent replied that the same suppliers produce all types of fuel pump modules,
         both for passenger cars and for motorcycles.119
(93)     In any event, for the purpose of the present decision, the exact product market
         definition can ultimately be left open120 as the proposed transaction does not raise
112 Reply to RFI 7, paragraph 1.6.
113 Reply to RFI 8, paragraph 1.6(v).
114 Reply to RFI 7, Table 11.
115 The Notifying Parties have confirmed that the Integrated Company’s market share in any of these product
    sub-segmentations do not materially differ from the market shares of the Integrated Company in the fuel
    pump module market as a whole. Therefore, the competitive analysis focuses on the Integrated
    Company’s market share for the fuel pump module market as a whole. Reply to question 1 of RFI 9.
116 Replies to questions 2 and 4 of questionnaire to customers and replies to questions 2 and 4 of
    questionnaire to competitors.
117 Non-confidential reply to question 2.1 of questionnaire to competitors.
118 Non-confidential replies to question 2.1. of questionnaire to competitors.
119 Replies to question 3 and 6 of questionnaire to customers and replies to question 3 and 6 of questionnaire
    to competitors.
                                                          22
 ---pagebreak---         serious doubts as to its compatibility with the internal market under any plausible
        market definition.
4.3.5.2. Geographic market
        (A)        The Commission’s decisional practice
(94)    The Commission has not previously analysed the market for the supply of fuel pump
        modules. For automotive components, the Commission generally found that the
        geographic markets for the manufacture and supply of OEM automotive components
        are at least EEA-wide, and possibly worldwide, but has left open the precise
        definition (see paragraph (42)).
        (B)        The Notifying Parties’ view
(95)    The Notifying Parties submit that the appropriate geographic market for the supply
        of component parts for engine management and injection systems, the product
        category including fuel pump modules, is worldwide, as explained in paragraph (71).
        (C)        The Commission’s assessment
(96)    In line with its decisional practice and the findings of the market investigation
        outlined in paragraph (45), for the purposes of this Decision it can be left open
        whether the geographic market is defined as EEA-wide or worldwide, as the
        proposed transaction does not raise any serious doubts as to its compatibility with
        the internal market under any plausible market definition adopted.
4.3.6. Injectors
(97)    Fuel injectors are a part of the fuel injection system (a system which mixes fuel with
        air) which, when signalled by an ECU, open up to spray pressurised fuel into the
        engine.121
4.3.6.1. Product market
        (A)        The Commission’s decisional practice
(98)    The Commission has previously identified a potential separate product market for
        diesel injectors, with a potential sub-segmentation for use in light vehicles as
        opposed to heavy vehicles.122
120 Between fuel pump modules (i) for small and large motorcycles separately or combined and (ii) for
    passengers cars and motorcycles separately or combined, (iii) the different types mentioned or an overall
    market. For the different types of fuel pump modules, the Notifying Parties have confirmed that the
    Integrated Company’s market share in any of these product sub-segmentations do not materially differ
    from the market shares of the Integrated Company in the market for fuel pump modules as a whole (Reply
    to question 1 of RFI 9). As for the distinction between (i) large and small motorcycles and (ii) motorcycles
    and passenger car component, the competitive analysis focuses on the market definitions under which
    affected markets would arise.
121 Form CO, paragraph 1.91.
122 Case COMP/M.6640 – Delphi / FCI, paragraph 32.
                                                          23
 ---pagebreak---          (B)         The Notifying Parties’ view
(99)     The Notifying Parties consider that engines are distinguished by the location of the
         injector that injects fuel (direct-injection and port injection).123
(100) Direct-injection engines use a method in which the injector directly injects the fuel
         into the combustion chamber of the engine. On the other hand, port-injection engines
         use a method in which fuel is injected into the inlet port that supplies air to the
         engine.124
(101) Therefore, the Notifying Parties submit that the Commission should distinguish
         between injectors used in (i) direct injection engines or port injection engines
         (ii) hydrogen fuel cell vehicles or natural gas vehicles,125 (iii) motorcycles and
         passenger cars126 or other applications (such as outboard engines127).
(102) With regard to injectors for motorcycles with different types of engines, variations in
         spray pattern requirements, the length of the injector body or fixation methods, the
         Notifying Parties submit that manufacturers would be able to produce such
         variations without significant additional investment or time delay.128
(103) The Notifying Parties consider that it would be appropriate to define a single market
         for the supply of injectors for use in both motorcycles and passenger cars, in view of
         the supply side substitutability between these products.129 Suppliers are easily able to
         switch production between components for use in motorcycles and passenger cars,
         within a short time frame and without requiring a large amount of capital investment,
         as the production processes for these components is very similar.130
(104) As outlined in paragraph (35), the Notifying Parties consider that a sub-segmentation
         between injectors for small and large motorcycles is not justified.131
         (C)         The Commission’s assessment
(105) The Commission considers that its previous market definition for diesel injectors can
         be maintained for the purposes of the present case.132 In the market investigation,
         some respondents mentioned the following variations of injectors:
                   -   Injectors depending on the type of engine, variations in spray pattern
                       requirements, length of injector body and fixation method.133
123 Form CO, paragraph 1.92.
124 Form CO, paragraph 1.92.
125 The Notifying Parties confirmed that no affected markets arise from their activities in the markets for
    injectors used in hydrogen fuel cell vehicles and natural gas vehicles, separately or on a combined basis.
    (Reply to RFI14, paragraph 9.1).
126 Replies to RFI14, paragraph 8.1.
127 An outboard engine units placed on boats for propulsion. The Notifying Parties confirmed that no affected
    market arises for injectors used in outboard engines or any other component used in outboard engines.
    (Reply to RFI14, paragraph 10.2)
128 Reply to RFI 7, paragraph 1.8.
129 Reply to RFI 8, paragraph 1.6(v).
130 Reply to RFI 7, Table 11.
131 Form CO, paragraph 1.179.
132 The injectors supplied by the Parties are for use in gasoline engines, therefore the market for diesel engine
    injectors will not be further discussed.
                                                           24
 ---pagebreak--- (106) A vast majority of both competitors and customers confirmed that the same
         companies produce injectors for passenger cars and motorcycles.134 In this case, it
         appears that indeed injectors are the same for motorcycles and cars,135 as well as for
         small and large motorcycles, as a majority of competitors confirmed,136 as they
         “need less effort to interchange due to less complexity” and therefore “to some
         extent, there is a carry-over from car to MC possible”.137
(107) In any event, for the purpose of the present decision, the exact product market
         definition can ultimately be left open138 as the proposed transaction does not raise
         serious doubts as to its compatibility with the internal market under any plausible
         market definition.
4.3.6.2. Geographic market
         (A)       The Commission’s decisional practice
(108) The Commission found the market for diesel injectors to be at least EEA-wide, if not
         worldwide.139
         (B)       The Notifying Parties’ view
(109) The Notifying Parties consider the market for the supply of all component parts for
         engine management and injection systems, the product category including injectors,
         as worldwide, as explained in paragraph (71).
         (C)       The Commission’s assessment
(110) In line with its decisional practice and the findings of the market investigation
         outlined in paragraph (45), for the purposes of this Decision it can be left open
         whether the geographic market is defined as EEA-wide or worldwide, as the
         proposed transaction does not raise any serious doubts as to its compatibility with
         the internal market under any plausible market definition adopted.
133 The Notifying Parties have confirmed that the Integrated Company’s market share in any of these product
    sub-segmentations do not materially differ from the market shares of the Integrated Company in the
    injector market as a whole. Therefore, the competitive analysis focuses on the Integrated Company’s
    market share for the injector market as a whole. Reply to question 1 of RFI 9.
134 Replies to question 3 of questionnaire to customers and replies to question 3 of questionnaire to
    competitors.
135 Replies to question 2 of questionnaire to customers and replies to question 2 of questionnaire to
    competitors.
136 Replies to question 5 of questionnaire to customers and replies to question 5 of questionnaire to
    competitors.
137 Non-confidential replies to question 2.1 of questionnaire to competitors.
138 Between injectors (i) for small and large motorcycles separately or combined and (ii) for passengers cars
    and motorcycles separately or combined, (iii) the different types mentioned or an overall market. For the
    different types of injectors, the Notifying Parties have confirmed that the Integrated Company’s market
    share in any of these product sub-segmentations do not materially differ from the market shares of the
    Integrated Company in the market for injectors as a whole (Reply to question 1 of RFI 9). As for the
    distinction between (i) large and small motorcycles and (ii) motorcycles and passenger car component, the
    competitive analysis focuses on the market definitions under which affected markets would arise.
139 Case COMP/M.6640 – Delphi / FCI, paragraph 44 and cases cited therein.
                                                          25
 ---pagebreak--- 4.3.7. Brake master cylinders
(111) A brake master cylinder is a component of a hydraulic braking system that converts
        the force exerted on the brake pedal into hydraulic pressure to apply the brakes by
        establishing a liquid linkage between the master cylinder's pistons and the calipers
        and wheel cylinders.140
4.3.7.1. Product market
        (A)       The Commission’s decisional practice
(112) With regard to braking systems for automobiles,141 in a previous decision the
        Commission distinguished between pneumatic and hydraulic brakes. Moreover, due
        to the essential technical and commercial differences, the Commission considered
        that hydraulic braking systems for lighter vehicles and commercial vehicle brakes for
        heavy vehicles are two separate markets. The Commission has not previously
        considered a separate product market for brake master cylinders for motorcycles, but
        analysed them as parts of hydraulic braking systems without further defining the
        market.142 For pneumatic braking systems, the Commission distinguished between:
        (a) air supply/actuation systems, and therein further between (i) air compressors,
        (ii) air dryers and (iii) other parts of actuation systems; (b) foundation brakes, and
        therein further (i) drum brakes and (ii) disc brakes; and (c) brake and chassis control
        and therein further between (i) anti-lock braking systems (ABS), (ii) traction control
        system (TCS, also known as ASR) and (iii) electronic braking systems (EBS). 143
        (B)       The Notifying Parties’ view
(113) The Notifying Parties consider that it would be appropriate to define a single market
        for the supply of brake master cylinders for use in both motorcycles and passenger
        cars, in view of the supply side substitutability between these products.144 Suppliers
        can switch between manufacturing brake master cylinders for use in passenger cars
        and motorcycles without particular difficulty. The Parties estimate that any switch
        would require [Parties’ estimate of switching costs].145
(114) As outlined in paragraph (35), the Notifying Parties consider that a sub-segmentation
        between brake master cylinders for small and large motorcycles is not justified.
        (C)       The Commission’s assessment
(115) While precedents have not dealt with brake master cylinders for motorcycles but as
        part of hydraulic brake systems, based on its decisional practice to define a separate
        product market for each component of pneumatic braking systems (see
        paragraph (112)), the Commission considers that the relevant product market is
        brake master cylinders. The market investigation indicated that a further sub-
140 Form CO, paragraph 1.108.
141 Case IV/M.1342 – Knorr-Bremse/Bosch; Case IV/M.768 – Lucas / Varity, paragraph 10.
142 Case IV/M.726 – Bosch/Allied Signal.
143 Case COMP/M.7174 – Federal-Mogul Corporation / Honeywell Friction Materials, paragraphs 10 and 13;
    Case IV/M.726 – Bosch/Allied Signal, paragraph 12; Case IV/M.337 – Knorr-Bremse / Allied Signal,
    paragraphs 25-27.
144 Reply to RFI 9, paragraph 1.3(vi).
145 Reply to RFI 7, paragraph 3.1.
                                                    26
 ---pagebreak---          segmentation between brake master cylinders for (i) passenger cars and (ii) brake
         master cylinders for motorcycles and between small and large motorcycles cannot be
         excluded.
(116) A majority of respondents in the market investigation confirmed that there is no
         demand-side substitutability, neither between brake master cylinders for passenger
         cars and for motorcycles, nor between small and large motorcycles. “Brake and
         suspension parts for motorcycles are very special. They do not fit into cars.”146 The
         reason, as respondents explained is that motorcycles require fewer connections than
         automobiles, the differences in weight and sizing restrictions for motorcycles require
         different dimensions. Finally, motorcycles are more exposed to water and dirt.147
(117) However, the market investigation confirmed supply-side substitutability as a
         majority of respondents replied that the same suppliers produce all types of brake
         master cylinders, both for passenger cars and for motorcycles.148
(118) In the market investigation, some respondents mentioned the following possible
         segments: radial and tangential brake master cylinders.149
(119) In any event, for the purpose of the present decision, the exact product market
         definition can ultimately be left open150 as the proposed transaction does not raise
         serious doubts as to its compatibility with the internal market under any plausible
         market definition.
4.3.7.2. Geographic market
         (A)        The Commission’s decisional practice
(120) The Commission has not previously analysed a geographic market for brake master
         cylinders. In relation to the supply of components parts for braking systems, the
         Commission has considered (but ultimately left open) that (a) the geographic market
146 Non-confidential reply to question 2.1 of questionnaire to competitors.
147 Replies to question 2.1 of questionnaire to competitors.
148 Replies to question 3 and 6 of questionnaire to customers and replies to question 3 and 6 of questionnaire
    to competitors.
149 Non-confidential reply to question 6 of questionnaire to competitors. In a radial brake master cylinder, the
    direction of piston ejection is radial to the direction of brake lever installation, and in a tangential brake
    master cylinder the direction of piston ejection is tangential to the direction of brake lever installation.
    Brake master cylinders as a whole are used in both motorcycles and passenger cars. However, the
    distinction between radial and tangential brake master cylinder is motorcycle specific. The Notifying
    Parties have confirmed that the Integrated Company’s market share in any of these product sub-
    segmentations do not materially differ from the market shares of the Integrated Company in the brake
    master cylinder market as a whole. Therefore, the competitive analysis focuses on the Integrated
    Company’s market share for the brake master cylinder market as a whole. (Reply to question 1 of RFI 9).
150 Between brake master cylinders (i) for small and large motorcycles separately or combined and (ii) for
    passengers cars and motorcycles separately or combined, (iii) the different types mentioned or an overall
    market. For the different types of brake master cylinder, the Notifying Parties have confirmed that the
    Integrated Company’s market share in any of these product sub-segmentations do not materially differ
    from the market shares of the Integrated Company in the market for brake master cylinders as a whole
    (Reply to question 1 of RFI 9). As for the distinction between (i) large and small motorcycles and
    (ii) motorcycles and passenger car component, the competitive analysis focuses on the market definitions
    under which affected markets would arise.
                                                            27
 ---pagebreak---         for supply of these products to the OEM channel customers may be EEA-wide in
        scope, if not worldwide. 151
        (B)       The Notifying Parties’ view
(121) The Notifying Parties submit that the appropriate geographic market for the supply
        of components of braking systems, the product category including brake master
        cylinders, is worldwide. Transport costs are low: in many cases, the Notifying
        Parties estimate that transport costs per unit amount to [Percentage of the price of the
        component comprised of transport costs]% of the price of the component. In
        addition, there are no specific trade barriers and these products are traded globally.152
        (C)       The Commission’s assessment
(122) In line with its decisional practice and the findings of the market investigation
        outlined in paragraph (45), for the purposes of this Decision it can be left open
        whether the geographic market is defined as EEA-wide or worldwide, as the
        proposed transaction does not raise any serious doubts as to its compatibility with
        the internal market under any plausible market definition adopted.
4.3.8. Calipers and brake pads
(123) Calipers and brake pads are two of the three component parts of disc brakes (the
        other being the brake disc/rotor). A disc brake is a brake system that controls the
        rotation of a wheel by pressing a friction material (brake pad) from both sides of a
        brake rotor that rotates along with the wheel.153
(124) There are two principal types of calipers: floating calipers and fixed calipers.
        Floating calipers are those that move relative to the brake disc and have one or two
        pistons. Fixed calipers do not move relative to the brake disc and have more than
        two pistons. Each is typically also combined with a different type of brake discs.154
(125) Brake pads are pieces of friction-generating material which are fitted to either side of
        the caliper. As the operator applies the brakes, the pressure stored by the brake fluid
        pushes a piston against the caliper. This causes the caliper to squeeze the brake pads
        against the brake disc, which in turn slows down the spinning wheel by restricting its
        ability to move freely. When this process happens simultaneously on all wheels of a
        vehicle, it will slow vehicle down in a controlled manner and will eventually bring
        the vehicle to a stop.155
4.3.8.1. Product market
        (A)       The Commission’s decisional practice
(126) Within disc brakes, the Commission distinguished between (a) calipers and, therein,
        further between (i) floating calipers and (ii) fixed calipers; and (b) the friction
151 Case COMP/M.7174 – Federal-Mogul Corporation / Honeywell Friction Materials, paragraphs 18 to 23;
    Case COMP/M.4878 - Continental / Siemens VDO paragraphs 50-51.
152 Form CO, paragraph 1.194.
153 Form CO, paragraph 1.102.
154 Form CO, paragraph 1.104.
155 Reply to RFI17, paragraph 3.3.
                                                   28
 ---pagebreak---         materials that form inputs to disc brakes, namely brake pads.156 This resulted from
        the fact that calipers differ in size, performance, quality and price. Fixed calipers
        have more than two pistons and are made from aluminium, whereas floating calipers
        have one or two pistons and are made from cast iron or cast iron/aluminium.
        Accordingly, the (foundry and machining) equipment used for the production of
        fixed calipers is different from the equipment of floating calipers. From a demand
        side, floating calipers and fixed calipers are used with different types of brake discs,
        for different types of vehicles.157 The Commission has also previously identified
        different markets for each different component of a braking system, e.g. brake
        pads.158
        (B)        The Notifying Parties’ view
(127) The Notifying Parties note that calipers and brake pads are often supplied to OEM
        customers together as an assembled product. OEM customers usually then attach the
        brake discs themselves, to create the fully assembled disc brake. Alternatively,
        calipers and brake pads can each be supplied separately as standalone components.
        Further, components for calipers can also be supplied separately.159
(128) The Notifying Parties consider that it would be appropriate to define a single market
        for the supply of floating calipers and brake pads (assembled) for use in both
        motorcycles and passenger cars, in view of the supply side substitutability between
        these products.160 Suppliers can switch between manufacturing floating calipers and
        brake pads (assembled) for use in passenger cars and motorcycles [Parties’ estimate
        of switching costs].161
(129) As outlined in paragraph (35), the Notifying Parties consider that a sub-segmentation
        between calipers and brake pads for small and large motorcycles is not justified.
        (C)        The Commission’s assessment
(130) The Commission considers that for the purposes of the present case, its previous
        decisional practice can be maintained. The market investigation did not raise further
        sub segmentations in addition to those the Commission previously identified.
(131) Competitors for this product also confirmed the argument of the Parties that floating
        calipers and brake pads are usually supplied to OEMs as an assembled product, as a
        competing producer of this product confirmed: (“[name of competitor] manufacture
        calipers internally and procure pads from suppliers, pads are then assembled into
        the calipers. So for us it is common practice to obtain pads separately and assemble
        them in calipers. […] To our knowledge this is the common practice among
        motorcycle brake manufacturers.”)162
156 Case COMP/M.5484 – SGL Carbon / Brembo / BCBS / JV, paragraphs 24 to 28.
157 Case COMP/M.5484 – SGL Carbon / Brembo / BCBS / JV, paragraphs 24 to 28.
158 See Case IV/M. 726- Bosch/Allied Signal, para. 9 seq.
159 Form CO, paragraph 1.105.
160 Reply to RFI 8, paragraph 1.6(v).
161 Reply to RFI 7, paragraph 3.2.
162 Reply to RFI to a competitor.
                                                        29
 ---pagebreak--- (132) In the market investigation, a majority of respondents confirmed that there is no
         demand-side substitutability, neither between calipers for passenger cars and for
         motorcycles, nor between small and large motorcycles. However, the market
         investigation confirmed supply-side substitutability as a majority of respondents
         replied that the same suppliers produce all types of calipers, both for passenger cars
         and for motorcycles.163
(133) For the purposes of this Decision, the Commission will consider all plausible
         markets, including market for assembled and non-assembled products:
                  -   floating calipers and brake pads (as an assembled product)
                  -   floating calipers (as a non-assembled product)
                  -   brake pads (as a non-assembled product)
                  -   fixed calipers and brake pads (as an assembled product)
                  -   fixed calipers (as a non-assembled product).
(134) In any event, for the purpose of the present decision, the exact product market
         definition can ultimately be left open164 as the proposed transaction does not raise
         serious doubts as to its compatibility with the internal market under any plausible
         market definition.
4.3.8.2. Geographic market
         (A)        The Commission’s decisional practice
(135) In relation to the supply of components parts for braking systems, the Commission
         has considered (but ultimately left open) that the geographic market for supply of
         calipers to the OEM channel customers may be EEA-wide in scope, if not
         worldwide.165
         (B)        The Notifying Parties’ view
(136) The Notifying Parties submit that the appropriate geographic market for the supply
         of components of braking systems, the product category including calipers and brake
         pads, can be left open between EEA-wide and worldwide, as outlined in
         paragraph (121).
163 Replies to question 3 and 6 of questionnaire to customers and replies to question 3 and 6 of questionnaire
    to competitors.
164 Between calipers and brake pads (i) for small and large motorcycles separately or combined and (ii) for
    passengers cars and motorcycles separately or combined, (iii) floating/fixed calipers/brake pads as
    components or the different types as assembled products. The competitive analysis focuses on the market
    definitions under which affected markets would arise.
165 Case COMP/M.7174 – Federal-Mogul Corporation / Honeywell Friction Materials, paragraphs 18 to 23;
    Case COMP/M.4878 - Continental / Siemens VDO paragraphs 50-51; Case IV/M.726 – Bosch/Allied
    Signal, paragraph 20; Case IV/M.337 – Knorr-Bremse / Allied Signal, paragraphs 30 and 31.
                                                         30
 ---pagebreak---         (C)       The Commission’s assessment
(137) In line with its decisional practice and the findings of the market investigation
        outlined in paragraph (45), for the purposes of this Decision it can be left open
        whether the geographic market is defined as EEA-wide or worldwide, as the
        proposed transaction does not raise any serious doubts as to its compatibility with
        the internal market under any plausible market definition adopted.
4.3.9. Anti-lock braking systems (ABS)
(138) ABS are parts of electronic braking systems which optimise braking pressure across
        wheels and assist in steering stability while braking.166
4.3.9.1. Product market
        (A)       The Commission’s decisional practice
(139) In previous decisions, the Commission has defined a market for electronic brake
        systems but left open whether a segmentation between ABS and Electronic Stability
        Control (ESC) is necessary.167 This potential segmentation was based on the finding
        that, as a result of the different technical designs of air pressure brakes and hydraulic
        brakes, the ABS and the components of the system are also different. The ABS and
        the components of the system are adapted to the respective mode of braking power
        generation and transmission and are closely related to the braking system. It is not
        possible to replace the ABS for hydraulic brakes with that for air pressure brakes.168
        (B)       The Notifying Parties’ view
(140) The Notifying Parties submit that the market for electronic braking systems is the
        relevant product market, and that it is not necessary to further segment between ABS
        and ESC.169 They submit that there is no supply-side substitutability between ABS
        for motorcycles and ABS for passenger cars.
(141) As outlined in paragraph (35), the Notifying Parties consider that a sub-segmentation
        between ABS for small and large motorcycles is not justified.
        (C)       The Commission’s assessment
(142) The Commission considers that the distinction between ABS and ESC can be
        maintained for the purposes of the present case, as no affected markets arise for ESC
        as a component used in heavy duty applications, as outlined in paragraph (112).170
        As the Parties are only selling ABS for motorcycles, the Commission will analyse
        this narrower market, while leaving open whether a distinction should be made
        between ABS for passenger cars and ABS for motorcycles.
166 RFI 14, Annex 1.
167 Case COMP/M.2421 – Continental / Temic; Case COMP/M.5294 - Schaeffler / Continental
168 Case IV/M.726 – Bosch/Allied Signal, paragraph 14.
169 Reply to RFI14, Annex 1.
170 As confirmed by the Notifying Parties in their reply to RFI 16.
                                                          31
 ---pagebreak--- (143) In any event, for the purpose of the present decision, the exact product market
        definition can ultimately be left open171 as the proposed transaction does not raise
        serious doubts as to its compatibility with the internal market under any plausible
        market definition.
4.3.9.2. Geographic market
        (A)       The Commission’s decisional practice
(144) In Bosch/Allied Signal, the Commission defined the market for ABS as EEA-wide,
        as it found that most OEMs in the EEA were purchasing ABS from suppliers
        established in the EEA. For reasons of security of supply and their close cooperation
        in the development and production of ABS, vehicle manufacturers expect their
        suppliers to produce in proximity to their factories. In competition for supply
        contracts, the supplier has a decisive advantage which can make the parts available
        at the vehicle manufacturers’ manufacturing sites in a timely and demand-driven
        manner. For this reason, almost all suppliers of vehicle manufacturers in the EEA
        had set up production facilities in Europe.172
        (B)       The Notifying Parties’ view
(145) The Notifying Parties submit that the appropriate geographic market for the supply
        of components of braking systems, the product category including ABS, is
        worldwide. The Notifying Parties submit that transport costs are low: in many cases,
        the Notifying Parties estimate that transport costs per unit amount to [Percentage of
        the price of the component comprised of transport costs]% of the price of the
        component. In addition, there are no specific trade barriers and these products are
        traded globally.173
        (C)       The Commission’s assessment
(146) The Commission notes that since its assessment of the ABS market in Bosch/Allied
        Signal (in 1996), it is likely that supply chains have become more global, as the
        results of the market investigation, outlined in paragraph (37), as well as the more
        recent automotive component cases cited in this Decision show. In any case, for the
        purposes of this Decision, it can be left open whether the geographic market is
        defined as EEA-wide or worldwide, as the proposed transaction does not raise any
        serious doubts as to its compatibility with the internal market under any plausible
        market definition adopted.
4.3.10. Shock absorbers
(147) Shock absorbers (also known as dampers) form part of a vehicle’s suspension
        system, and are used to control the impact and rebound movement of a vehicle’s
171 Between ABS (i) for small and large motorcycles separately or combined and (ii) for passengers cars and
    motorcycles separately or combined, (iii) ABS and ECS separately or an overall market. For ECS, the
    Notifying Parties have confirmed that no affected market arises under any plausible market definition
    (Reply to question 4 of RFI 17). As for the distinction between (i) large and small motorcycles and (ii)
    motorcycles and passenger car component, the competitive analysis focuses on the market definitions
    under which affected markets would arise.
172 Case IV/M.726 – Bosch/Allied Signal, paragraph 22.
173 Form CO, paragraph 1.194.
                                                         32
 ---pagebreak---         spring and suspension. Typically, dampers are oil, hydraulic liquid or gas-filled
        piston cylinders which act to curb unnecessary vibrations in the suspension by
        absorbing force through the resistance that occurs when the oil or hydraulic liquid
        passes through fine holes that penetrate the piston inside the damper (the force that
        occurs due to this resistance is called ‘damping force’). As such, dampers absorb the
        vibrations and impacts transmitted from the road to the wheels, in order to ensure the
        wheels maintain contact with the road surface, and that the vehicle does not move
        excessively.174
4.3.10.1. Product market
        (A)        The Commission’s decisional practice
(148) The Commission has previously looked at the market for all shock absorbers,
        considering that it constitutes a separate product market. The Commission left open
        (a) whether a distinction could be drawn between different types of shock absorber,
        namely: assembled suspension struts, shock absorbers (i.e., dampers) and suspension
        springs (i.e., coil springs) and (b) whether shock absorbers may form part of larger
        modules such as corner modules or complete axles.175
        (B)        The Notifying Parties’ view
(149) The Notifying Parties agree that there is likely a distinction between conventional
        and electronically-controlled dampers as the latter is typically much more
        sophisticated and costly.176 However, there is supply side substitutability as it is
        possible for manufacturers to switch their production without incurring significant
        costs.177
(150) The Notifying Parties further consider that front forks with conventional damping
        shock absorbers, front forks with active damping shock absorbers, shock absorbers
        with conventional damping, rear shock with active damping shock absorbers and
        steering dampers form part of an overall product market for shock absorbers.178 In
        addition, with regard to front forks and rear cushions, although common
        technologies are used, switching production would require a certain amount of time
        and investment. Nevertheless, in most cases, motorcycle manufacturers purchase
        front forks and rear cushions as a set from a single supplier, and the competition
        status is similar in terms of market share and competitors.179
(151) In view of the time and expenses for manufacturers to switch manufacturing lines for
        shock absorbers for use in passenger cars to those for use in motorcycles (or vice
174 Form CO, paragraph 1.114.
175 Case COMP/M.7420 – ZF / TRW, paragraphs 22 to 24. See also Case COMP/M.1959 – Meritor / Arvin,
    paragraphs 9-10. As explain in footnote 15 of the case, “shock absorbers are typically oil, hydraulic fluid
    or gas-filled piston cylinders which act to dampen the vibrations of the heavy-duty suspension springs
    which absorb the vibrations and impacts transmitted from the road to the wheels, in order to ensure the
    wheels maintain contact with the road surface, and that the vehicle does not move excessively.”
176 Form CO, paragraph 1.115. In any case, no affected market arises from the Parties’ activities in these two
    types of dampers. Reply to question 10 of RFI 1.
177 Reply to RFI 14, Annex 1.
178 Reply to RFI 14, Annex 1.
179 Reply to RFI 9.
                                                         33
 ---pagebreak---          versa), the Parties do not consider that there is supply side substitutability between
         the supply of shock absorbers to motorcycles and passenger cars.180
(152) As outlined in paragraph (35), the Notifying Parties consider that a sub-segmentation
         between shock absorbers for small and large motorcycles is not justified.
         (C)        The Commission’s assessment
(153) The Commission notes that the precedent which analysed shock absorbers related to
         these components for heavy duty vehicles and that for motorcycles, additional
         categories appear to be relevant.
(154) In the market investigation, one respondent mentioned the following variations of
         shock absorbers, as “these products are not substitutable by the customer due to
         different design and functionality”:181
    -    Front fork with conventional damping182
    -    Front fork with active damping183
    -    Shock absorber with conventional damping184
    -    Rear shock with active damping185
    -    Steering damper186
(155) Moreover, a majority of respondents in the market investigation confirmed that there
         is no demand-side substitutability, neither between shock absorbers for passenger
         cars and for motorcycles, nor between small and large motorcycles.187
(156) However, the market investigation, contrary to the statement of the Parties, pointed
         to supply-side substitutability as a majority of respondents replied that the same
         suppliers produce all types of shock absorbers, both for passenger cars and for
         motorcycles.188 Competitors explained that “With respect to some types of shock
180 Reply to RFI 7, Table 11.
181 Non-confidential reply to question 6 of questionnaire to competitors.
182 A front fork with conventional damping shock absorbers is a damper equipped at the front wheel of a
    motorcycle that mechanically generates damping force through the piston inside the damper moving when
    the suspension goes up and down. (Reply to RFI 14, Annex 1).
183 A front fork with active damping shock absorbers is a damper equipped at the front wheel of a motorcycle
    that controls the damping force of front fork electronically. (Reply to RFI 14, Annex 1).
184 Conventional dampers mechanically generate damping force through the piston inside the damper moving
    when the suspension goes up and down.
185 A rear shock with active damping is a damper equipped at the rear wheel of a motorcycle that controls the
    damping force of the rear cushion electronically. (Reply to RFI 14, Annex 1).
186 Steering dampers are used to dampen vibrations and unstable motions in the steering of motorcycles, and
    are installed mostly on racing motorcycles and off-road motorcycles. Steering dampers are not mass-
    produced parts, but are manufactured in response to customer requests, with [Number of steering dampers
    sold by Showa] units sold by Showa in 2019. Switching production lines with shock absorbers for
    motorcycles (front forks and rear cushion) requires a certain amount of time and investment. (Reply to
    RFI 9, Annex 1).
187 Replies to question 2 of questionnaire to customers and to question 2 of questionnaire to competitors.
188 Replies to question 3 and 6 of questionnaire to customers and replies to question 3 and 6 of questionnaire
    to competitors.
                                                           34
 ---pagebreak---         absorbers, the technology used in passenger car and motorcycle applications may be
        similar, but the products will not be the same in terms of price, performance
        characteristics or intended use” and “Technical and functional characteristics of
        Shock Absorbers are the same, but the structure is different and not
        interchangeable.”189
(157) In any event, for the purpose of the present decision, the exact product market
        definition can ultimately be left open190 as the proposed transaction does not raise
        serious doubts as to its compatibility with the internal market under any plausible
        market definition.
4.3.10.2. Geographic market
        (A)        The Commission’s decisional practice
(158) In relation to the supply of shock absorbers, the Commission has considered (but
        ultimately left open) that the geographic market for supply of these products may be
        EEA-wide in scope, if not worldwide.191
        (B)        The Notifying Parties’ view
(159) The Notifying Parties submit that the appropriate geographic market for shock
        absorbers is worldwide: transport costs are low, there are no specific trade barriers
        and these products are traded globally. For example, Showa does not manufacture
        component parts for anti-vibration systems in the EEA and all its sales are achieved
        through imports. HIAMS manufactures shock absorbers within the EEA for sale in
        the EEA.192
        (C)        The Commission’s assessment
(160) In line with its decisional practice and the findings of the market investigation
        outlined in paragraph (45), for the purposes of this Decision it can be left open
        whether the geographic market is defined as EEA-wide or worldwide, as the
        proposed transaction does not raise any serious doubts as to its compatibility with
        the internal market under any plausible market definition adopted.
4.3.11. Other motorcycle components
(161) The Transaction also gives rise to vertically affected markets in relation to the
         following motorcycle components (not used in passenger cars). Nevertheless, in
         those motorcycle component markets, the Parties’ combined market share remains
189 Non-confidential replies to question 2.1 of questionnaire to competitors.
190 Between shock absorbers (i) for small and large motorcycles separately or combined and (ii) for
    passengers cars and motorcycles separately or combined, (iii) the different types mentioned or an overall
    market. For the different types of shock absorbers, the Notifying Parties have confirmed that the
    Integrated Company’s market share in any of these product sub-segmentations do not materially differ
    from the market shares of the Integrated Company in the market for shock absorbers as a whole (Reply to
    question 1 of RFI 9). As for the distinction between (i) large and small motorcycles and (ii) motorcycles
    and passenger car component, the competitive analysis focuses on the market definitions under which
    affected markets would arise.
191 COMP/M.7420 – ZF / TRW, paragraphs 44 to 50 (all shock absorbers); Case COMP/M.1959 – Meritor /
    Arvin, paragraph 11. In Case COMP/M.6339 – Freudenberg & Co / Trelleborg / JV, (paragraphs 23-25).
192 Form CO, paragraph 1.203.
                                                          35
 ---pagebreak---         below 20%193 and no competition concerns arise in any of these product markets, as
        also confirmed by the market investigation.
(162) A handle lever bracket is an aluminium clamp for securing the handlebars of a
        motorcycle to the body.194
(163) A panel brake is a drum brake for motorcycles (i.e. a brake system in which a
        friction material is pressed from inside the drum to generate braking force).195A CBS
        is a system combining the front and rear brakes of a motorcycle whereby the rider's
        braking action of depressing one of the levers is applied to both the front and rear
        brakes.196
(164) A speed meter gear is attached to the wheel accelerator of a motorcycle to measure
        speed by detecting the rotation speed of the wheel.197
(165) Drivetrain systems are power transmission devices. They play a role in transferring
        to the rear wheel the rotational force generated by the engine and the acceleration
        and deceleration adjustments in revolutions per minute (RPM). Motorcycles use
        either a chain, a belt or a shaft drive to transmit power from the engine to the wheels.
        The driving force generated by an engine is transmitted through the side gear (bevel
        gear), the drive shaft and the final gear (bevel gear). These gears play an important
        role with regard to changes in the rotational force generated by the engine and the
        acceleration and deceleration adjustments in RPM. The side gear assembly turns the
        force of the output shaft of the engine by 90°, and transmits the power to the final
        gear assembly through a drive shaft. The final gear assembly transfers the power of
        the engine into the rotation of the rear wheel. 198
4.3.11.1. Product market
        (A)        The Commission’s decisional practice
(166) The Commission has not previously analysed any of the motorcycle components
        identified above. However, the Commission has in past cases identified different
        markets for each different automotive component. 199
        (B)        The Notifying Parties’ view
(167) The Parties submit that none of the markets mentioned above (handle lever brackets,
        panel brakes, CBS, speed meter gears and drivetrain systems (shaft drive)) should be
        further sub-segmented.200
193 Below [20-30]% in case of drivetrain systems (shaft drive). As only Showa is active in this market, no
    horizontally affected market arises. (Form CO, table 20.)
194 Form CO, paragraph 1.131.
195 Form CO, paragraph 1.107.
196 Form CO, paragraph 1.349.
197 Form CO, paragraph 1.415.
198 Form CO, paragraph 1.404 et seq. The Parties submit that they (Showa) are only active in shaft drives.
199 See Case IV/M. 726- Bosch/Allied Signal, para. 9 seq.
200 Form CO, table 16.
                                                         36
 ---pagebreak---         (C)        The Commission’s assessment
(168) The Commission considers that based on its practice to distinguish between each
        distinct automotive component, the relevant product markets for the purpose of the
        present decision are the markets for the supply of handle lever brackets, panel
        brakes, speed meter gears, CBS, and shaft drive drivetrain systems. The market
        investigation did not raise concerns or potential sub-segmentations for these markets.
(169) In any event, the precise product market definition for these components can be left
        open201, as the proposed transaction does not raise serious doubts as to its
        compatibility with the internal market for any of these products.
4.3.11.2. Geographic market
        (A)        The Commission’s decisional practice
(170) The Commission has not previously analysed the market for the supply of any
        motorcycle components. In recent cases in which the Commission analysed the
        markets for supply of automotive components parts, the Commission considered (but
        left open) that the geographic market may be EEA-wide in scope, if not
        worldwide.202
        (B)        The Notifying Parties’ view
(171) The Notifying Parties submit that the appropriate geographic market for the supply
        of automotive and motorcycle components is worldwide. Transport costs are low: in
        many cases, the Notifying Parties estimate that transport costs per unit amount to
        [Percentage of the price of the component comprised of transport costs]% of the
        price of the component. In addition, there are no specific trade barriers and these
        products are traded globally.203
        (C)        The Commission’s assessment
(172) In line with its decisional practice and the findings of the market investigation
        outlined in paragraph (37), for the purposes of this Decision the Commission
        considers that the geographic market for these products can be left open between
        EEA-wide and worldwide.
4.3.12. Passenger cars
4.3.12.1. Product market
        (A)        The Commission’s decisional practice
(173) In previous cases where the Commission assessed automotive markets, it left open
        whether the product market includes all passenger cars or should be segmented by
        type of passenger car (into (i) mini cars, (ii) small cars, (iii) medium cars (iv) large
201 Between components for small and large motorcycles separately or combined. The competitive analysis
    focuses on the market definitions under which affected markets would arise.
202 See e.g. Case COMP M.7174 – Federal-Mogul Corporation / Honeywell Friction Materials, paragraphs 18
    to 23; Case COMP/M.4878 - Continental / Siemens VDO paragraphs 50-51.
203 Form CO, paragraph 1.194.
                                                         37
 ---pagebreak---         cars, (v) executive cars, (vi) luxury cars (vii) sport cars, (viii) sport utility vehicles
        ("SUVs") and (ix) multipurpose vehicles).204 The Commission has previously
        considered the further sub-segmentation of the SUV segment into (i) small,
        (ii) medium and (iii) large SUVs but left this question open.205
(174) In Peugeot/Opel, the Commission investigated whether electric cars constitute a
        separate product market and whether this possible market should be further
        segmented according to (i) technology (electric battery cars and hybrid cars) or
        (ii) the categories defined for vehicles with combustion engines.206
        (B)       The Notifying Parties’ view
(175) The Notifying Parties agree that the relevant downstream market should be the
        market for passenger cars, but submit that it is not necessary to conclude on market
        definition, as market shares in any potential upstream and downstream markets are
        not indicative of foreclosure concerns.207
        (C)       The Commission’s assessment
(176)    Therefore, the Commission will retain the product market definition provided in its
        past decisional practice as described in paragraph (173).
4.3.12.2. Geographic market
        (A)       The Commission’s decisional practice
(177) In previous decisions the Commission has ultimately left open whether the
        geographic scope of the markets for manufacturing and supply of passenger cars and
        LCVs is EEA-wide or national in scope.208
        (B)       The Notifying Parties’ view
(178) The Notifying Parties submit that the downstream market for passenger cars is at
        least EEA-wide, as manufacturers of passenger cars source automotive components
        on a global basis (indeed, Honda sources from each of HIAMS, Keihin and Nissin
        Kogyo from outside the EEA).209
        (C)       The Commission’s assessment
(179) The Commission will retain the geographic market definition provided in its past
        decisional practice as described in paragraph (173)
204 Case COMP/M.8449 – Peugeot/Opel, paragraph 11.
205 Case COMP/M.8449 – Peugeot/Opel, paragraph 12.
206 Case COMP/M.8449 – Peugeot/Opel, paragraph 14.
207 Form CO, paragraph 1.217.
208 Case COMP/M.8449 – Peugeot/Opel, paragraph 26.
209 Form CO, paragraph 1.216.
                                                   38
 ---pagebreak--- 4.3.13. Motorcycles
4.3.13.1. Product market
        (A)       The Commission’s decisional practice
(180) The Commission in a previous case considered that the market for the production
        and supply of motorcycles should be segmented on the basis of engine size.210
        Thereby, the Commission did not make a distinction between small and large
        motorcycles, but only between scooters and motorcycles, ultimately leaving the
        market definition open.211
        (B)       The Notifying Parties’ view
(181) The Notifying Parties submit that the appropriate frame of reference in this case is
        for the production of all motorcycles, in line with the Commission’s previous
        practice. The Notifying Parties submit that a segmentation between downstream
        markets for components for small (engine size below 250cc) and for large (engine
        size above 250cc) motorcycles, is not justified, given supply-side substitutability.
        (C)       The Commission’s assessment
(182) The Commission agrees that the appropriate frame of reference in this case is for the
        production of all motorcycles, which is in line with Piaggio/Aprilia. The
        Commission will retain the product market definition provided in its past decisional
        practice as described in paragraph (173) as the proposed transaction does not raise
        serious doubts as to its compatibility with the internal market for any of these
        products.
4.3.13.2. Geographic market
        (A)       The Commission’s decisional practice
(183) In Piaggio/Aprilia, the Commission found that the market for motorcycles was
        national in scope.212
        (B)       The Notifying Parties’ view
(184) For motorcycles, the Notifying Parties submit that the appropriate geographic market
        is at least EEA-wide, as manufacturers of motorcycles typically source automotive
        components on a global basis (in particular, Honda sources and the Targets supply
        their products at a worldwide level).213
210 Case COMP/M.3570 – Piaggio / Aprilia.
211 Case COMP/M.3570 – Piaggio / Aprilia, paragraph 21. The Commission considered a potential
    segmentation between the sale of scooters (engine size below 50cc) and motorcycles (engine size
    above 50cc).
212 Case COMP/M.3570 – Piaggio / Aprilia, paragraph 23.
213 Form CO, paragraph 1.219.
                                                     39
 ---pagebreak---         (C)        The Commission’s assessment
(185) The production of motorcycles for sale in the EEA Member States takes place in an
        area which is at least EEA-wide, as the Parties confirmed: based on 2019 sales data,
        [Share of motorcycles sold by Honda in the EEA that were produced in the EEA]%
        of the motorcycles Honda sold in the EEA were produced in the EEA (in production
        plants in Spain and Italy, for sale in the entire EEA market), suggesting markets are
        at least EEA-wide. Following this reasoning, the market for production of
        motorcycles should be at least EEA-wide.
(186) In any event, for the purpose of this decision, the exact geographic market definition
        can ultimately be left open between national, EEA-wide and worldwide.214
4.4.    Horizontal effects
4.4.1. Analytical framework
(187) 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, in particular through the creation or strengthening of a
        dominant position.
(188) The Commission Guidelines on the assessment of horizontal mergers under the
        Merger Regulation (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.
(189) 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 Integrated Company would have increased market power
        without resorting to coordinated behaviour. The Horizontal Merger Guidelines list a
        number of factors215 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. Not all of these factors need to be present
        for significant non-coordinated effects to be likely. The list of factors, any one of
        which is not necessarily decisive, is also not an exhaustive list.
4.4.2. Integrated Company Summary of horizontally affected markets
(190) In the EEA alone, the transaction does not give rise to horizontally affected
        markets.216
214 Honda confirmed that its market share at national level (for an overall market for all motorcycles and
    small and large motorcycles separately) would not substantially differ from its market shares at the EEA
    level. Therefore national markets will not be discussed in this Decision. (Reply to RFI 20).
215 Horizontal Merger Guidelines, paras 24 et seqq.
216 Form CO, section 6.5.
                                                          40
 ---pagebreak---  ---pagebreak---         of (i) the strong supply relationships of HIAMS and Nissin Kogyo with Honda, and
        (ii) the supply-side substitutability of brake master cylinders for use in motorcycles
        and for use in passenger cars.221
(194) According to the Notifying Parties, competitors have the ability to increase capacity
        to respond to any increase in customer demand. Brake master cylinders for
        motorcycles are undifferentiated products. HIAMS and Nissin Kogyo cannot be
        considered particularly close competitors, nor can HIAMS be characterised as an
        important competitive force that has more influence on the competitive process than
        its market share suggests (to the contrary, as most of its sales of this component are
        accounted for by Honda). Customers of brake master cylinders for motorcycles are
        large OEMs that exercise considerable countervailing buyer power in commercial
        negotiations due to their size and commercial significance to the Parties (many of
        whom also purchase other component parts from the Parties).222
(195) Finally, the Notifying Parties submit that the transaction will have no impact on
        existing conditions of competition within the EEA, in view of the fact that HIAMS
        has no sales of brake master cylinders within the EEA.223
        (B)        The Commission’s assessment
(196) Although some of the customers of motorcycle components responding to the
        Commission’s market investigation expressed concerns about the possibility to
        source brake master cylinders from other companies than the Targets, others
        considered that they would have alternative suppliers.224 The Commission considers
        that the transaction seems unlikely to result in a significant impediment to effective
        competition in the market for the supply of brake master cylinders for use in
        motorcycles for the reasons outlined below.
(197) First, the results of the market investigation show that competitors have spare
        capacity to increase production of brake master cylinders for use in motorcycles
        should the Integrated Company increase prices post-transaction, allowing customers
        to switch to competing suppliers.225 Competitors in this market are large
        international suppliers (including Brembo, Akebono, Hubei, Hengtong and
        Endurance) [Parties’ views of other suppliers],226 while customers of brake master
        cylinders for motorcycles are large OEMs that exercise considerable countervailing
        buyer power in commercial negotiations due to their size and commercial
        significance to the Parties (many of whom also purchase other component parts from
        the Parties). 227 Furthermore, brake master cylinders are just one component among
        the many parts comprising a motorcycle and account for a very small portion
        ([Percentage of the cost of a motorcycle comprised of the relevant component]%)228
        of the total cost of the motorcycle; therefore, an increase in the price of brake master
        cylinders would have no material impact on the prices of motorcycles, rendering any
221 Reply to question 1 of RFI 8.
222 Reply to question 1 of RFI 8.
223 Form CO, paragraph 1.450.
224 Reply to question 12 of questionnaire to customers.
225 Replies to question 13 of questionnaire to competitors.
226 Reply to question 2 of RFI 14.
227 Reply to question 1 of RFI 8.
228 Reply to question 1 of RFI 11.
                                                         42
 ---pagebreak---         kind of foreclosure strategy attempted ineffective. Also, because the market for
        automotive components is characterised by multi-market contacts, in case of
        foreclosure for one product, OEMs could retaliate by switching away from the
        Integrated Company for other products.
(198) Second, suppliers can switch between manufacturing brake master cylinders for use
        in passenger cars and motorcycles without particular difficulty. The Notifying
        Parties estimate that any switch would require [Parties’ estimate of switching costs].
        As such, the Notifying Parties consider that there is supply-side substitutability
        between brake master cylinders for use in motorcycles and passenger cars,229 which
        was confirmed by the majority of respondents to the Commission’s market
        investigation, which points at low barriers to entry in this market.230 The combined
        market share of the Integrated Company in the market encompassing the supply of
        brake master cylinders for use in both passenger cars and motorcycles is below 20%
        at EEA and worldwide level.231 Therefore, and especially in view of the supply side
        substitutability of brake master cylinders for use in passenger cars and motorcycles,
        the Commission considers that the market shares of the Integrated Company in the
        market for the supply of brake master cylinders for use in motorcycles overstate the
        competitive impact of the transaction.
(199) Third, prior to the transaction, Honda accounts for [Percentage of Nissin’s sales of
        brake master cylinders for which Honda accounts]% of Nissin’s sales of brake
        master cylinders for use in motorcycles worldwide.232 Furthermore, [Details of
        HIAMS’ sales of brake master cylinders] HIAMS’ sales of brake master cylinders
        for use in motorcycles are to Honda (accounting for [Percentage of HIAMS’ sales of
        brake master cylinders for which Honda accounts]% of its total sales), with [Details
        of HIAMS’ customer base] being HIAMS’ only other main customer (accounting for
        [Percentage of HIAMS’ sales of brake master cylinders]% of its total sales).233 As
        such, HIAMS’ and Nissin’s market share overstates the competitive impact of the
        transaction on this market and, overall, the part of the market for which the
        Integrated Company will compete is smaller than its market share reflects, because
        already prior to the transaction most if its sales are accounted for by its future
        parents, while a number of large international players such as (Brembo and
        Akebono) remain to continue supplying other OEMs.234
(200) In view of the above, the Commission concludes that the transaction does not raise
        serious doubts as to its compatibility with the internal market and the functioning of
        the EEA Agreement with respect to the market for brake master cylinders for use in
        motorcycles from the point of view of non-coordinated effects.
229 Reply to question 3(a) of RFI 7. The Notifying Parties confirm that they do not consider [Parties’ estimate
    of switching costs and duration] to be substantial considering the Parties’ corporate size and total revenue
    (approximately JPY […] billion for HIAMS). Further, switching is made easier by the fact that both brake
    master cylinders and floating calipers and brake pads (assembled) can thereafter be used on a continuous
    basis (Reply to question 3 of RFI 14).
230 Replies to question 3 of questionnaire to competitors and replies to question 3 of questionnaire to
    customers.
231 Reply to question 1 of RFI 8.
232 Reply to question 1 of RFI 2.
233 Reply to question 1 of RFI 8.
234 Possible input and customer foreclosure effects will be addressed in Section 4.5.
                                                          43
 ---pagebreak---  ---pagebreak---         floating calipers and brake pads (assembled) for use in motorcycles are large OEMs
        that exercise considerable countervailing buyer power in commercial negotiations
        due to their size and commercial significance to the Parties (many of whom also
        purchase other component parts from the Parties).239
(204) Finally, the Notifying Parties submit that the transaction will have no impact on
        existing conditions of competition within the EEA, in view of the fact that HIAMS
        has no sales of floating calipers and brake pads (assembled) for use in motorcycles
        within the EEA. 240
        (B)        The Commission’s assessment
(205) Although some of the customers of motorcycle components responding to the
        Commission’s market investigation expressed concerns about the possibility to
        source floating calipers and brake pads (assembled) from other companies than the
        Targets, others considered that they would have alternative suppliers.241 The
        Commission considers that the transaction seems unlikely to result in a significant
        impediment to effective competition in the market for the supply of floating calipers
        and brake pads (assembled) for use in motorcycles for the reasons stated below.
(206) First, the results of the market investigation show that competitors have spare
        capacity to increase production of floating calipers and brake pads (assembled) for
        use in motorcycles should the Integrated Company increase prices allowing
        customers to switch to competing suppliers.242 Competitors in this market are large
        international suppliers (including Brembo, Akebondo, Hubei, Hengtong and
        Endurance),243 while customers of floating calipers and brake pads (assembled) for
        use in motorcycles are large OEMs that exercise considerable countervailing buyer
        power in commercial negotiations due to their size and commercial significance to
        the Parties (many of whom also purchase other component parts from the Parties).244
        Furthermore, floating calipers and brake pads (assembled) are just one component
        among the many parts comprising a motorcycle and account for a very small portion
        ([Percentage of the cost of a motorcycle comprised of the relevant component]%)245
        of the total cost of the motorcycle; therefore, an increase in the price of floating
        calipers and brake pads (assembled) would have no material impact on the prices of
        motorcycles, rendering any kind of foreclosure strategy attempted ineffective. Also,
        because the market for automotive components is characterised by multi-market
        contacts, in case of foreclosure for one product, OEMs could retaliate by switching
        away from the Integrated Company for other products.
(207) Second, suppliers can switch between manufacturing floating calipers and brake
        pads (assembled) for use in passenger cars and in motorcycles without particular
        difficulty. The Notifying Parties estimate that any switch would require [Parties’
        estimate of switching costs and duration]. As such, the Notifying Parties consider
        that there is supply-side substitutability between floating calipers and brake pads
239 Reply to question 1 of RFI 8.
240 Reply to question 1 of RFI 8 and Form CO, paragraph 1.252.
241 Reply to question 12 of questionnaire to customers.
242 Replies to question 13 of questionnaire to competitors.
243 Reply to question 2 of RFI 14.
244 Reply to question 1 of RFI 8.
245 Reply to question 1 of RFI 11.
                                                         45
 ---pagebreak---          (assembled) for use in motorcycles and passenger cars,246 which was confirmed by
         the majority of respondents to the Commission’s market investigation, which points
         at low barriers to entry in this market.247 The combined market share of the
         Integrated Company in the market encompassing the supply of floating calipers and
         brake pads (assembled) for use both in passenger cars and motorcycles is below 20%
         at EEA and worldwide level.248 Therefore, and especially in view of the supply side
         substitutability of floating calipers and brake pads (assembled) for use in passenger
         cars and motorcycles, the Commission considers that the market shares of the
         Integrated Company in the market for the supply of brake master cylinders for use in
         motorcycles overstate the competitive impact of the transaction.
(208) Third, prior to the transaction, Honda already accounts for [Percentage of Nissin
         Kogyo’s sales of the relevant component for which Honda accounts]% of Nissin
         Kogyo’s sales of floating calipers and brake pads (assembled) for use in
         motorcycles. Furthermore, [Percentage of HIAMS’ sales of the relevant component
         for which Honda accounts]% of HIAMS’ sales of floating calipers and brake pads
         (as an assembled product) for use in motorcycles on a worldwide basis is represented
         by purchases by Honda249. Therefore, the part of the market for which the Integrated
         Company will compete is smaller than its market share reflects as, already prior to
         the transaction, a large part if its sales are accounted for by two of its future
         parents.250
(209) In view of the above, the Commission concludes that, the transaction does not raise
         serious doubts as to its compatibility with the internal market and the functioning of
         the EEA Agreement in relation to the market for floating calipers and brake pads
         (assembled) for use in motorcycles due to non-coordinated effects.
4.5.     Vertical effects
4.5.1. Analytical framework
(210) As regards non-horizontal effects, the Commission Guidelines on the assessment of
         non-horizontal mergers,251 (“Non-Horizontal Merger Guidelines”) distinguish
         between two broad types of concentrations that concern undertakings which are
         active on different relevant markets (“non-horizontal mergers”), namely vertical
         mergers and conglomerate mergers.
246 Reply to question 3(a) of RFI 7 and Reply to question 3 of RFI 14. The Notifying Parties confirm that
    they do not consider an additional investment of [Parties’ estimate of switching costs and duration] to be
    substantial considering the Parties’ corporate size and total revenue (approximately JPY […] billion for
    HIAMS). Further, switching is made easier by the fact that both brake master cylinders and floating
    calipers and brake pads (assembled) can thereafter be used on a continuous basis.
247 Replies to question 3 of questionnaire to competitors and replies to question 3 of questionnaire to
    customers.
248 Reply to question 1 of RFI 8.
249 Reply to question 2 of RFI 14.
250 Possible input and customer foreclosure effects will be addressed in Section 4.5.
251 Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of
    concentrations between undertakings (OJ C 265, 18.10.2008, p. 6) (“Non-horizontal Merger Guidelines”).
                                                          46
 ---pagebreak--- (211) A vertical merger may result in anti-competitive effects due to foreclosure.
       Foreclosure concerns a situation where actual or potential rivals’ access to supplies
       or markets is hampered or eliminated as a result of the vertical merger, thereby
       reducing these companies’ ability and/or incentive to compete.252
(212) Two forms of foreclosure can be distinguished in a vertical relationship: input and
       customer foreclosure.
(213) Input foreclosure arises where, post-transaction, the new entity would be likely to
       restrict access to the products or services that it would have otherwise supplied
       absent the vertical merger, thereby raising its downstream rivals’ costs by making it
       harder for them to obtain supplies of the input under similar prices and conditions as
       absent the vertical merger.253
(214) Customer foreclosure may occur when a supplier integrates with an important
       customer in the downstream market. Because of this downstream presence, the
       Integrated Company may foreclose access to a sufficient customer base to its actual
       or potential rivals in the upstream market (the input market) and reduce their ability
       or incentive to compete. In turn, this may raise downstream rivals’ costs by making
       it harder for them to obtain supplies of the input under similar prices and conditions
       as absent the vertical merger. 254
(215) For an input or customer foreclosure scenario to raise competition concerns, three
       cumulative factors need to be taken into account: (i) the ability of the Integrated
       Company to engage in foreclosure; (ii) the incentives of the Integrated Company to
       do so; and (iii) whether a foreclosure strategy would have a significant detrimental
       effect on competition in the downstream market.255
252 Non-Horizontal Merger Guidelines, paragraph 29.
253 Non-Horizontal Merger Guidelines, paragraph 31.
254 Non-Horizontal Merger Guidelines, paragraph 58.
255 Non-Horizontal Merger Guidelines, paragraphs 32 and 59.
                                                      47
 ---pagebreak---  ---pagebreak---  ---pagebreak---  ---pagebreak---  ---pagebreak---                   Although Honda is a stronger player in the sale of motorcycles at worldwide
                  level (with a market share of [30-40]%) its market share is only [10-20]% in
                  the EEA. Therefore, customer foreclosure strategies seem unlikely to
                  succeed.
         (c)      In 11 out of the 19 vertically affected markets, the Targets’ market share
                  upstream is below 30%. These are the following components for use in
                  motorcycles: electronic throttle bodies, ABS, brake pads (as a non-assembled
                  component), panel brakes, handle lever brackets, CBS, fixed calipers and
                  brake pads (assembled), fixed calipers (as a non-assembled component),
                  floating calipers (non-assembled) for motorcycles, drivetrain systems (shaft
                  drive), and speed meter gears for motorcycles. For these component upstream
                  markets, input foreclosure strategies seem unlikely to succeed given that an
                  affected market results only as a consequence of Honda holding a market
                  share above 30% in the downstream market for the worldwide market for the
                  supply of motorcycles.
         (d)      Only in 7 vertically affected markets for motorcycle components261 the
                  market share of the Targets and Honda is above 30% both upstream and
                  downstream. However, in 5 out of these 7 vertically affected markets
                  (namely ECUs, fuel pump modules, injectors, brake master cylinders,
                  floating calipers and brake pads (as an assembled product)), the Integrated
                  Company’s market share would be below 20% EEA and worldwide under
                  considerations of supply-side substitutability between the manufacture of
                  those components for use in motorcycles and in passenger cars.262
         (e)      For airflow sensors for automobiles, where HIAMS’ worldwide market share
                  upstream exceeds 30%, neither Keihin, Showa or Nissin Kogyo supply such
                  products not only at EEA level but also at worldwide level.263
(221) As regards the overall impact that the transaction may have on competition, pre-
         existing commercial relationships between the Targets and Honda also leave limited
         room for input and foreclosure strategies as a result of the merger:
         (a)      Input foreclosure concerns arising from the Transaction are likely relatively
                  limited because, first, with respect to motorcycle components overall, for
                  each of Keihin, Showa, Nissin Kogyo, and HIAMS, Honda, as a customer,
                  accounts for [Percentage of sales accounted for by Honda]%, [Percentage of
                  sales accounted for by Honda]%, [Percentage of sales accounted for by
                  Honda]% and [Percentage of sales accounted for by Honda]% of their total
                  sales, respectively, at worldwide level.264 Second, with respect to the specific
                  motorcycle components giving rise to affected markets, as can be seen from
                  the table in paragraph (219) above, Honda’s purchases of most of those
                  components represent the vast majority of the Targets’ sales of those
                  components. Moreover, as a result, the Commission considers that, overall,
261 Namely the following components for use in motorcycles: ECUs, carburettors, fuel pump modules,
    injectors, brake master cylinders, floating calipers and brake pads (as an assembled product), and shock
    absorbers.
262 Reply to question 4 of RFI 7.
263 Reply to question 6 of RFI 1.
264 Reply to question 1 of RFI 12.
                                                          52
 ---pagebreak---                 the input foreclosure concerns arising from the Transaction are likely to be
                relatively limited as they only relate to the sales by the Targets to customers
                other than Honda pre-transaction.
        (b)     Customer foreclosure concerns arising from the Transaction are likely
                relatively limited because, first, with respect to motorcycle components
                overall, Honda has over [Approximate number of suppliers of motorcycle
                component parts to Honda] suppliers of motorcycle component parts,
                including a large number of motorcycle components which Keihin, Showa,
                Nissin Kogyo and HIAMS do not supply.265 Although the Targets represent
                [Percentage of Honda’s total purchases of motorcycle components]% of
                Honda’s total purchases of motorcycles components,266 Keihin, Showa,
                Nissin Kogyo and HIAMS are among the most important suppliers of Honda
                (Keihin is [Rank of supplier by volume] among Honda’s suppliers, Showa is
                [Rank of supplier by volume], Nissin Kogyo is [Rank of supplier by volume]
                and HIAMS is [Rank of supplier by volume] in terms of volumes of
                components purchased from an individual supplier).267 According to the
                Parties, Honda has little incentive to source new component parts from the
                Targets, in addition to those parts that are currently sourced from them,
                because of the long development period (typically [Details of development
                period for component parts]) that is necessary to satisfy the high standards
                required by Honda. Thus, it would be quite difficult for Honda to source
                components which are not currently supplied by Keihin, Showa, Nissin
                Kogyo and HIAMS, and the possibility of doing so is very low.268 In view of
                this, the Commission considers that, overall, customer foreclosure concerns
                for motorcycle components are likely to be relatively limited as a
                consequence of the transaction
                (c)       Second, with respect to the specific motorcycle components giving
                rise to affected markets, as can be seen from the table in paragraph (219)
                above, Honda purchases the vast majority of its needs for most of those
                components from the Targets and the transaction will have a limited impact
                on the sale of component parts by other suppliers, which can continue to sell
                component parts to a range of other OEMs. Therefore, the Commission
                considers that the customer foreclosure concerns arising from the Transaction
                are relatively limited as they only relate to purchases by Honda from
                suppliers other than the Targets, pre-transaction.
(222) In the following paragraphs, the Decision will examine the impact of the transaction
        in each of the vertically affected markets.
265 Reply to question 2 of RFI 13.
266 Reply to question 1 of RFI 12.
267 Reply to question 3 RFI 21.
268 Reply to question 2 of RFI 13.
                                                   53
 ---pagebreak---  ---pagebreak---  ---pagebreak--- (228) Second, all manufacturers of airflow sensors responding to the Commission’s market
        investigation stated that they would be able to increase production of this component
        if they received more customer orders.275
(229) Third, input foreclosure may raise competition problems only if it concerns an
        important input for the downstream product (for example, when the input concerned
        represents a significant cost factor relative to the price of the downstream
        product).276 This is not the case for airflow sensors, which represent [Percentage of
        the price of a passenger car comprised of the relevant component]% of the total cost
        of manufacturing a passenger cars.277
(230) In view of (i) HIAMS’ market share in the supply of airflow sensors for passenger
        cars, (ii) the presence of a number of strong competitors with spare capacity and
        (iii) the fact that airflow sensors are just one component among the many parts
        comprising a passenger car, and account for a very small portion ([Percentage of the
        price of a passenger car comprised of the relevant component]%) of the total cost of
        the passenger car, the Commission considers that the Integrated Company will likely
        not have the ability to foreclose access to this input.
        (B.i.b) No incentives to foreclose access to inputs
(231) First, Honda’s market share for passenger cars worldwide is low ([5-10]%), and
        lower than the market share of competitors Volkswagen ([10-20]%), Toyota ([10-
        20]%), Renault-Nissan-Mitsubishi ([10-20]%), and Hyundai-Kia ([5-10]%).278 In the
        EEA, Honda’s market presence is negligible, with a market share [0-5]%.
        Furthermore, the transaction will not result in any increment of the Notifying
        Parties’ and the Targets’ market share at the downstream level.
(232) Second, airflow sensors are just one component among the many parts comprising a
        vehicle, and account for a very small portion ([Percentage of the price of a vehicle
        comprised of the relevant component]%)279 of the total cost of the vehicle.
        Therefore, an increase in the price of airflow sensors upstream would have no
        material impact on the downstream prices of vehicles, rendering any kind of
        foreclosure strategy attempted ineffective. Furthermore, because the market for
        automotive components is characterised by multi-market contacts, in case of
        foreclosure for one product, OEMs could retaliate by switching away from the
        Integrated Company for other products.
(233) In view of the above, the Commission considers that the Integrated Company will
        likely have no incentives to foreclose access to airflow sensors.
        (B.i.c) Overall likely impact on effective competition
(234) In the market investigation, all customers replied that if HIAMS / Keihin / Showa /
        Nissin Kogyo stopped supplying, they could source from other suppliers.280 As a
275 Reply to question 13 of the questionnaire to competitors.
276 Paragraph 34.
277 Reply to question 1 of RFI 11.
278 Form CO, Table 34.
279 Reply to question 1 of RFI 11.
280 Reply to question 12 of questionnaire to customers.
                                                         56
 ---pagebreak---  ---pagebreak---  ---pagebreak---         motorcycle), during which period suppliers are committed to supply minimum
        volumes of components at an agreed price.288
(240) The Notifying Parties submit that the Integrated Company will have no incentives to
        engage in input foreclosure in view of the fact that (i) any attempted input
        foreclosure strategy would not be profitable, as it would simply result in the
        customer switching to one of the many alternative suppliers and lost revenues for the
        Integrated Company at the upstream level, with no increase in Honda’s downstream
        revenues in the supply of small motorcycles, (ii) the proposed transaction will not
        materially change the existing incentives of the Parties to engage in any input
        foreclosure strategy, in view of Honda’s existing economic interest in Keihin (as at
        31 March 2019, Honda owned 41.35% of the voting rights in Keihin) and the fact
        that [Details of Keihin’s supply to third party customers].289
(241) The Notifying Parties submit that the Integrated Company will have no ability or
        incentives to engage in customer foreclosure strategies in view of the fact that
        (i) Honda’s market share at the downstream level in the supply of motorcycles
        (approximately [30-40]%) is limited, (ii) Honda currently purchases [Share of
        Honda’s demand for ECUs met by the Parties]% of its total worldwide demand for
        this component from the Parties, (iii) any customer foreclosure strategy would risk
        Honda’s security of supply of the relevant component parts, with no prospects of this
        resulting in increased prices at the upstream or downstream level.290
        (B)        The Commission’s assessment
        (B.i)      Input foreclosure
(242) Although some of the customers of motorcycle components responding to the
        Commission’s market investigation expressed concerns about the possibility to
        source ECUs from other companies than the Targets, others considered they would
        have alternative suppliers.291 The Commission considers that the Integrated
        Company will not have the ability or the incentives to engage in input foreclosure
        strategies, for the reasons stated below.
        (B.i.a) No ability to foreclose access to inputs
(243) First, Keihin’s market share in the worldwide market for ECUs for use in small
        motorcycles worldwide is [30-40]% (i.e. only [0-5] percentage points above the 30%
        threshold), followed by a number of strong competitors: Bosch with [20-30]%
        market share, as well as Denso ([10-20]%), Yamaha Electronic ([10-20]%),
        Mitsubishi ([10-20]%) and Continental ([10-20]%).292 The transaction will not result
        in any increment of the Notifying Parties’ and the Targets’ market share of this
        component.
288 Reply to question 2 of RFI 14 and reply to question 4 of RFI 15.
289 Reply to question 2 of RFI 14 and reply to question 4 of RFI 15.
290 Reply to question 4 RFI 15.
291 Reply to question 12 of questionnaire to customers.
292 Form CO, Table 27.
                                                         59
 ---pagebreak--- (244) Second, the majority of the respondents to the Commission’s market investigation
        confirmed that the same companies usually produce ECUs for both motorcycles and
        for passenger cars.293 In view of considerations of supply-side substitutability,
        should the market comprise the manufacture of ECUs for use in motorcycles and in
        passenger cars, the Integrated Company’s market share post transaction would be
        [5-10]% at worldwide and EEA level.294
(245) Third, input foreclosure may raise competition problems only if it concerns an
        important input for the downstream product (for example, when the input concerned
        represents a significant cost factor relative to the price of the downstream
        product).295 This is not the case for ECUs, which represent [Percentage of the cost
        of a small motorcycle comprised of the relevant component]% of the total cost of
        manufacturing a small motorcycle.296
(246) Fourth, Honda accounted for [Percentage of Keihin’s sales of ECUs for which
        Honda accounted]% of total sales of Keihin’s ECUs for use in small motorcycles
        worldwide. Therefore, prior to the transaction, Keihin Details of Keihin’s supply to
        OEM customers]. Thus, pre-Transaction, the other OEM customers were able to
        source ECUs for small motorcycles from a range of other suppliers, and will be able
        to continue to do so after the transaction. Furthermore, the Commission’s market
        investigation confirmed that all manufacturers of motorcycle components responding
        to the market investigation have spare capacity to increase production,297 making
        input foreclosure unlikely as a consequence of the transaction.
(247) In view of the above, the Commission considers that the Integrated Company will
        likely have no ability to foreclose access to ECUs for use in small motorcycles.
        (B.i.b) No incentives to foreclose access to inputs
(248) ECUs are just one component among the many parts comprising a small motorcycle,
        and account for a very small portion ([Percentage of the cost of a small motorcycle
        comprised of the relevant component]%)298 of the total cost of the motorcycle.
        Therefore, an increase in the price of ECUs upstream would have no material impact
        on the downstream prices of small motorcycles, rendering pointless any kind of
        foreclosure strategy attempted. Furthermore, because the market for motorcycle
        components is characterised by multi-market contacts, in case of foreclosure for one
        product, OEMs could retaliate by switching away from the Integrated Company for
        other products.
(249) In view of the above, the Commission considers that the Integrated Company will
        likely have no incentives to foreclose access to ECUs for use in small motorcycles.
293 Reply to question 3 of questionnaire to competitors and reply to question 3 of questionnaire to customers.
294 Reply to question 4 of RFI 7.
295 Paragraph 34.
296 Reply to question 1 of RFI 11.
297 Reply to question 13 of questionnaire to competitors.
298 Reply to question 1 of RFI 11.
                                                          60
 ---pagebreak---         (B.i.c) Overall likely impact on effective competition
(250) Given that (i) there is a significant number of competitors in the upstream market
        which can supply ECUs for use in small motorcycles, (ii) Honda accounts for
        [Percentage of Keihin’s sales of ECUs for small motorcycles accounted for by
        Honda]% of total sales of Keihin’s ECUs for use in small motorcycles worldwide,
        (iii) the results of the market investigation show that there is spare capacity in the
        market for the manufacture of ECUs for use in motorcycles, (iv) ECUs are just one
        component among the many parts comprising a small motorcycle, and account for a
        very small portion ([Percentage of the cost of a motorcycle comprised of the relevant
        component]%) of the total cost of the motorcycle, the Commission considers that,
        overall, the Integrated Company would not have the ability or the incentives to
        foreclose access to ECUs for use in small motorcycles.
        (B.ii)     Customer foreclosure
(251) The majority of manufacturers of motorcycle components responding to the
        Commission’s market investigation expressed that they would have sufficient
        alternative customers to supply if Honda were to source all ECUs for motorcycles
        from the Integrated Company.299 Indeed, the Commission considers that the
        Integrated Company will not have the ability or the incentives to engage in customer
        foreclosure strategies related to ECUs for use in small motorcycles, for the reasons
        stated below.
        (B.ii.a) No ability to foreclose access to customers
(252) First, Honda’s market share for the manufacture of motorcycles in the EEA is of
        [10-20]%, followed by Piaggio ([10-20]%), Yamaha ([10-20]%) and
        BMW ([5-10]%). Worldwide, Honda’s market share for the manufacture of
        motorcycles is [30-40]%, followed by Hero ([10-20]%), Yamaha ([5-10]%),
        Bajaj ([5-10]%), Suzuki ([0-5]%) and Kawasaki ([0-5]%). Concerning small
        motorcycles Honda’s market share would be [20-30]% in the EEA and [30-40]%
        worldwide.300 In view of Honda’s relatively limited market share in the manufacture
        and sale of motorcycles and the presence of a number of important competitors
        (Hero, Yamaha, Bajaj, Piaggio, BMW), the Integrated Company is unlikely to have
        the ability to engage in customer foreclosure post-Transaction.
(253) Second, Honda purchased [Share of Honda demand for ECUs for motorcycles met
        by the Targets]% of its needs for ECUs for motorcycles from the Targets. Therefore,
        prior to the transaction, the competitors in the upstream market supplied to the
        remaining OEM manufacturers and will be able to continue to do so after the
        transaction. Indeed, the results of the Commission market investigation showed that
        the majority of manufacturers of motorcycle components responding to the
        questionnaire expects to have sufficient alternative customers to supply if Honda
        were to source all ECUs for motorcycles from the Integrated Company,301 making
        customer foreclosure unlikely as a consequence of the transaction.
299 Reply to question 16 of questionnaire to competitors.
300 Reply to question 1 of RFI 13.
301 Reply to question 16 of questionnaire to competitors.
                                                          61
 ---pagebreak--- (254) In view of the above, the Commission considers that the Integrated Company will
        likely have no ability to foreclose access to customers for the sale of ECUs for use in
        small motorcycles.
        (B.ii.b) No incentives to foreclose access to customers
(255) ECUs are just one component among the many parts comprising a motorcycle, and
        account for a very small portion ([Percentage of the cost of a motorcycle comprised
        of the relevant component]%)302 of the total cost of the motorcycle, while the
        Integrated Company’s market share for this component is [Details of Integrated
        Company’s market share] above 30%. Therefore, any customer foreclosure strategy
        would risk Honda’s security of supply of the relevant component part, with no
        prospects of this resulting in increased prices at the upstream or downstream level.
(256) In view of the above, the Commission considers that the Integrated Company will
        likely have no incentives to foreclose access to customers for the sale of ECUs for
        use in small motorcycles.
        (B.ii.c) Overall likely impact on effective competition
(257) Given that (i) there is a significant number of players in the downstream market
        which supply ECUs for use in small motorcycles, (ii) Honda purchased [Share of
        Honda demand for ECUs for motorcycles met by the Targets]% of its needs for
        ECUs for motorcycles from the Targets, (iii) the majority of manufacturers of
        motorcycle components responding to the market investigation stated that they
        would have sufficient alternative customers to supply if Honda were to source all
        ECUs for motorcycles from the Integrated Company, (iv) ECUs are just one
        component among the many parts comprising a motorcycle and account for a very
        small portion ([Percentage of the cost of a motorcycle comprised of the relevant
        component]%)303 of the total cost of the motorcycle, the Commission considers that,
        overall, the Integrated Company would not have the ability or the incentives to
        foreclose customer access for the sale of ECUs for use in small motorcycles.
        (B.iii)    Conclusion on input and customer foreclosure
(258) Based on the considerations above, the Commission considers that the transaction
        does not raise serious doubts as to its compatibility with the internal market in
        relation to the vertical link between the market for the manufacture and sale of ECUs
        for use in small motorcycles and the market for the manufacture and sale of small
        motorcycles.
4.5.5. Carburettors (upstream) for motorcycles (downstream)
(259) Keihin supplies carburettors for use in motorcycles to Honda at a worldwide level.
        Its worldwide market share for the supply of carburettors for use in motorcycles is
        [40-50]%. However, Keihin does not supply these products in the EEA.304
302 Reply to question 1 of RFI 11.
303 Reply to question 1 of RFI 11.
304 Form CO, paragraph 1.435(c).
                                                   62
 ---pagebreak---  ---pagebreak---         (A)        The Notifying Parties’ view
(261) The Notifying Parties confirm that the transaction will not result in any increment in
        the supply of these products at the upstream level (as the transaction does not give
        rise to a horizontal overlap in the supply of this component part).306
(262) The Notifying Parties submit that the Integrated Company will have no ability to
        engage in input foreclosure in view of the fact that (i) this component does not
        represent a significant cost factor relative to the price of motorcycles (ii) [Details of
        the Targets’ sales to Honda] of the Targets’ sales of this component are to Honda
        (iii) manufacturers of motorcycles will continue to be able to source this component
        from a range of large international suppliers post-transaction [Parties’ views of other
        suppliers] (iv) the average duration of contracts for the supply of motorcycle
        components is 3-4 years (linked to the lifespan of the model of motorcycle), during
        which period suppliers are committed to supply minimum volumes of components at
        an agreed price.307
(263) The Notifying Parties submit that the Integrated Company will have no incentives to
        engage in input foreclosure in view of the fact that (i) any attempted input
        foreclosure strategy would not be profitable, as it would simply result in the
        customer switching to one of the many alternative suppliers and lost revenues for the
        Integrated Company at the upstream level, with no increase in Honda’s downstream
        revenues in the supply of motorcycles, (ii) the proposed transaction will not
        materially change the existing incentives of the Parties to engage in any input
        foreclosure strategy, in view of Honda’s existing economic interest in Keihin (as at
        31 March 2019, Honda owned 41.35% of the voting rights in Keihin) and the fact
        that Keihin [Details of Keihin’s supply to third party customers].308
(264) The Notifying Parties consider that the Integrated Company will have no ability or
        incentives to engage in customer foreclosure strategies in view of the fact that
        (i) Honda’s market share at the downstream level in the supply of motorcycles
        (approximately [30-40]%) is limited, (ii) Honda currently purchases [Share of
        Honda’s demand for the component met by the Parties]% of its total worldwide
        demand for this component from the Parties, (iii) any customer foreclosure strategy
        would risk Honda’s security of supply of the relevant component parts, with no
        prospects of this resulting in increased prices at the upstream or downstream level.309
        (B)        The Commission’s assessment
        (B.i)      Input foreclosure
(265) The majority of customers of motorcycle components responding to the market
        investigation stated that they would be able to source carburettors from other
        companies than the Targets.310 The Commission considers that the Integrated
        Company will not have the ability or the incentives to engage in input foreclosure
        strategies, for the reasons stated below.
306 Form CO, paragraph 1.470.
307 Reply to question 2 of RFI 14.
308 Reply to question 2 of RFI 14.
309 Reply to question 4 RFI 15.
310 Reply to question 12 of questionnaire to customers.
                                                        64
 ---pagebreak---         (B.i.a) No ability to foreclose access to inputs
(266) First, input foreclosure may raise competition problems only if it concerns an
        important input for the downstream product (for example, when the input concerned
        represents a significant cost factor relative to the price of the downstream product).
        This is not the case for carburettors, which represent [Percentage of the cost of a
        motorcycle comprised of the relevant component]% of the total cost of
        manufacturing a motorcycle.311
(267) Second, although Keihin has a substantial market share in the supply of carburettors
        for small motorcycles ([40-50]%), prior to the transaction Honda accounted for
        [Share of Keihin’s sales of the relevant component accounted for by Honda]% of its
        sales of this component. Therefore, prior to the transaction, Keihin was [Details of
        Keihin’s supply to OEM customers]. Thus, pre-Transaction, the other OEM
        customers were able to source carburettors for small motorcycles from a range of
        other suppliers, and will be able to continue to do so after the transaction.
        Furthermore, the Commission’s market investigation confirmed that the
        manufacturers of motorcycle components responding to the market investigation
        have spare capacity to increase production of this component,312 and the majority of
        customers of motorcycle components responding stated that they would be able to
        source carburettors from other companies than the Targets,313 making input
        foreclosure unlikely as a consequence of the transaction. The Parties consider that
        suppliers in this market (including Mikuni, Ucal, Dellorto, Bing Agency
        International and AMAL) [Parties’ view of suppliers in the relevant market].314
(268) In view of the above, the Commission considers that the Integrated Company will
        likely have no ability to foreclose access to carburettors for use in motorcycles.
        (B.i.b) No incentives to foreclose access to inputs
(269) Carburettors are just one component among the many parts comprising a motorcycle,
        and account for a very small portion ([Percentage of the cost of a motorcycle
        comprised of the relevant component]%)315 of the total cost of the motorcycle.
        Therefore, an increase in the price of carburettors upstream would have no material
        impact on the downstream prices of motorcycles, rendering pointless any kind of
        foreclosure strategy attempted. Furthermore, because the market for motorcycle
        components is characterised by multi-market contacts, in case of foreclosure for one
        product, OEMs could retaliate by switching away from the Integrated Company for
        other products.
(270) In view of the above, the Commission considers that the Integrated Company will
        likely have no incentives to foreclose access to carburettors for use in motorcycles.
311 Reply to question 1 of RFI 11.
312 Reply to question 13 of the questionnaire to competitors.
313 Reply to question 12 of questionnaire to customers.
314 Reply to question 2 of RFI 14.
315 Reply to question 1 of RFI 11.
                                                         65
 ---pagebreak---         (B.i.c) Overall likely impact on effective competition
(271) Given that (i) Honda accounted for [Share of Targets’ sales of the relevant
        component accounted for by Honda]% of the sales of the Targets’ carburettors for
        use in motorcycles, (ii) the results of the market investigation show that there is
        spare capacity in the market for the manufacture of carburettors for use in
        motorcycles, (iii) carburettors are just one component among the many parts
        comprising a motorcycle, and account for a very small portion ([Percentage of the
        cost of a motorcycle comprised of the relevant component]%) of the total cost of the
        motorcycle, the Commission considers that, overall, the Integrated Company would
        not have the ability or the incentives to foreclose access to carburettors for use in
        small motorcycles.
        (B.ii)     Customer foreclosure
(272) The Commission considers that the Integrated Company will not have the ability or
        the incentives to engage in customer foreclosure strategies related to carburettors for
        use in motorcycles, for the reasons stated below.
        (B.ii.a) No ability to foreclose access to customers
(273) First, Honda’s market share for the manufacture of motorcycles in the EEA is of
        [10-20]%, followed by Piaggio ([10-20]%), Yamaha ([10-20]%) and
        BMW ([5-10]%). Worldwide, Honda’s market share for the manufacture of
        motorcycles is [30-40]%, followed by Hero ([10-20]%), Yamaha ([5-10]%),
        Bajaj ([5-10]%), Suzuki ([0-5]%) and Kawasaki ([0-5]%). The transaction will not
        result in any increment of the Notifying Parties’ and the Targets’ market share for
        the sale of motorcycles, where only Honda is active.
(274) Second, Honda purchased [Share of Honda’s demand for carburettors for use in
        motorcycles met by the Targets]% of its needs for carburettors for use in
        motorcycles from the Targets. Therefore, prior to the transaction, the competitors in
        the upstream market supplied to the remaining OEM manufacturers and will be able
        to continue to do so after the transaction, making customer foreclosure unlikely as a
        consequence of the transaction.
(275) In view of the above, the Commission considers that the Integrated Company will
        likely have no ability to foreclose access to customers for the sale of carburettors for
        use in motorcycles.
        (B.ii.b) No incentives to foreclose access to customers
(276) First, carburettors are just one component among the many parts comprising a
        motorcycle, and account for a very small portion ([Percentage of the cost of a
        motorcycle comprised of the relevant component]%)316 of the total cost of the
        motorcycle. Therefore, the incentives to engage in customer foreclosure are low.
(277) In view of the above, the Commission considers that the Integrated Company will
        likely have no incentives to foreclose access to customers for the sale of carburettors
        for use in small motorcycles.
316 Reply to question 1 of RFI 11.
                                                  66
 ---pagebreak---  ---pagebreak---  ---pagebreak---         continue to be able to source this component from a range of large international
        suppliers post-transaction [Parties’ views of other suppliers] (iv) the average
        duration of contracts for the supply of motorcycle components is 3-4 years (linked to
        the lifespan of the model of motorcycle), during which period suppliers are
        committed to supply minimum volumes of components at an agreed price.322
(283) The Notifying Parties consider that the Integrated Company will have no incentives
        to engage in input foreclosure in view of the fact that (i) any attempted input
        foreclosure strategy would not be profitable, as it would simply result in the
        customer switching to one of the many alternative suppliers and lost revenues for the
        Integrated Company at the upstream level, with no increase in Honda’s downstream
        revenues in the supply of motorcycles, (ii) the proposed transaction will not
        materially change the existing incentives of the Parties to engage in any input
        foreclosure strategy, in view of Honda’s existing economic interest in Keihin (as at
        31 March 2019, Honda owned 41.35% of the voting rights in Keihin) and the fact
        that Keihin already supplies fuel pump modules to Honda.323
(284) The Notifying Parties submit that the Integrated Company will have no ability or
        incentives to engage in customer foreclosure strategies in view of the fact that
        (i) Honda’s market share at the downstream level in the supply of motorcycles
        (approximately [30-40]%) is limited, (ii) Honda currently purchases [Share of
        Honda’s demand for the relevant component met by the Parties]% of its total
        worldwide demand for this component from the Parties, (iii) any customer
        foreclosure strategy would risk Honda’s security of supply of the relevant
        component parts, with no prospects of this resulting in increased prices at the
        upstream or downstream level.324
        (B)        The Commission’s assessment
        (B.i)      Input foreclosure
(285) The majority of customers of motorcycle components responding to the
        Commission’s market investigation stated that they would be able to source fuel
        pump modules from other companies than the Targets.325 The Commission considers
        that the Integrated Company will not have the ability or the incentives to engage in
        input foreclosure strategies, for the reasons stated below.
        (B.i.a) No ability to foreclose access to inputs
(286) First, Keihin’s market share in the worldwide market for fuel pump modules for use
        in small motorcycles is [30-40]%, followed by Mitsuba ([20-30]%), while there are
        also a number of small competitors active, such as Magneti Marelli, Mitsubishi,
        Delphi and Bosch (each [0-5]%).326 The transaction will not result in any increment
        of the Notifying Parties’ and the Targets’ market share of this component.
322 Reply to question 2 of RFI 14 and reply to question 4 of RFI 15.
323 Reply to question 2 of RFI 14 and reply to question 4 of RFI 15.
324 Reply to question 4 RFI 15.
325 Reply to question 12 of questionnaire to customers.
326 Form CO, Table 29.
                                                         69
 ---pagebreak--- (287) Second, the majority of the respondents to the Commission’s market investigation
         confirmed that the same companies usually produce fuel pump modules for both
         motorcycles and for passenger cars.327 In view of considerations of supply-side
         substitutability, should the market comprise the manufacture of fuel pump modules
         for use in motorcycles and in passenger cars, the Integrated Company’s market share
         post transaction would be below 20% at worldwide and [5-10]% EEA level.328
(288) Third, input foreclosure may raise competition problems only if it concerns an
         important input for the downstream product (for example, when the input concerned
         represents a significant cost factor relative to the price of the downstream product).
         This is not the case for fuel pump modules, which represent [Percentage of cost of a
         motorcycle comprised of the cost of fuel pump modules]% of the total cost of
         manufacturing a motorcycle.329
(289) Fourth, Honda accounted for [Share of Targets’ sales of the relevant component
         accounted for by Honda]% of the sales of the Targets’ fuel pump modules for small
         motorcycles. The Commission’s market investigation confirmed that the majority of
         manufacturers of motorcycle components responding have spare capacity to increase
         production of fuel pump modules for small motorcycles,330 and that the majority of
         customers of motorcycle components responding would be able to source fuel pump
         modules from other companies than the Targets,331 making input foreclosure
         unlikely as a consequence of the transaction.
(290) Fifth, the average duration of contracts for the supply of motorcycle components is
         3-4 years (linked to the lifespan of the model of motorcycle),332 during which period
         suppliers are committed to supply minimum volumes of components at an agreed
         price. As such, third party customers of the Targets are also contractually protected
         from input foreclosure for the lifespan of the model of motorcycle that the fuel pump
         modules are being supplied for.333
(291) In view of the above, the Commission considers that the Integrated Company will
         likely have no ability to foreclose access to fuel pump modules for use in small
         motorcycles.
         (B.i.b) No incentives to foreclose access to inputs
(292) Customers are contractually protected from input foreclosure for the lifespan of the
         motorcycle model that the part relates to. Furthermore, fuel pump modules are just
         one component among the many parts comprising a motorcycle, and account for a
         very small portion ([Percentage of the cost of a motorcycle comprised of the relevant
         component]%)334 of the total cost of the motorcycle. Therefore, an increase in the
         price of fuel pump modules upstream would have no material impact on the
327 Reply to question 3 of questionnaire to competitors and reply to question 3 of questionnaire to customers.
328 Reply to question 4 of RFI 7.
329 Reply to question 1 of RFI 11.
330 Reply to question 13 of questionnaire to competitors
331 Reply to question 12 of questionnaire to customers.
332 Typically, motorcycles undergo a model change every three years and suppliers, therefore, tend to supply
    for a minimum of three years per model.
333 Reply to question 2 of RFI 14 and reply to question 4 of RFI 15.
334 Reply to question 1 of RFI 11.
                                                         70
 ---pagebreak---         downstream prices of motorcycles, rendering pointless any kind of foreclosure
        strategy attempted. Furthermore, because the market for motorcycle components is
        characterised by multi-market contacts, in case of foreclosure for one product, OEMs
        could retaliate by switching away from the Integrated Company for other products.
(293) In view of the above, the Commission considers that the Integrated Company will
        likely have no incentives to foreclose access to fuel pump modules for use in small
        motorcycles.
        (B.i.c) Overall likely impact on effective competition
(294) Given that (i) there is a significant number of competitors in the upstream market
        which can supply fuel pump modules for use in small motorcycles, in particular in
        view of considerations of supply-side substitutability between the fuel pump
        modules for use in motorcycles and for use in passenger cars, (ii) the results of the
        market investigation show that there is spare capacity in the market for the
        manufacture of fuel pump modules for use in motorcycles, (iii) fuel pump modules
        are just one component among the many parts comprising a motorcycle, and account
        for a very small portion ([Percentage of the cost of a motorcycle comprised of the
        relevant component]%) of the total cost of the motorcycle, the Commission
        considers that, overall, the Integrated Company would not have the ability nor the
        incentives to foreclose access to fuel pump modules for use in small motorcycles.
        (B.ii)     Customer foreclosure
(295) All manufacturers of motorcycle components responding to the Commission’s
        market investigation stated that they would have sufficient alternative customers to
        supply if Honda were to source all fuel pump modules for motorcycles from the
        Integrated Company.335 The Commission considers that the Integrated Company will
        not have the ability or the incentives to engage in customer foreclosure strategies for
        the reasons stated below.
        (B.ii.a) No ability to foreclose access to customers
(296) First, Honda’s market share for the manufacture of motorcycles in the EEA is of
        [10-20]%, followed by Piaggio ([10-20]%), Yamaha ([10-20]%) and
        BMW ([5-10]%). Worldwide, Honda’s market share for the manufacture of
        motorcycles is [30-40]%, followed by Hero ([10-20]%), Yamaha ([5-10]%),
        Bajaj ([5-10]%), Suzuki ([0-5]%) and Kawasaki ([0-5]%). Concerning small
        motorcycles Honda’s market share would be [20-30]% in the EEA and [30-40]%
        worldwide.336 The transaction will not result in any increment of the Notifying
        Parties’ and the Targets’ market share for the sale of motorcycles, where only Honda
        is active.
(297) Second, Honda purchased [Share of Honda’s demand for the relevant component
        met by the Targets]% of its needs for fuel pump modules for small motorcycles from
        the Targets. The majority of manufacturers of motorcycle components responding to
        the Commission’s market investigation stated that they would have sufficient
        alternative customers to supply if Honda were to source all fuel pump modules for
335 Reply to question 16 of questionnaire to competitors.
336 Reply to question 1 of RFI 13.
                                                          71
 ---pagebreak---         small motorcycles from the Integrated Company,337 making customer foreclosure
        unlikely as a consequence of the transaction.
(298) In view of the above, the Commission considers that the Integrated Company will
        likely have no ability to foreclose access to customers for the sale of fuel pump
        modules for use in small motorcycles.
        (B.ii.b) No incentives to foreclose access to customers
(299) Fuel pump modules are just one component among the many parts comprising a
        motorcycle, and account for a very small portion ([Percentage of the cost of a
        motorcycle comprised of the relevant component]%)338 of the total cost of the
        motorcycle, while the Integrated Company’s market share for this component is
        [Details of Integrated Company’s market share] above 30%. Therefore, any
        customer foreclosure strategy would risk Honda’s security of supply of the relevant
        component part, with no prospects of this resulting in increased prices at the
        upstream or downstream level.
(300) In view of the above, the Commission considers that the Integrated Company will
        likely have no incentives to foreclose access to customers for the sale of fuel pump
        modules for use in motorcycles.
        (B.ii.c) Overall likely impact on effective competition
(301) Given that (i) there is a significant number of players in the downstream market to
        which to supply fuel pump modules, (ii) the results of the market investigation show
        that the majority of competitors would have sufficient alternative customers to
        supply if Honda were to source all fuel pump modules for motorcycles from the
        Integrated Company, (iii) fuel pump modules are just one component among the
        many parts comprising a motorcycle and account for a very small portion
        ([Percentage of the cost of a motorcycle comprised of the relevant component]%) of
        the total cost of the motorcycle, the Commission considers that, overall, the
        Integrated Company would not have the ability or the incentives to foreclose
        customer access for the sale of fuel pump for use in small motorcycles.
        (B.iii)    Conclusion on input and customer foreclosure
(302) Based on the considerations above, the Commission considers that the transaction
        does not raise serious doubts as to its compatibility with the internal market in
        relation to the vertical link between the market for the manufacture and sale of fuel
        pump modules for use in small motorcycles and the market for the manufacture and
        sale of motorcycles.
337 Reply to question 16 of questionnaire to competitors.
338 Reply to question 1 of RFI 11.
                                                          72
 ---pagebreak---  ---pagebreak---  ---pagebreak---         would risk Honda’s security of supply of the relevant component parts, with no
        prospects of this resulting in increased prices at the upstream or downstream level.346
        (B)        The Commission’s assessment
        (B.i)      Input foreclosure
(308) The majority of customers of motorcycle components responding to the
        Commission’s market investigation stated that they would be able to source injectors
        from other companies than the Targets.347 The Commission considers that the
        Integrated Company will not have the ability or the incentives to engage in input
        foreclosure strategies, for the reasons stated below.
        (B.i.a) No ability to foreclose access to inputs
(309) First, although Keihin is the strongest player with a market share in the worldwide
        market for injectors for use in small motorcycles of [30-40]%, strong international
        companies are also present in this market, such as Denso ([5-10]%), Aishin ([0-5]%),
        Magneti Marelli and Delphi ([0-5]% each).348 The transaction will not result in any
        increment of the Notifying Parties’ and the Targets’ market share of this component.
(310) Second, the majority of the respondents to the Commission’s market investigation
        confirmed that the same companies usually produce injectors for both motorcycles
        and for passenger cars.349 In view of considerations of supply-side substitutability,
        should the market comprise the manufacture of injectors for use in motorcycles and
        in passenger cars, the Integrated Company’s market share post transaction would be
        below 20% worldwide and [5-10]% on an EEA level.350
(311) Third, input foreclosure may raise competition problems only if it concerns an
        important input for the downstream product (for example, when the input concerned
        represents a significant cost factor relative to the price of the downstream
        product).351 This is not the case for injectors, which represent [Percentage of the cost
        of a motorcycle comprised of the relevant component]% of the total cost of
        manufacturing a motorcycle.352
(312) Fourth, Honda accounted for [Share of the Targets' sales of the relevant component
        accounted for by Honda]% of the sales of the Targets’ injectors for use in small
        motorcycles. Therefore, prior to the transaction other OEM customers were able to
        source injectors for use in small motorcycles from a range of other suppliers, and
        will be able to continue to do so after the transaction. Furthermore, the
        Commission’s market investigation confirmed that a majority of manufacturers of
        motorcycle components responding have spare capacity to increase production of
346 Reply to question 4 RFI 15.
347 Reply to question 12 of questionnaire to customers.
348 Form CO, Table 30.
349 Reply to question 3 of questionnaire for competitors and reply to question 3 of questionnaire for
    customers.
350 Reply to question 4 of RFI 7.
351 Paragraph 34.
352 Reply to question 1 of RFI 11.
                                                        75
 ---pagebreak---         injectors for use in small motorcycles,353 and that a majority of customers of
        motorcycle components responding would be able to source injectors from other
        companies than the Targets,354 making input foreclosure unlikely as a consequence
        of the transaction.
(313) Fifth, the average duration of contracts for the supply of motorcycle components is
        3-4 years (linked to the lifespan of the model of motorcycle), during which period
        suppliers are committed to supply minimum volumes of components at an agreed
        price. As such, third party customers of the Targets are also contractually protected
        from input foreclosure for the lifespan of the model of motorcycle that the injectors
        are being supplied for.355
(314) In view of the above, the Commission considers that the Integrated Company will
        likely have no ability to foreclose access to injectors for use in small motorcycles.
        (B.i.b) No incentives to foreclose access to inputs
(315) Customers are contractually protected from input foreclosure for the lifespan of the
        motorcycle model that the part relates to. Furthermore, injectors are just one
        component among the many parts comprising a motorcycle, and account for a very
        small portion ([Percentage of the cost of a motorcycle comprised of the relevant
        component]%)356 of the total cost of the motorcycle. Therefore, an increase in the
        price of injectors upstream would have no material impact on the downstream prices
        of motorcycles, rendering pointless any kind of foreclosure strategy attempted.
        Furthermore, because the market for motorcycle components is characterised by
        multi-market contacts, in case of foreclosure for one product, OEMs could retaliate
        by switching away from the Integrated Company for other products.
(316) In view of the above, the Commission considers that the Integrated Company will
        likely have no incentives to foreclose access to injectors for use in small
        motorcycles.
        (B.i.c) Overall likely impact on effective competition
(317) Given that (i) there is a significant number of competitors in the upstream market
        which can supply injectors for use in motorcycles, in particular in view of
        considerations of supply-side substitutability between injectors for use in
        motorcycles and for use in passenger cars, (ii) Honda accounts for [Share of Keihin’s
        sales of the relevant component accounted for by Honda]% of total sales of Keihin’s
        injectors for use in motorcycles worldwide, (iii) the results of the market
        investigation show that there is spare capacity in the market for the manufacture of
        injectors for use in motorcycles, (iv) injectors are just one component among the
        many parts comprising a motorcycle, and account for a very small portion
        ([Percentage of the cost of a motorcycle comprised of the relevant component]%)357
        of the total cost of the motorcycle, the Commission considers that, overall, the
353 Reply to question 13 of questionnaire for Competitors.
354 Reply to question 12 of questionnaire to customers.
355 Reply to question 2 of RFI 14 and reply to question 4 of RFI 15.
356 Reply to question 1 of RFI 11.
357 Reply to question 1 of RFI 11.
                                                         76
 ---pagebreak---         Integrated Company would not have the ability nor the incentives to foreclose access
        to injectors for use in motorcycles.
        (B.ii)     Customer foreclosure
(318) Manufacturers of motorcycle components responding to the Commission’s market
        investigation stated that they would have sufficient alternative customers to supply if
        Honda were to source all injectors for motorcycles from the Integrated Company.358
        The Commission considers that the Integrated Company will not have the ability or
        the incentives to engage in customer foreclosure strategies related to injectors for use
        in small motorcycles, for the reasons stated below.
        (B.ii.a) No ability to foreclose access to customers
(319) First, Honda’s market share for the manufacture of motorcycles in the EEA is of
        [10-20]%, followed by Piaggio ([10-20]%), Yamaha ([10-20]%) and
        BMW ([5-10]%). Worldwide, Honda’s market share for the manufacture of
        motorcycles is [30-40]%, followed by Hero ([10-20]%), Yamaha ([5-10]%),
        Bajaj ([5-10]%), Suzuki ([0-5]%) and Kawasaki ([0-5]%). Concerning small
        motorcycles, Honda’s market share would be [20-30]% in the EEA and [30-40]%
        worldwide.359 The transaction will not result in any increment of the Notifying
        Parties’ and the Targets’ market share for the sale of motorcycles, where only Honda
        is active.
(320) Second, Honda purchased [Share of Honda’s demand for the relevant component
        met by the Targets]% of its needs for injectors for use in small motorcycles from the
        Targets. Therefore, prior to the transaction, the competitors in the upstream market
        supplied to the remaining OEM manufacturers and will be able to continue to do so
        after the transaction. Indeed, the results of the Commission market investigation
        showed that the majority of manufacturers of motorcycle components would have
        sufficient alternative customers to supply if Honda were to source all injectors for
        use in small motorcycles from the Integrated Company,360 making customer
        foreclosure unlikely as a consequence of the transaction.
(321) In view of the above, the Commission considers that the Integrated Company will
        likely have no ability to foreclose access to customers for the sale of injectors for use
        in small motorcycles.
        (B.ii.b) No incentives to foreclose access to customers
(322) Injectors are just one component among the many parts comprising a motorcycle,
        and account for a very small portion ([Percentage of the cost of a motorcycle
        comprised of the relevant component]%)361 of the total cost of the motorcycle.
        Furthermore, Honda already purchases [Share of Honda’s demand for the relevant
        component met by the Targets]% of its needs for injectors for use in small
        motorcycles from the Targets, therefore any customer foreclosure strategy would
        only affect the remaining [Share of Honda’s demand for the relevant component met
358 Reply to question 16 of questionnaire to competitors.
359 Reply to question 1 of RFI 13.
360 Reply to question 16 of questionnaire for competitors.
361 Reply to question 1 of RFI 11.
                                                          77
 ---pagebreak---  ---pagebreak---  ---pagebreak---         products at the upstream level of this vertically affected market at a worldwide
        level.364
(329) The Notifying Parties submit that the Integrated Company will have no ability to
        engage in input foreclosure in view of the fact that (i) this component it does not
        represent a significant cost factor relative to the price of motorcycles (ii) the vast
        majority of HIAMS and Nissin Kogyo’s sales of this component are to Honda
        (iii) Manufacturers of motorcycles will continue to be able to source brake master
        cylinders from a range of large international suppliers post-transaction which
        [Notifying Parties’ views of large international suppliers] (iv) the average duration of
        contracts for the supply of motorcycle components is 3-4 years (linked to the
        lifespan of the model of motorcycle), during which period suppliers are committed
        to supply minimum volumes of components at an agreed price.365
(330) The Notifying Parties submit that the Integrated Company will have no incentives to
        engage in input foreclosure in view of the fact that (i) any attempted input
        foreclosure strategy would not be profitable, as it would simply result in the
        customer switching to one of the many alternative suppliers and lost revenues for the
        Integrated Company at the upstream level, with no increase in Honda’s downstream
        revenues in the supply of motorcycles, (ii) the proposed transaction will not
        materially change the existing incentives of the Parties to engage in any input
        foreclosure strategy, in view of Honda’s existing economic interest in Nissin Kogyo
        (as at 31 March 2019, Honda owned 34.86% of the voting rights in Nissin Kogyo)
        and HIAMS’ minimal activities in the supply of brake master cylinders to third party
        customers other than Honda.366
(331) The Notifying Parties consider that the Integrated Company will have no ability or
        incentives to engage in customer foreclosure strategies in view of the fact that
        (i) Honda’s market share at the downstream level in the supply of motorcycles
        (approximately [30-40]%) is limited, (ii) Honda currently purchases [Percentage of
        Honda’s demand for the relevant component met by the Parties]% of its total
        worldwide demand for this component from the Parties, (iii) any customer
        foreclosure strategy would risk Honda’s security of supply of the relevant
        component parts, with no prospects of this resulting in increased prices at the
        upstream or downstream level.367
        (B)        The Commission’s assessment
        (B.i)      Input foreclosure
(332) Although some of the customers of motorcycle components responding to the
        Commission’s market investigation expressed concerns about the possibility to
        source brake master cylinders from other companies than the Targets, others
        considered that they would have alternative suppliers.368 The Commission considers
        that the Integrated Company will not have the ability or the incentives to engage in
        input foreclosure strategies, for the reasons stated below.
364 Form CO, paragraph 1.486.
365 Reply to question 2 of RFI 14.
366 Reply to question 2 of RFI 14.
367 Reply to question 4 RFI 15.
368 Reply to question 12 of questionnaire to customers.
                                                        80
 ---pagebreak---         (B.i.a) No ability to foreclose access to inputs
(333) First, although the Targets’ market share in the worldwide market for brake master
        cylinders is [50-60]%, a number of large international suppliers compete in this
        market, namely Brembo (with a market share of [10-20]%), Akebono (with a market
        share of [5-10]%), Hubei (with [5-10]%), Hengtong ([5-10]%) and
        Endurance ([5-10]%). The transaction results in a limited increment ([5-10]%) of the
        Targets’ combined market share at the upstream level.
(334) Second, the majority of the respondents to the Commission’s market investigation
        confirmed that the same companies usually produce brake master cylinders for both
        motorcycles and for passenger cars.369 In view of considerations of supply-side
        substitutability, should the market comprise the manufacture of brake master
        cylinders for use in motorcycles and in passenger cars, the Integrated Company’s
        market share post transaction would be below 20% at worldwide and EEA level
        (estimated [10-20]% on a worldwide basis, and [0-5]% on an EEA wide basis).370
(335) Third, input foreclosure may raise competition problems only if it concerns an
        important input for the downstream product (for example, when the input concerned
        represents a significant cost factor relative to the price of the downstream product).
        This is not the case for brake master cylinders, which represent [Percentage of the
        cost of a motorcycle comprised of the relevant component]% of the total cost of
        manufacturing a motorcycle.371
(336) Fourth, Honda accounted for [Percentage of HIAMS’ sales of the relevant
        component accounted for by Honda]% of HIAMS’ total sales372 and [Percentage of
        Nissin Kogyo’s sales of the relevant component accounted for by Honda]% of the
        sales of Nissin Kogyo's brake master cylinders for motorcycles. Therefore, prior to
        the transaction other OEM customers were able to source brake master cylinders
        from a range of other suppliers, and will be able to continue to do so after the
        transaction. Although some of the customers of motorcycle components responding
        to the Commission’s market investigation expressed concerns about the possibility to
        source brake master cylinders from other companies than the Targets,373 the
        manufacturers of motorcycle components responding to the market investigation
        confirmed that they have spare capacity to increase production, should the combined
        entity engage in input foreclosure.374 Indeed, competitors in this market are large
        international suppliers (including Brembo, Akebondo, Hubei, Hengtong and
        Endurance) and the Parties consider that [Parties’ views of large international
        suppliers].375
(337) Fifth, the average duration of contracts for the supply of motorcycle components is
        3-4 years (linked to the lifespan of the model of motorcycle), during which period
        suppliers are committed to supply minimum volumes of components at an agreed
369 Reply to question 3 of questionnaire to competitors and reply to question 3 of questionnaire to customers.
370 Reply to question 3 of RFI 7.
371 Reply to question 1 of RFI 11.
372 Reply to question 1 of RFI 8.
373 Reply to question 12 of questionnaire to customers.
374 Reply to question 13 of questionnaire to Competitors. The response rate to this question was low, but
    those who did confirmed that they could increase capacity.
375 Reply to question 2 of RFI 14.
                                                         81
 ---pagebreak---         price. As such, third party customers of HIAMS and Nissin Kogyo are also
        contractually protected from input foreclosure for the lifespan of the model of
        motorcycle that the brake master cylinders are being supplied for.376
(338) In view of the above, the Commission considers that the Integrated Company will
        likely have no ability to foreclose access to brake master cylinders for use in
        motorcycles.
        (B.i.b) No incentives to foreclose access to inputs
(339) Customers are contractually protected from input foreclosure for the lifespan of the
        motorcycle model that the part relates to. Furthermore, brake master cylinders are
        just one component among the many parts comprising a motorcycle, and account for
        a very small portion ([Percentage of the cost of a motorcycle comprised of the
        relevant component]%)377 of the total cost of the motorcycle. Therefore, an increase
        in the price of brake master cylinders upstream would have no material impact on
        the downstream prices of motorcycles, rendering pointless any kind of foreclosure
        strategy attempted. Furthermore, because the market for motorcycle components is
        characterised by multi-market contacts, in case of foreclosure for one product, OEMs
        could retaliate by switching away from the Integrated Company for other products.
(340) In view of the above, the Commission considers that the Integrated Company will
        likely have no incentives to foreclose access to brake master cylinders for use in
        motorcycles.
        (B.i.c) Overall likely impact on effective competition
(341) Given that (i) there is a number of competitors in the upstream market which can
        supply brake master cylinders for use in motorcycles, in particular in view of
        considerations of supply-side substitutability between the supply of brake master
        cylinders for use in motorcycles and in passenger cars, (ii) Honda accounts for
        [Percentage of Nissin’s sales of the relevant component accounted for by Honda]%
        of Nissin’s total sales of brake master cylinders for use in motorcycles worldwide
        and [Percentage of HIAMS’ sales of the relevant component accounted for by
        Honda]% of HIAMS’, (iii) the results of the market investigation show that there is
        spare capacity in the market for the manufacture of brake master cylinders for use in
        motorcycles, (iv) brake master cylinders are just one component among the many
        parts comprising a motorcycle, and account for a very small portion ([Percentage of
        the cost of a motorcycle comprised of the relevant component]%) of the total cost of
        the motorcycle, the Commission considers that, overall, the Integrated Company
        would not have the ability nor the incentives to foreclose access to brake master
        cylinders for use in small motorcycles.
        (B.ii)     Customer foreclosure
(342) The manufacturers of motorcycle components responding to the Commission’s
        market investigation expressed that they would have sufficient alternative customers
        to supply if Honda were to source all brake master cylinders for motorcycles from
376 Reply to question 2 of RFI 14.
377 Reply to question 1 of RFI 11.
                                                 82
 ---pagebreak---         the Integrated Company.378 The Commission considers that the Integrated Company
        will not have the ability or the incentives to engage in customer foreclosure
        strategies, for the reasons stated below.
        (B.ii.a) No ability to foreclose access to customers
(343) First, Honda’s market share for the manufacture of motorcycles in the EEA is of
        [10-20]%, followed by Piaggio ([10-20]%), Yamaha ([10-20]%) and
        BMW ([5-10]%). Worldwide, Honda’s market share for the manufacture of
        motorcycles is [30-40]%, followed by Hero ([10-20]%), Yamaha ([5-10]%),
        Bajaj ([5-10]%), Suzuki ([0-5]%) and Kawasaki ([0-5]%). The transaction will not
        result in any increment of the Notifying Parties’ and the Targets’ market share for
        the sale of motorcycles, where only Honda is active.
(344) Second, Honda purchased [Share of Honda’s demand for the relevant component
        met by the Targets]% of its needs for brake master cylinders for motorcycles from
        the Targets. Therefore, prior to the transaction, the competitors in the upstream
        market supplied to the remaining OEM manufacturers and will be able to continue to
        do so after the transaction, making customer foreclosure unlikely as a consequence
        of the transaction. The results of the Commission market investigation showed that
        manufacturers of motorcycle components would have sufficient alternative
        customers to supply if Honda were to source all brake master cylinders for
        motorcycles from the Integrated Company.379
(345) In view of the above, the Commission considers that the Integrated Company will
        likely have no ability to foreclose access to customers for the sale of brake master
        cylinders for use in motorcycles.
        (B.ii.b) No incentives to foreclose access to customers
(346) Brake master cylinders are just one component among the many parts comprising a
        motorcycle, and account for a very small portion ([Percentage of the cost of a
        motorcycle comprised of the relevant component]%)380 of the total cost of the
        motorcycle. Furthermore, Honda already purchases [Share of Honda’s demand for
        the relevant component met by the Targets]% of its needs for brake master cylinders
        from the Targets.
(347) In view of the above, the Commission considers that the Integrated Company will
        likely have no incentives to foreclose access to customers for the sale of brake
        master cylinders for use in motorcycles.
        (B.ii.c) Overall likely impact on effective competition
(348) Given that (i) there is a number of players in the downstream market to which to
        supply brake master cylinders for motorcycles, (ii) Honda purchases [Share of
        Honda’s demand for the relevant component met by the Targets]% of its needs for
378 Reply to question 16 of questionnaire to competitors. The response rate to this question was low, but those
    who did confirmed that they would have alternative customers.
379 Reply to question 16 of questionnaire for competitors. The response rate to this question was low, but
    those who did confirmed that they could increase capacity.
380 Reply to question 1 of RFI 11.
                                                         83
 ---pagebreak---  ---pagebreak---  ---pagebreak---         (A)        The Notifying Parties’ view
(352) The Notifying Parties submit that the Integrated Company will have no ability to
        engage in input foreclosure in view of the fact that (i) this component does not
        represent a significant cost factor relative to the price of motorcycles (ii) the majority
        of the Targets’ sales of this component are to Honda (iii) manufacturers of
        motorcycles will continue to be able to source this component from a range of large
        international suppliers post-transaction (iv) the average duration of contracts for the
        supply of motorcycle components is 3-4 years (linked to the lifespan of the model of
        motorcycle), during which period suppliers are committed to supply minimum
        volumes of components at an agreed price.383
(353) The Notifying Parties consider that the Integrated Company will have no incentives
        to engage in input foreclosure in view of the fact that (i) any attempted input
        foreclosure strategy would not be profitable, as it would simply result in the
        customer switching to one of the many alternative suppliers and lost revenues for the
        Integrated Company at the upstream level, with no increase in Honda’s downstream
        revenues in the supply of motorcycles, (ii) the proposed transaction will not
        materially change the existing incentives of the Parties to engage in any input
        foreclosure strategy, in view of Honda’s existing economic interest in Nissin Kogyo
        (as at 31 March 2019, Honda owned 34.86% of the voting rights in Nissin Kogyo)
        and HIAMS’ limited activities in the supply of floating calipers and brake pads
        (assembled) to third party customers other than Honda.384
(354) The Notifying Parties consider that the Integrated Company will have no ability or
        incentives to engage in customer foreclosure strategies in view of the fact that
        (i) Honda’s market share at the downstream level in the supply of motorcycles
        (approximately [30-40]%) is limited, (ii) Honda currently purchases [Share of
        Honda’s demand for the relevant component met by the Parties]% of its total
        worldwide demand for this component from the Parties, (iii) any customer
        foreclosure strategy would risk Honda’s security of supply of the relevant
        component parts, with no prospects of this resulting in increased prices at the
        upstream or downstream level.385
        (B)        The Commission’s assessment
        (B.i)      Input foreclosure
(355) Although some of the customers of motorcycle components responding to the
        Commission’s market investigation expressed concerns about the possibility to
        source floating calipers and brake pads (assembled) from other companies than the
        Targets, others considered that they would have alternative suppliers.386 The
        Commission considers that the Integrated Company will not have the ability or the
        incentives to engage in input foreclosure strategies, for the reasons stated below.
383 Reply to question 2 of RFI 14.
384 Reply to question 2 of RFI 14.
385 Reply to question 4 RFI 15.
386 Reply to question 12 of questionnaire to customers.
                                                        86
 ---pagebreak---         (B.i.a) No ability to foreclose access to inputs
(356) First, Nissin Kogyo’s market share in the EEA market for floating calipers and brake
        pads (assembled) for use in motorcycles is [30-40]%, followed by a number of
        strong competitors: Brembo with [20-30]% market share, Hengtong ([10-20]%),
        ADVICS ([5-10]%), and Akebono ([0-5]%). The transaction will not result in any
        increment of the Notifying Parties’ and the Targets’ market share of this component
        in the EEA. Worldwide, the Integrated Company’s combined market share in the
        market for floating calipers and brake pads (assembled) for use in motorcycles is
        higher ([50-60]%), but it is followed by a number of large international competitors:
        Brembo with [10-20]% market share, Akebono ([10-20]%), Hubei ([5-10]%),
        Hengtong ([5-10]%) and Endurance ([5-10]%).
(357) Second, input foreclosure may raise competition problems only if it concerns an
        important input for the downstream product (for example, when the input concerned
        represents a significant cost factor relative to the price of the downstream product).
        This is not the case for floating caliper and brake pads (assembled), which represent
        [Percentage of the cost of a motorcycle comprised of the relevant component]% of
        the total cost of manufacturing a motorcycle.387
(358) Third, although post transaction the Integrated Company’s market share is of
        [50-60]% in the manufacture and sale of floating caliper and brake pads (assembled)
        for use in motorcycles worldwide, the majority of the respondents to the
        Commission’s market investigation confirmed that the same companies usually
        produce floating calipers and brake pads (assembled) for both motorcycles and for
        passenger cars.388 In view of considerations of supply-side substitutability, should
        the market comprise the manufacture of floating calipers and brake pads (assembled)
        for use in motorcycles and in passenger cars, the Integrated Company’s market share
        post transaction would be below 20% at worldwide and EEA level.389
(359) Fourth, Honda accounted for [Percentage of Nissin Kogyo’s sales of the relevant
        component accounted for by Honda]% of the sales of Nissin Kogyo's floating
        calipers and brake pads (assembled) for use in motorcycles and [Percentage of
        HIAMS’ sales of the relevant component accounted for by Honda]% of HIAMS’
        total sales for this product, worldwide.390 Therefore, prior to the transaction other
        OEM customers were able to source floating calipers and brake pads (assembled) for
        use in motorcycles from a range of other suppliers, and will be able to continue to do
        so after the transaction. Although some of the customers of motorcycle components
        responding to the Commission’s market investigation expressed concerns about the
        possibility to source from other companies than the Targets, others said that they
        could find alternative suppliers.391 Furthermore, all manufacturers of motorcycle
        components responding to the Commission’s market investigation confirmed that
387 Reply to question 1 of RFI 11.
388 Reply to question 3 of questionnaire for competitors and reply to question 3 of questionnaire for
    customers.
389 Reply to question 4 of RFI 7.
390 Reply to question 2 of RFI 14.
391 Reply to question 12 of questionnaire for customers.
                                                         87
 ---pagebreak---         they have spare capacity to increase production,392 making input foreclosure unlikely
        as a consequence of the transaction.
(360) Fifth, the average duration of contracts for the supply of motorcycle components is
        3-4 years (linked to the lifespan of the model of motorcycle), during which period
        suppliers are committed to supply minimum volumes of components at an agreed
        price. As such, third party customers of HIAMS and Nissin Kogyo are also
        contractually protected from input foreclosure for the lifespan of the model of
        motorcycle that the floating calipers and brake pads (assembled) are being supplied
        for.393
(361) In view of the above, the Commission considers that the Integrated Company will
        likely have no ability to foreclose access to floating calipers and brake pads
        (assembled) for use in motorcycles.
        (B.i.b) No incentives to foreclose access to inputs
(362) Customers are contractually protected from input foreclosure for the lifespan of the
        motorcycle model that the part relates to. Furthermore, floating calipers and brake
        pads (assembled) are just one component among the many parts comprising a
        motorcycle, and account for a very small portion ([Percentage of the cost of a
        motorcycle comprised of relevant component]%)394 of the total cost of the
        motorcycle. Therefore, an increase in the price of floating calipers and brake pads
        (assembled) upstream would have no material impact on the downstream prices of
        motorcycles, rendering pointless any kind of foreclosure strategy attempted.
        Furthermore, because the market for motorcycle components is characterised by
        multi-market contacts, in case of foreclosure for one product, OEMs could retaliate
        by switching away from the Integrated Company for other products.
(363) In view of the above, the Commission considers that the Integrated Company will
        likely have no incentives to foreclose access to floating calipers and brake pads
        (assembled) for use in motorcycles.
        (B.i.c) Overall likely impact on effective competition
(364) Given that (i) there is a number of competitors in the upstream market, in particular
        in view of considerations of supply-side substitutability between floating calipers
        and brake pads (assembled) for use in motorcycles and in passenger cars, (ii) Honda
        accounts for [Percentage of Nissin’s sales of the relevant component accounted for
        by Honda]% of total sales of Nissin’s floating calipers and brake pads (assembled)
        for use in motorcycles worldwide and [Percentage of HIAMS’ sales of the relevant
        component accounted for by Honda]% of HIAMS’, (iii) the results of the market
        investigation show that there is spare capacity in the market for the manufacture of
        floating calipers and brake pads (assembled) for use in motorcycles, (iv) floating
        calipers and brake pads (assembled) are just one component among the many parts
        comprising a motorcycle, and account for a very small portion ([Percentage of the
        cost of a motorcycle comprised of the relevant component]%) of the total cost of the
        motorcycle, the Commission considers that, overall, the Integrated Company would
392 Reply to question 13 of questionnaire for competitors.
393 Reply to question 2 of RFI 14.
394 Reply to question 1 of RFI 11.
                                                         88
 ---pagebreak---         not have the ability or the incentives to foreclose access to floating calipers and
        brake pads (assembled) for use in motorcycles.
        (B.ii)     Customer foreclosure
(365) The manufacturers of motorcycle components responding to the Commission’s
        market investigation stated that they would have sufficient alternative customers to
        supply if Honda were to source all floating calipers and brake pads (assembled) for
        use in motorcycles from the Integrated Company.395 The Commission considers that
        the Integrated Company will not have the ability or the incentives to engage in
        customer foreclosure strategies related to floating calipers and brake pads
        (assembled) for use in motorcycles, for the reasons stated below.
        (B.ii.a) No ability to foreclose access to customers
(366) First, Honda’s market share for the manufacture of motorcycles in the EEA is of
        [10-20]%, followed by Piaggio ([10-20]%), Yamaha ([10-20]%) and
        BMW ([5-10]%). Worldwide, Honda’s market share for the manufacture of
        motorcycles is [30-40]%, followed by Hero ([10-20]%), Yamaha ([5-10]%),
        Bajaj ([5-10]%), Suzuki ([0-5]%) and Kawasaki ([0-5]%). The transaction will not
        result in any increment of the Notifying Parties’ and the Targets’ market share for
        the sale of motorcycles, where only Honda is active.
(367) Second, Honda purchased [Share of Honda’s demand for the relevant component
        met by the Targets]% of its needs for floating calipers and brake pads (assembled)
        for use in motorcycles from the Targets. Therefore, prior to the transaction, the
        competitors in the upstream market supplied to the remaining OEM manufacturers
        and will be able to continue to do so after the transaction. Indeed, the results of the
        Commission market investigation showed that the majority of manufacturers of
        motorcycle components responding would have sufficient alternative customers to
        supply if Honda were to source all floating calipers and brake pads (assembled) for
        use in motorcycles from the Integrated Company,396 making customer foreclosure
        unlikely as a consequence of the transaction.
(368) In view of the above, the Commission considers that the Integrated Company will
        likely have no ability to foreclose access to customers for the sale of floating calipers
        and brake pads (assembled) for use in motorcycles.
        (B.ii.b) No incentives to foreclose access to customers
(369) Floating calipers and brake pads (assembled) are just one component among the
        many parts comprising a motorcycle, and account for a very small portion
        (Percentage of the cost of a motorcycle comprised of the relevant component]%)397
        of the total cost of the motorcycle. Furthermore, prior to the transaction Honda
        purchased [Share of Honda’s demand for the relevant component met by the
        Targets]% of its needs for floating calipers and brake pads (assembled) for use in
395 Reply to question 16 of questionnaire to competitors. The response rate to this question was low, but those
    who replied confirmed that they would have alternative customers.
396 Reply to question 16 of the questionnaire for competitors.
397 Reply to question 1 of RFI 11.
                                                         89
 ---pagebreak---  ---pagebreak---  ---pagebreak---         which period suppliers are committed to supply minimum volumes of components at
        an agreed price.401
(376) The Notifying Parties submit that the Integrated Company will have no incentives to
        engage in input foreclosure in view of the fact that (i) any attempted input
        foreclosure strategy would not be profitable, as it would simply result in the
        customer switching to one of the many alternative suppliers and lost revenues for the
        Integrated Company at the upstream level, with no increase in Honda’s downstream
        revenues in the supply of motorcycles, (ii) the proposed transaction will not
        materially change the existing incentives of the Parties to engage in any input
        foreclosure strategy, in view of Honda’s existing economic interest in Showa (as at
        31 March 2019, Honda owned 33.5% of the voting rights in Showa) and Showa’s
        minimal activities in the supply of shock absorber to third party customers other than
        Honda.402
(377) The Notifying Parties consider that the Integrated Company will have no ability or
        incentives to engage in customer foreclosure strategies in view of the fact that
        (i) Honda’s market share at the downstream level in the supply of motorcycles
        (approximately [30-40]%) is limited, (ii) Honda currently purchases [Share of
        Honda’s demand for the relevant component met by the Targets]% of its total
        worldwide demand for this component from the Targets, (iii) any customer
        foreclosure strategy would risk Honda’s security of supply of the relevant
        component parts, with no prospects of this resulting in increased prices at the
        upstream or downstream level.403
        (B)        The Commission’s assessment
        (B.i)      Input foreclosure
(378) The majority of customers of motorcycle components responding to the
        Commission’s market investigation stated that they would be able to source shock
        absorbers from other companies than the Targets.404 The Commission considers that
        the Integrated Company will not have the ability or the incentives to engage in input
        foreclosure strategies, for the reasons stated below.
        (B.i.a) No ability to foreclose access to inputs
(379) First, input foreclosure may raise competition problems only if it concerns an
        important input for the downstream product (for example, when the input concerned
        represents a significant cost factor relative to the price of the downstream product).
        This is not the case for shock absorbers, which represent only [Percentage of the cost
        of a motorcycle comprised of the relevant component]% of the total cost of
        manufacturing a motorcycle.405
(380) Second, in spite of Showa’s relatively high market share ([50-60]%), a number of
        competitors remain in the market for shock absorbers for use in motorcycles,
401 Reply to question 2 of RFI 14.
402 Reply to question 2 of RFI 14.
403 Reply to question 4 RFI 15.
404 Reply to question 12 of questionnaire to customers.
405 Reply to question 1 of RFI 11.
                                                        92
 ---pagebreak---         including Endurance Technologies Limited ([10-20]%), KYB ([10-20]%), Gabriel
        India Limited ([10-20]%), WP Suspension and Ohlins (both [0-5]%). Furthermore,
        even if against the Notifying Parties’ views, the majority of the respondents to the
        Commission’s market investigation confirmed that the same companies usually
        produce shock absorbers for both motorcycles and for passenger cars.406 In view of
        considerations of supply-side substitutability, should the market comprise the
        manufacture of shock absorbers for use in motorcycles and in passenger cars, the
        Integrated Company’s market share post transaction would be [30-40]% (Showa’s
        market share being of [20-30]% and HIAMS’ [5-10]%).407
(381) Third, Honda accounted for [Share of the Targets’ sales of the relevant component
        made to Honda]% of the sales of the Targets’ shock absorbers for use in
        motorcycles. Therefore, prior to the transaction other OEM customers were able to
        source shock absorbers for use in motorcycles from a range of other suppliers.
        Furthermore, the Commission’s market investigation confirmed that all
        manufacturers of motorcycle components responding have spare capacity to increase
        production of shock absorbers for use in motorcycles,408 and that a majority of
        customers of motorcycle components responding would be able to source shock
        absorbers for use in motorcycles from other companies than the Targets,409 making
        input foreclosure unlikely as a consequence of the transaction. The Notifying Parties
        consider that suppliers in this market (including Endurance Technologies Limited,
        KYB, Gabriel India Limited and WP Suspension OHLINS) are [Notifying Parties’
        view of suppliers of shock absorbers].410
(382) Fifth, the average duration of contracts for the supply of motorcycle components is
        3-4 years (linked to the lifespan of the model of motorcycle), during which period
        suppliers are committed to supply minimum volumes of components at an agreed
        price. As such, third party customers of Showa are also contractually protected from
        input foreclosure for the lifespan of the model of motorcycle that the shock absorbers
        are being supplied for.411
(383) In view of the above, the Commission considers that the Integrated Company will
        likely have no ability to foreclose access to shock absorbers for use in motorcycles.
        (B.i.b) No incentives to foreclose access to inputs
(384) Customers are contractually protected from input foreclosure for the lifespan of the
        motorcycle model that the part relates to. Furthermore, shock absorbers are just one
        component among the many parts comprising a motorcycle, and account for a very
        small portion ([Percentage of the cost of a motorcycle comprised of the relevant
        component]%)412 of the total cost of the motorcycle. Therefore, an increase in the
        price of shock absorbers upstream would have no material impact on the
        downstream prices of motorcycles, rendering pointless any kind of foreclosure
        strategy attempted. Furthermore, because the market for motorcycle components is
406 Reply to question 3 of questionnaire to competitors and reply to question 3 of questionnaire to customers.
407 Reply to question 4 of RFI 7, reply to question 1 of RFI 15.
408 Reply to question 13 of questionnaire to competitors.
409 Reply to question 12 of questionnaire to customers.
410 Reply to question 2 of RFI14.
411 Reply to question 2 of RFI 4.
412 Reply to question 1 of RFI 11.
                                                          93
 ---pagebreak---         characterised by multi-market contacts, in case of foreclosure for one product, OEMs
        could retaliate by switching away from the Integrated Company for other products.
(385) In view of the above, the Commission considers that the Integrated Company will
        likely have no incentives to foreclose access to shock absorbers for use in
        motorcycles.
        (B.i.c) Overall likely impact on effective competition
(386) Given that (i) there is a number of competitors in the upstream market which can
        supply shock absorbers, also under considerations of supply-side substitutability
        between shock absorbers for use in motorcycles and in passenger cars, (ii) Honda
        accounts for [Share of Showa’s sales of the relevant component accounted for by
        Honda]% of total sales of Showa’s shock absorbers for use in motorcycles
        worldwide, (iii) the results of the market investigation show that there is spare
        capacity in the market for the manufacture of shock absorbers for use in
        motorcycles, (iv) shock absorbers are just one component among the many parts
        comprising a motorcycle, and account for a very small portion ([Percentage of the
        cost of a motorcycle comprised of the relevant component]%) of the total cost of the
        motorcycle, the Commission considers that, overall, the Integrated Company would
        not have the ability nor the incentives to foreclose access to shock absorbers for use
        in motorcycles.
        (B.ii)     Customer foreclosure
(387) Manufacturers of motorcycle components responding to the Commission’s market
        investigation expressed that they would have sufficient alternative customers to
        supply if Honda were to source all shock absorbers for motorcycles from the
        Integrated Company.413 The Commission considers that the Integrated Company will
        not have the ability or the incentives to engage in customer foreclosure strategies for
        the reasons stated below.
        (B.ii.a) No ability to foreclose access to customers
(388) First, Honda’s market share for the manufacture of motorcycles in the EEA is of
        [10-20]%, followed by Piaggio ([10-20]%), Yamaha ([10-20]%) and
        BMW ([5-10]%). Worldwide, Honda’s market share for the manufacture of
        motorcycles is [30-40]%, followed by Hero ([10-20]%), Yamaha ([5-10]%),
        Bajaj ([5-10]%), Suzuki ([0-5]%) and Kawasaki ([0-5]%). The transaction will not
        result in any increment of the Notifying Parties’ and the Targets’ market share for
        the sale of motorcycles, where only Honda is active.
(389) Second, Honda purchased [Share of Honda’s demand for the relevant component
        met by the Targets]% of its needs for shock absorbers for use in motorcycles from
        the Targets. Therefore, prior to the transaction, the competitors in the upstream
        market supplied to the remaining OEM manufacturers. Indeed, the majority of the
        manufacturers of motorcycle components that responded to the market investigation
        indicated that post-transaction, sufficient alternative customers would remain to
        supply if Honda were to source all shock absorbers for use in motorcycles from the
413 Reply to question 16 of questionnaire to competitors.
                                                          94
 ---pagebreak---         Integrated Company,414 making customer foreclosure unlikely as a consequence of
        the transaction.
(390) In view of the above, the Commission considers that the Integrated Company will
        likely have no ability to foreclose access to customers for the sale of shock absorbers
        for use in motorcycles.
        (B.ii.b) No incentives to foreclose access to customers
(391) Shock absorbers are just one component among the many parts comprising a
        motorcycle, and account for a very small portion ([Percentage of the cost of a
        motorcycle comprised of the relevant component]%)415 of the total cost of the
        motorcycle. Furthermore, Honda already purchases [Share of Honda’s demand for
        the relevant component met by the Targets]% of its needs for shock absorbers for
        use in small motorcycles from the Targets and any customer foreclosure strategy
        would only affect the remaining [Share of Honda’s demand for the relevant
        component met by the Targets]% with no prospects of resulting in increased prices at
        the upstream or downstream level. Therefore, the incentives to engage in customer
        foreclosure are low.
        (B.ii.c) Overall likely impact on effective competition
(392) Given that (i) there is a significant number of players in the downstream market to
        which to supply shock absorbers for use in motorcycles, (ii) Honda purchased
        [Percentage of Honda’s demand for the relevant component met by the Targets]% of
        its needs for shock absorbers for motorcycles from the Targets, (iii) the results of the
        market investigation show that the majority of competitors would have sufficient
        alternative customers to supply if Honda were to source all shock absorbers for
        motorcycles from the Integrated Company, (iv) shock absorbers are just one
        component among the many parts comprising a motorcycle and account for a very
        small portion ([Percentage of the cost of a motorcycle comprised of the relevant
        component]%) of the total cost of the motorcycle, the Commission considers that,
        overall, the Integrated Company would not have the ability or the incentives to
        foreclose customer access for the sale of shock absorbers for use in motorcycles.
        (B.iii)    Conclusion on input and customer foreclosure
(393) Based on the considerations above, the Commission considers that the transaction
        does not raise serious doubts as to its compatibility with the internal market in
        relation to the vertical link between the market for the manufacture and sale of shock
        absorbers for use in motorcycles and the market for the manufacture and sale of
        motorcycles.
4.5.11. Vertically affected markets resulting from Honda’s presence in the downstream
        market for motorcycles
(394) Vertically affected markets also arise for 11 further components for use in
        motorcycles: electronic throttle bodies, ABS, brake pads (as a non-assembled
        component), panel brakes, handle lever brackets, CBS, fixed calipers and brake pads
414 Reply to question 16 of questionnaire for competitors.
415 Reply to question 1 of RFI 11.
                                                         95
 ---pagebreak---  ---pagebreak---         clearly have no ability to engage in input foreclosure because of the range of
        alternative supply options available to customers.416
(396) Notifying Parties submit that Honda’s market share at the downstream level in the
        supply of motorcycles and small motorcycles is only approximately [30-40]%, and
        the Integrated Company would therefore have no ability to engage in a customer
        foreclosure strategy, as rivals will continue to be able to sell to a large number of
        motorcycle manufacturers, including Yamaha, Kawasaki, Hero, Bajaj, Suzuki,
        BMW, Piaggio, and Kymco. Moreover, the Notifying Parties submit that Honda’s
        downstream market share significantly overstates its importance as a customer to
        third party suppliers of these products, in view of the proportion of Honda's total
        purchases that are from the Targets (see the table provided in paragraph (394)
        above). According to the Notifying Parties, any input foreclosure strategy would risk
        Honda’s security of supply of the relevant component parts, with no prospects of this
        resulting in increased prices at the upstream or downstream level and, as such, the
        Integrated Company would have no incentive to engage in such a strategy.417
        (B)        The Commission’s assessment
        (B.i)      Input foreclosure
        (B.i.a) No ability to foreclose
(397) First, on all upstream markets, the Parties’ worldwide market shares are below 30%
        and in most cases far below. Therefore, any input foreclosure strategy is unlikely to
        succeed as the Parties only account for a very small proportion of the overall supply
        of the products in question.
(398) Second, input foreclosure may raise competition problems only if it concerns an
        important input for the downstream product (for example, when the input concerned
        represents a significant cost factor relative to the price of the downstream product).
        This is not the case for any of the motorcycle components where the Integrated
        Company’s market share is below 30%. Each of them accounts for a very small
        portion ([Percentage of the cost of a motorcycle comprised of the relevant
        component]% in all cases except drivetrain systems, which account for [Percentage
        of the cost of a motorcycle comprised of the cost of drivetrain systems]%) of the
        total cost of manufacturing a motorcycle.418
(399) Third, in the case of ABS for motorcycles, handle lever brackets for motorcycles,
        CBS for motorcycles, and drivetrain systems (shaft drive) for motorcycles, sales to
        Honda represent [Threshold share above which sales are made to Honda]% of total
        sales of the Targets for each component. In the case of brake pads (as a non-
        assembled component) for motorcycles, panel brakes for motorcycles, fixed calipers
        and brake pads (assembled) for motorcycles, fixed calipers (as a non-assembled
        component) for motorcycles, and floating calipers (non-assembled) for motorcycles
        sales to Honda represent [Range between which the Targets’ share of total sales of
        each component is made to Honda]% of total sales of the Targets for each
        component. Therefore, prior to the transaction other OEM customers were able to
416 Reply to question 4 of RFI 15.
417 Reply to question 4 of RFI 15.
418 Reply to question 1 of RFI 11.
                                                   97
 ---pagebreak---         source these components from a range of other suppliers, and will be able to
        continue to do so after the transaction. Only in the case of electronic throttle bodies
        for motorcycles and speed meter gears for motorcycles sales to Honda represent less
        [Details of Targets’ share of sales of each component made to Honda] of the total
        sales of the Targets. However, because of the low market share of the Integrated
        Company in this component market speed meter gears for motorcycles (in both cases
        below 30% worldwide), any input foreclosure strategy is unlikely to succeed.
(400) Fourth, the average duration of contracts for the supply of motorcycle components is
        3-4 years (linked to the lifespan of the model of motorcycle), during which period
        suppliers are committed to supply minimum volumes of components at an agreed
        price. As such, third party customers of the Targets are also contractually protected
        from input foreclosure for the lifespan of the model of motorcycle that the
        components are being supplied for.419
(401) In view of the above, the Commission considers that the Integrated Company will
        likely have no ability to engage in input foreclosure strategies.
        (B.i.b) No incentives to foreclose
(402) Customers are contractually protected from input foreclosure for the lifespan of the
        motorcycle model that the part relates to. Furthermore, electronic throttle bodies,
        ABS, brake pads (as a non-assembled component), panel brakes, handle lever
        brackets, CBS, fixed calipers and brake pads (assembled), fixed calipers (as a non-
        assembled component), floating calipers (non-assembled), speed meter gears and
        drivetrain systems (shaft drive), are just a few components among the many parts
        comprising a motorcycle, and each of them accounts for a very small portion
        ([Percentage of the cost of a motorcycle comprised of the relevant component]% in
        all cases except drivetrain systems, which account for [Percentage of the cost of a
        motorcycle comprised of the cost of drivetrain systems]%) of the total cost of the
        motorcycle. Therefore, an increase in the price of any of these components would
        have no material impact on the prices of motorcycles, rendering pointless any kind
        of foreclosure strategy attempted. Furthermore, because the market for motorcycle
        components is characterised by multi-market contacts, in case of foreclosure for one
        product, OEMs could retaliate by switching away from the Integrated Company for
        other products.
        (B.i.c) Overall likely impact on effective competition
(403) In view of the above, the Commission considers that the Integrated Company will
        likely have no incentives to engage in input foreclosure strategies.
(404) Given (i) the limited market shares of the Integrated Company in the sale of
        electronic throttle bodies, ABS, brake pads (as a non-assembled component), panel
        brakes, handle lever brackets, CBS, fixed calipers and brake pads (assembled), fixed
        calipers (as a non- assembled component), floating calipers (non-assembled), speed
        meter gears and drivetrain systems (shaft drive), floating calipers (non-assembled)
        for motorcycles and speed meter gears for motorcycles (ii) that Honda accounts for
        a majority of total sales of the Targets’ sales of each of those components (except for
        electronic throttle bodies and speed meter gears where the Targets’ market share is
419 Reply to question 2 of RFI 4.
                                                   98
 ---pagebreak---       below 30%) (iii) that each of these components are just one component among the
      many parts comprising a motorcycle, and account for a very small portion
      ([Percentage of the cost of a motorcycle comprised of the relevant component]%
      except for drivetrain systems, which account for [Percentage of the cost of a
      motorcycle comprised of the cost of drivetrain systems]%) of the total cost of the
      motorcycle, the Commission considers that, overall, the Integrated Company would
      not have the ability nor the incentives to foreclose access to any of these
      components.
      (B.ii)   Customer foreclosure
      (B.ii.a) No ability to foreclose
(405) First, Honda’s market share for the manufacture of motorcycles in the EEA is of
      [10-20]%, followed by Piaggio ([10-20]%), Yamaha ([10-20]%) and
      BMW ([5-10]%). Worldwide, Honda’s market share for the manufacture of
      motorcycles is [30-40]%, followed by Hero ([10-20]%), Yamaha ([5-10]%),
      Bajaj ([5-10]%), Suzuki ([0-5]%) and Kawasaki ([0-5]%). In view of Honda’s
      limited market share in the manufacture and sale of motorcycles and the presence of
      a number of important competitors, a customer foreclosure strategy is unlikely to
      succeed.
(406) Second, Honda already accounts for most of the sales/purchase relationships with the
      Targets (see Table 9). Honda purchased [Share of Honda’s demand for the relevant
      components met by the Targets]% of its needs for electronic throttle bodies, brake
      pads (as a non-assembled component), handle lever brackets, CBS, fixed calipers
      and brake pads (assembled), fixed calipers (as a non-assembled component) and
      drivetrain systems (shaft drive) for motorcycles, floating calipers (non-assembled)
      for motorcycles and speed meter gears for motorcycles from the Targets. In the case
      of ABS and panel brakes the percentage was of [Share of Honda’s demand for the
      relevant components met by the Targets]%. Therefore, prior to the transaction, the
      competitors in the upstream market supplied to the remaining OEM manufacturers
      and will be able to continue to do so after the transaction. In view of the above, the
      Commission considers that the Integrated Company will likely have no ability to
      engage in customer foreclosure strategies.
      (B.ii.b) No incentives to foreclose access to customers
(407) Electronic throttle bodies, ABS, brake pads (as a non-assembled component), panel
      brakes, handle lever brackets, CBS, fixed calipers and brake pads (assembled), fixed
      calipers (as a non-assembled component), floating calipers (non-assembled), speed
      meter gears and drivetrain systems (shaft drive) are just one component among the
      many parts comprising a motorcycle. Each of them accounts for a very small portion
      ([Percentage of the cost of a motorcycle comprised of the relevant component]% in
      all cases except drivetrain systems, which account for [Percentage of the cost of a
      motorcycle comprised of the cost of drivetrain systems]%) of the total cost of the
      motorcycle. Therefore, the incentives to engage in customer foreclosure are low.
                                               99
 ---pagebreak---        (B.ii.c) Overall likely impact on effective competition
(408) Given that (i) there is a significant number of players in the downstream OEM
       market, (ii) Honda purchased most of its needs for these components from the
       Targets, (iii) these components are just one component among the many parts
       comprising a motorcycle and account for a very small portion of the total cost of the
       motorcycle, the Commission considers that, overall, the Integrated Company would
       not have the ability or the incentives to engage in customer foreclosure strategies.
       (B.iii)    Conclusion on input and customer foreclosure
(409) Based on the considerations above, the Commission considers that the transaction
       does not raise serious doubts as to its compatibility with the internal market in
       relation to the vertical link between the market for the manufacture and sale of
       electronic throttle bodies, ABS, brake pads (as a non-assembled component), panel
       brakes, handle lever brackets, CBS, fixed calipers and brake pads (assembled), fixed
       calipers (as a non-assembled component), floating calipers (non-assembled), speed
       meter gears and drivetrain systems (shaft drive) for use in motorcycles and the
       market for the manufacture and sale of motorcycles.
4.6.   Conglomerate non-coordinated effects
4.6.1. Analytical framework
(410) Pursuant to the Non-Horizontal Merger Guidelines, in most circumstances,
       conglomerate mergers do not lead to any competition problems.420 However,
       foreclosure effects may arise in conglomerate mergers when the combination of
       products in related markets may confer on the Integrated Company the ability and
       incentive to leverage a strong market position from one market to another closely
       related market by means of tying or bundling or other exclusionary practices. 421
(411) The Non-Horizontal Merger Guidelines distinguish between bundling, which usually
       refers to the way products are offered and priced by the Integrated Company and
       tying, usually referring to situations where customers that purchase one good (the
       tying good) are required to also purchase another good from the producer (the tied
       good). 422
(412) Within bundling practices, a distinction is also made between pure bundling and
       mixed bundling.423 In the case of pure bundling, the products are only sold jointly in
       fixed proportions. With mixed bundling, the products are also available separately,
       but the sum of the stand-alone prices is higher than the bundled price. 424 Tying can
       take place on a technical or contractual basis. For instance, technical tying occurs
       when the tying product is designed in such a way that it only works with the tied
       product (and not with the alternatives offered by competitors).425
420 Non-Horizontal Merger Guidelines, paragraph 92.
421 Non-horizontal Merger Guidelines, paragraph 93.
422 Non-horizontal Merger Guidelines, paragraph 95 et seq.
423 Non-horizontal Merger Guidelines, paragraph 95.
424 Non-horizontal Merger Guidelines, paragraph 96.
425 Non-horizontal Merger Guidelines, paragraph 97.
                                                       100
 ---pagebreak--- (413) While tying and bundling have often no anticompetitive consequences, in certain
         circumstances such practices may lead to a reduction in actual or potential
         competitors’ ability or incentive to compete. This may reduce the competitive
         pressure on the Integrated Company allowing it to increase prices or deteriorate
         supply conditions in other ways.426
(414) In assessing the likelihood of such a scenario of conglomerate effects, the
         Commission examines, first, whether the merged firm would have the ability to
         foreclose its rivals, second, whether it would have the economic incentive to do so
         and, third, whether a foreclosure strategy would have a significant detrimental effect
         on competition, thus causing harm to consumers. In practice, these factors are often
         examined together as they are closely intertwined.427
4.6.2. Leveraging the Parties’ position in vehicle control technologies into in the areas of
         automated driving, brake-by-wire and electrical/electronic vehicle architecture
(415) As part of the proposed transaction, the Parties intend to combine the vehicle control
         technologies of each of the Parties to expand the scope of (i) automated driving428
         (ii) brake-by-wire429 and (iii) electrical/electronic vehicle architecture:430 To date,
         this technology is in development and none of the Parties currently supplies brake-
         by-wire components, automated driving components or electrical/electronic vehicle
         architecture components.431 HIAMS has not […] any brake-by-wire components,
         automated driving components or electrical/electronic vehicle architecture
         components, and [Business plans of HIAMS].432
(416) Nissin Kogyo is [Business plans of Nissin Kogyo]. Nissin Kogyo’s existing products
         (e.g., hydraulic calipers) can be used for both automated and non-automated driving
         systems. Nissin Kogyo’s products can also be used for electric vehicles [Business
         plans of Nissin Kogyo].433
(417) Showa manufactures certain components which can be used for electrical vehicles;
         however it is not a major supplier of these components. Showa is [Business plans of
         Showa].434
(418) Keihin has not been able to take a leading position in the supply and development of
         either brake by wire components, automated driving components and systems or
         electrical/electronic vehicle architecture components. [Business plans of Keihin].435
426 Non-horizontal Merger Guidelines, paragraph 92-93.
427 Non-horizontal Merger Guidelines, paragraph 94.
428 The term “automated driving” will be used to describe products in the category of Advanced Driver
    Assistance Systems (ADAS). ADAS encompasses a broad range of features that enable a vehicle to “see,”
    “sense” and “react” to the objects that surround it and will eventually evolve into fully autonomous
    driving systems.
429 Braking systems with purely electrical/electronic generation, transmission and control of the braking
    force, without pneumatic or hydraulic back-up function.
430 Vehicle architecture based on electronic/electric components used for automated driving and electric
    vehicles. Reply to question 3 of RFI 6.
431 Reply to question 4 of RFI 20.
432 Reply to question 3 of RFI 6. Reply to question 4 of RFI 20.
433 Reply to question 4 of RFI 20.
434 Reply to question 6 of RFI 7.
                                                         101
 ---pagebreak--- (419) In addition, Hitachi intends to support the Integrated Company in contributing to the
         improvement of safety and mobility services, particularly in the field of connected
         cars, by using digital technologies such as ‘Lumada’ (a collective term for Hitachi’s
         solutions, services, and technology that utilise digital technology for creating value
         through customer data).436
(420) Following concerns raised in the market investigation, the Commission has assessed
         in particular the ability and the incentive of the Integrated Company engaging in the
         tying/bundling practices mentioned in Section 4.6.1, for the following products:
         (a)     Brake parts, including ABS
         (b)     Anti-vibration systems and components, including shock absorbers
         (c)     ECU
(421) The concerns are that these components, in which the Parties are currently active
         could be combined and sold in a bundle or tied with technologies for automated
         driving, brake-by-wire and electrical/electronic vehicle architecture and thereby
         foreclosing access to customers for upstream competitors of the Targets. For
         instance, the Integrated Company could bundle/tie ECUs and brake components into
         complex integrated systems for automated driving technologies such as Adaptive
         Cruise Control or cloud-based preventive accident systems, or offer specific,
         bundled/tied components for use in electrical/electronic vehicle architecture, such as
         brake-by-wire braking systems. [Information concerning potential future business
         plans of the Parties]:437
(422) Whereas the Parties do not yet sell any product technologies for automated driving,
         brake-by-wire        and       electrical/electronic         vehicle       architecture438       (see
         paragraphs (415)-(419)), the Commission analysed whether the Integrated Company
         would have the ability and incentive to foreclose competing suppliers by bundling
         these products once they are put on the market.
4.6.3. The Notifying Parties’ view
(423) According to the Notifying Parties, the combination of these newly developing
         technologies of the Parties cannot give rise to any transaction specific conglomerate
         effects concerns. While the Notifying Parties have identified as one of the benefits of
         the proposed transaction the combination of the Notifying Parties’ and the Targets’
         advanced technologies, these products (automated driving technology, brake-by-wire
435 Reply to question 4 of RFI 20.
436 Reply to question 6 of RFI 7.
437 Reply to RFI of 16 July to a competitor. The Notifying Parties confirmed that no affected markets arise
    under any plausible market definition for any of these products, as these are not currently supplied by the
    Targets on a merchant market. Honda only recently launched its first electric car and has no market share
    in the market segment for electric vehicles (Reply to question 3 of RFI20). The market definition of these
    products and technologies is therefore not discussed.
438 The Commission has previously analysed markets automotive components used for automated driving,
    brake-by-wire and electric/electronic vehicle architecture and for instance defined separate markets for
    truck ECUs for automated driving (Case COMP/M.9383 – ZF/Wabco) and Adaptive Cruise Control (Case
    No IV/M.1332 - THOMSON / LUCAS). The Notifying Parties have confirmed that they are at not active
    in these markets under any plausible market definition. (Reply to question 3 of RFI 6.)
                                                          102
 ---pagebreak---         and electrical/electronic vehicle architecture ) are currently at an early stage of
        research and development, meaning that the Parties do not yet have a market
        presence for automated driving technologies, brake-by-wire and electrical/electronic
        vehicle architecture:
(424) First, the Notifying Parties submit that they would have no ability or incentive to
        foreclose competing component manufacturers by bundling/tying their components,
        as the tender process for automotive components depends on whether OEMs intend
        to purchase components on a bundle/integrated basis or to purchase specific
        components on an individual basis (sourcing different components from different
        suppliers). The OEMs themselves have significant buyer power and would be able to
        decide by themselves whether to purchase multiple component parts together or
        separately.439
(425) Second, the Notifying Parties submit that OEMs do not typically source all
        components from a single component manufacturer. There remain numerous other
        competing suppliers of each of the component parts supplied by the Targets, from
        which OEMs could continue to source the relevant components independently. The
        component parts supplied by the Targets are largely homogenous across the industry,
        such that the Targets’ specific products are not viewed by customers as differentiated
        from other alternative sources of supply.440
(426) As for automated driving technologies, brake-by-wire and electrical/electronic
        vehicle architecture, it is difficult to state with any precision how the market will
        evolve or who the main players are likely to be, although the Parties understand that
        all of the main automotive parts suppliers are generally developing component parts
        for electric/electronic and automated vehicles, [Parties’ views of other sources of
        supply].441
(427) Therefore, the Notifying Parties submit that the Integrated Company would have
        neither the ability nor an incentive to foreclose competitors by bundling/tying, as it
        would not be profitable for the Integrated Company, as OEM customers may instead
        purchase the individual component parts from other competing suppliers and so the
        Integrated Company’s sales of components may reduce.442
(428) Equally, the Notifying Parties submit that, as OEM customers typically multi-source
        and purchase different component parts from different suppliers, if the Integrated
        Company were to switch to supplying a bundle or tied product, customers might
        choose to source all their component parts individually from competing component
        suppliers.443
(429) The Notifying Parties submit that the evolution of the market for the supply of
        electric vehicles will not have any impact on the Integrated Company’s current lack
        of ability or incentive to engage in an anticompetitive bundling strategy. Given that
        its development and the Parties activities in this market are at an early stage, it is
439 Reply to question 3 of RFI 6.
440 Reply to question 3 of RFI 6.
441 Reply to RFI 7, paragraph 6.1.
442 Reply to question 3 of RFI 6.
443 Reply to question 3 of RFI 6.
                                                   103
 ---pagebreak---         difficult to predict how the market will evolve or who the main players are likely to
        be.444
4.6.4. The Commission’s assessment
(430) The Commission has investigated whether the proposed transaction could give rise
        to conglomerate effects in relation to the combination of the Targets’ current
        activities with its future automated driving technologies, brake-by-wire and
        electrical/electronic vehicle architecture and has reached the conclusion that it will
        not raise serious doubts in this regard for the following reasons.
(431) Out of the product groups mentioned in paragraph (420), the Commission focused its
        analysis on the products where the Parties’ combined market share exceeds 30%.
        The Commission notes that a 30% market share is exceeded only when considering
        the component for use only in motorcycles.445
        (a)     Brake parts: upstream market share above 30% for brake master cylinders
                ([50-60]% in a worldwide market) and floating calipers and brake pads (as an
                assembled product) ([30-40]%% in the EEA and [50-60]% in worldwide
                market),
        (b)     Anti-vibration systems and components: upstream market share above 30%
                for shock absorbers ([50-60]% in a worldwide market)
        (c)     ECU: upstream market share above 30% ([30-40]% in a worldwide market)
(432) For ABS, the upstream market share remains below 30% both at EEA and
        worldwide level; therefore no conglomerate concerns arise for this product market.
        With respect to passenger cars, the Commission considers that the transaction does
        not give rise to horizontally affected markets and gives rise to only one vertically
        affected market. In view of this, it is unlikely that the transaction may lead
        conglomerate issues in relation to passenger cars.
(433) For the products where the upstream market share exceeds 30%, the Commission
        has found that no competition concerns as a result of conglomerate effects arise for
        the following reasons:
4.6.4.1. No ability to foreclose access to customers
(434) The Commission considers that the Integrated Company would not have the ability
        to bundle or tie and thereby foreclose access to customers to competing component
        manufacturers, for the following reasons.
(435) First, the Commission agrees with the argument of the Parties that the supply
        relationship between component manufacturers and OEMs make bundling and tying
        unlikely, as the OEMs specify the product in their tenders, to which suppliers react
        by developing the product according to the OEM’s specifications. This was
        confirmed by a competitor for components in the market investigation who
        explained that “the supplier which produces components to its OEM customers has
444 Reply to question 5 of RFI 15.
445 Reply to question 4 of RFI 7.
                                                   104
 ---pagebreak---         for this purpose already incurred costs and acquired the expertise to develop and
        manufacture the said components based on the OEM's specifications and supply
        contract”.446 Indeed, bundling/tying is currently not common practice in the
        motorcycle industry.447
(436) Second, as outlined in Section 4.5, even for the specific product where the Integrated
        Company’s market shares are high (notably brake master cylinders and floating
        calipers and brake pads (as an assembled product), competitors are present which are
        as or more advanced in their development of automated driving technologies, brake-
        by-wire and electrical/electronic vehicle architecture. As a competitor confirmed,
        “[t]his technical advancement is currently moving forward for nearly all OEM’s on
        different timelines.”448 These companies could respond to bundle offers and/or tied
        products, or offer unbundled products, depending on the respective customer
        demand.
4.6.4.2. No incentive to foreclose access to customers
(437) The Commission considers that the Integrated Company would also not have the
        incentive to bundle/tie and thereby foreclose access to customers to competing
        component manufacturers, for the following reasons.
(438) First, in case the Integrated Company offered a bundle/tied product, OEMs could
        easily switch to competing component suppliers which could either offer the same
        product at a lower price, or separate components. The OEMs themselves have a large
        amount of buyer power and would be able to decide by themselves whether to
        purchase multiple component parts together or separately.449 As the Notifying
        Parties confirmed, switching is common in the industry.450 Switching suppliers most
        often occurs at the new model development stage, rather than during mass
        production of an existing model,451 which gives competitors time to adjust for
        production of different variants of a component. A majority of customers in the
        market investigation confirmed that supply contracts usually have the duration of the
        lifespan of a vehicle model.452 The Parties also gave examples of switching: for
        instance, in [Parties’ knowledge of customers switching supplier].453
(439) Second, the market investigation also confirmed the argument of the Notifying
        Parties that OEMs usually multi-source motorcycle and automotive components, as
        customers confirmed.454 Also a competitor noted that it is possible that Honda “will
        keep a portion for competition in order to improve their internal cost
        competitiveness”.455
446 Non-confidential reply to question 7.1 of questionnaire to competitors.
447 Reply to RFI of 16 July to a competitor.
448 Reply to RFI of 16 July 2020 to a competitor.
449 Reply to question 3 of RFI 6.
450 Reply to question 1 of RFI 8.
451 Reply to question 1 of RFI 8.
452 Reply to question 11 to customers and question.
453 Reply to question 1 of RFI 8.
454 Replies to question 6 of questionnaire to customers.
455 Non-confidential reply to question 5.1 of questionnaire to competitors.
                                                         105
 ---pagebreak--- 4.6.4.3. Overall likely impact on effective competition
(440) The Commission considers that any foreclosure strategy by the Integrated Company
        would not have an impact on effective competition.
(441) First, there is a significant number of players in the downstream markets for
        passenger cars and motorcycles to which competing manufacturers can supply
        automotive and motorcycle components (see Table 11 and Table 12 for passenger
        cars and Table 14 and Table 15 for motorcycles and EEA and worldwide level
        respectively).
(442) Second, Honda already purchases a large percentage of its needs from the Targets
        (see Table 9 and Table 35). In addition, most of the components which the Targets
        supply each account for a very small portion of the total cost of a finished vehicle.456
        Therefore only a small fraction of the upstream output would be affected by any
        revenue decreases resulting from a conglomerate customer foreclosure strategy.
(443) Finally, the Notifying Parties’ section 5.4. internal documents related to the
        Integrated Company do not reveal any suggestion of any tying or bundling strategy,
        nor did anyone in the market investigation suggest that such behaviour or attempts at
        such behaviour has taken place in the past. At this stage it remains difficult to predict
        the development of the areas of automated driving, brake-by-wire and
        electrical/electronic vehicle architecture in terms of future market shares and impact
        of the proposed transaction on competition. As mentioned above, none of these
        relevant technologies are currently supplied by the Targets on a merchant market. In
        any event, given the described characteristics of the market for automotive and
        motorcycle components, the Commission considers that, overall, the Integrated
        Company would not have the ability or the incentives to foreclose customer access
        for the sale of components for use in motorcycles and/or passenger cars.
4.6.5. Conclusion on conglomerate effects
(444) Taking into account the Notifying Parties’ arguments and the results of the market
        investigation, the Commission takes the view that, with respect of any of the Parties’
        product categories and considered sub-segments thereof, the proposed transaction is
        unlikely to raise serious doubts as to its compatibility with the internal market as a
        result of conglomerate effects.
456 Reply to question 1 of RFI 11.
                                                  106
 ---pagebreak--- 5.    CONCLUSION
(445) 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
                                                    Executive Vice-President
                                              107