Download - The Impala case at the CFI
The Impala case at the CFI
Association of Competition Economists Conference 2007
Simon Pilsbury, Managing Consultant
November 30th 2007
2 November 30th 2007
Overview
- institutional structure and its effects on the merger process
- Commission’s approach to the initial filing
- method of consideration of joint dominance
3 November 30th 2007
Institutional structure (I)
- both initial procedure and re-filing carried out under the 1989 merger regulation
- test for whether a merger should be blocked was as follows
- ‘creates or strengthens a dominant position as a result of which effective competition would be significantly impeded’
- 2004 merger regulation changes the emphasis
- ‘concentration which would significantly impede effective competition … in particular as a result of the creation or strengthening of a dominant position’
- dominant position no longer necessary after 2004
4 November 30th 2007
Institutional structure (II)
- may have impacted the way in which the Commission examined the merger
- needed to find unilateral or joint dominance in the market
- not sufficient to find ‘pockets’ of market power within a wider economic market
- places great emphasis on market definition
5 November 30th 2007
Commission’s approach to the initial filing (I)
- no precise product market definition from the Commission in its decision- stated that it did not make a difference to the outcome
- some discussion of whether genres might be individual product markets- precedent suggesting that this might be the case
- however, market shares only presented on a ‘whole market’ basis- detailed data by genre not set out
6 November 30th 2007
Commission’s approach to the initial filing (II)
- focus very clearly on market shares
- other aspects of potential unilateral dominance left almost untouched
- Italy: combined market shares were 30–35%- really no possible market where they approach 40%?
- difficult to determine unilateral dominance on the basis of market shares when you haven’t defined a market!
- joint dominance considered in much more detail
7 November 30th 2007
Consideration of joint dominance (I)
- as before, markets not clearly defined- makes it more difficult to determine whether there is
joint dominance
- basic approach in line with the Airtours criteria- transparency
- ability to deter
- tight oligopoly
- looked for evidence of past price coordination- useful for strengthening a dominant position, but creating one?
- spent considerable time analysing price trends in each Member State
8 November 30th 2007
Consideration of joint dominance (II)
- content of albums heterogeneous- stated as reducing ability to collude
- many features favouring transparency found- retail monitoring
- low number of majors
- publication of weekly hit charts
- but discounts found to be sufficient to undermine transparency
- retaliation could be via exclusion from joint ventures
- compilation albums important
- but no evidence that it had occurred in the past
9 November 30th 2007
CFI’s comments on joint dominance
- CFI found that the market was sufficiently transparent for monitoring to take place
- low discounts, which showed little variation
- also stated that transparency could be directly inferred from pricing- if prices were closely aligned and above competitive levels- and if no other reasonable explanation
- stable pricing despite a fall in demand at a price level seen as high might be evidence of tacit coordination
- but wouldn't prices be stable after a demand shock in a competitive market?
- lack of punishment episodes not crucial- ‘the most effective deterrent is that which has not been used’
10 November 30th 2007
Final thoughts
- features of the market consistent with a reasonably competitive market pre-merger
- differentiated products (albums) each have some small amount of market power
- no ability to precisely replicate albums
- substitutability largely within genres
- costs of production are similar across all majors
- demand shocks strongly correlated
- no tacit collusion
- some albums ‘flop’ and do not cover their costs of production
- would expect to see similar pricing across albums- demand shocks would not cause large price cuts
- price levels likely to be seen as high to cover costs of flops
