Behavioural Remedies in EC Merger Control

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Behavioural Remedies in EC Merger Control
Theory and PracticeDr Ariel Ezrachi, Slaughter
and May Lecturer in Competition Law, The
University of Oxford

• Oxford Competition Academy
• Friday, 8 July 2005

CCLP (S) 07/05
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Behavioural Remedies in EC Merger Control
Theory and Practice

• I. Classification sub classification
• II. Policy considerations benefits and
  drawbacks
• III. Under subscribing behavioural remedies?
• IV. Behavioural remedies in EC Merger Control
• V. Designing, monitoring and enforcing
• VI. Concluding remarks

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I. Classification Sub Classification

• Classification
• Traditional classification
• Structural remedies
• Behavioural remedies
• DOJ Policy Guidelines on Merger Remedies
• UK Competition Commission Guidelines
• ICN Merger Remedies Review Project
• Sub Classification
• ICN Merger Remedies Review Project
• The International Chamber of Commerce
• Parker and Balto
• Categorisation of a proposed commitment as
  behavioural or structural is immaterial.
• (Gencor v Commission, Para 319)

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ICN MERGER REMEDIES REVIEW PROJECT
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II. Policy Considerations Drawbacks Benefits

• Drawbacks
• Disparities of incentives
• Information asymmetries risk of under fixing
• Operating costs
• Monitoring
• Enforcement
• Indirect costs
• Evading the spirit of the remedy crawling
  compliance
• Distortion of competition
• Benefits
• Facilitates or replaces divestitures
• Access rights
• New and changing markets
• Flexibility fine tuning

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III. Under Subscribing Behavioural Remedies?

• The competition authority
• Type I error
• Type II error
• Ex-ante / ex-post regulation
• Over fixing ? favour structural or wide
  behavioural remedies
• Disparity of bargaining powers
• Over fixing is rarely challenged
• Sufficient capacity?

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IV. Behavioural Remedies in EC Merger Control

• The Merger Regulation
• The Notice on Remedies
• Structural remedies are preferred
• Other remedies may be accepted
• Termination of existing agreements
• Remedies facilitating market entry
• Licensing agreements
• Commitments that would amount merely to a
  promise to behave in a certain way, for example a
  commitment not to abuse a dominant position ,
  are as such not considered suitable to render the
  concentration compatible with the common market.

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• Gencor v Commission (CFI)
• where the Commission concludes that the
  concentration is such as to create or strengthen
  a dominant position, it is required to prohibit
  it, even if the undertakings concerned by the
  proposed concentration pledge themselves
  vis-à-vis the Commission not to abuse that
  position. (Para 316)
• The Notice on Remedies Wide interpretation of
  Gencor v Commission
• Tetra Laval/Sidel (Commission) Wide
  interpretation of Gencor v Commission
• consideration of behavioural commitments, to
  refrain from acting in a certain manner, is ruled
  out where the merger appears likely to create or
  strengthen a dominant position
• ARD v Commission (CFI)
• The issue is not whether the obligations
  resulting from the commitments allegedly stem
  from Article 82 EC, but rather whether those
  commitments are capable of resolving the problems
  caused by the merger.

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• Commission v Tetra Laval (ECJ)
• The situation in the Gencor case was entirely
  different from that addressed in the contested
  decision.
• the Court of First Instance was right to
  hold, in paragraph 161 of the judgment under
  appeal, that the fact that Tetra had, in the
  present case, offered commitments relating to its
  future conduct was a factor which the Commission
  had to take into account when assessing the
  likelihood that the merged entity would act in
  such a way as to make it possible to create a
  dominant position on one or more of the relevant
  markets for PET equipment. (para 85)
• Contrary to what the Commission claims, it is
  not apparent from that judgment Gencor v
  Commission that the Court of First Instance
  ruled out consideration of behavioural
  commitments.
• Type I error?
• The position after Tetra
• The effect on conglomerate transactions and
  leveraging theories

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V. Designing, Monitoring and Enforcing

• Market access
• Bayer/Aventis
• BSkyB/KirchPayTV
• Newscorp/Telepiu
• Daimler Chrysler/DeutscheTelekom
• GE/Instrumentarium
• Long term supply contracts
• Astra/Zenca
• AGFA Gevaert/DuPont
• Fire wall
• AREVA/Urenco
• Mitsui/CVRD/Caemi
• Fair dealing Price caps
• Piaggio/Aprilia
• Bayer/Aventis
• Verbund/Energie Allianz
• Air France/KLM

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Designing, Monitoring and EnforcingIncreased
capacity?

• Monitoring
• Monitoring Trustees
• Third parties
• Enforcement
• The Commission
• Dispute resolution
• Complaints
• Flexibility
• Adjustments
• Crown Jewel

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Dispute Resolution

• Drawbacks
• Requires a sophisticated, non-dependant third
  party
• Direct and indirect cost for the complainant
• loopholes
• Public value?
• Potential for conflict
• Limited use
• Increased capacity
• Fast track
• Interventionist approach
• Commission can make submission to the arbitrator
• Commission provides interpretation in case of
  doubt
• Commissions powers of enforcement are not
  affected

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Crown Jewel

• Alternative remedies may prevent over fixing
• Nestlé/Ralston Purina (Phase I)
• Exclusive licensing
• Divestiture of assets
• Criticism
• - Uncertainty may delay integration
• - Less than effective relief at the outset or
  more than is necessary to remedy the competitive
  problem (US DOJ Guidelines)
• - Room for manipulation (US DOJ Guidelines)
• Confidentiality (Bayer/Aventis (US FTC, European
  Commission))

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VI. Concluding Remarks

• Suitable for
• New emerging markets
• Small national markets
• Access
• Lowering barriers to entry
• Ancillary role

• Under perform
• Complex arrangements
• Blank promises
• Price caps
• Fair dealing
• New entrant

• EC Merger Remedies Study
• The need to increase Commissions capacity to
  monitor and enforce
• Policy considerations - minimal intrusion?
• Who decides?