Tougher position on merger control
During the past year, the Israeli antitrust regime has been undergoing near-constant change. A wave of social unrest in Summer 2011 was directed against the high cost of living, ascribed to a lack of competition, among other factors. This led to the formation of several governmental committees, which devised a number of proposals to increase competition in the Israeli economy and recommended significant changes to the Restrictive Trade Practices Law 1988. Some of these changes have already been implemented (for further details please see "Antitrust law introduces new measures to deal with oligopolies"). In addition, a few months ago Professor David Gilo, a globally renowned antitrust specialist, was appointed as the new antitrust commissioner.
There are early indications that the political, legal and personal changes that have occurred will lead to significant changes in the Israeli Antitrust Authority's enforcement policy. At the authority's recent annual conference, the new commissioner outlined the authority's agenda for the coming years. This agenda departs, in several key areas, from the enforcement policy of recent years. This update addresses two important issues on which the new commissioner's approach appears to differ materially from current policy.
Israeli courts have been reluctant to accept claims based on excessive pricing. The Supreme Court ruling in Isracard Ltd v Howard Reiss(1) left open the question of whether such pricing policy constitutes an abuse of dominant position under Section 29A of the law. The Howard Reiss ruling, as well as subsequent decisions, noted the difficulties in the assessment of excessive pricing; among other things, the price must be not only 'excessive', but also 'unfairly' so (Section 29A(1)).
For over a decade the authority had demonstrated little interest in excessive pricing. Its reluctance to investigate excessive pricing was driven, at least in part, by the notion that the authority was ill-equipped to determine the right price of products and that competition, not price regulation, was the best cure for excessive pricing.
As a law professor, the new commissioner has expressed a different view. He questioned the validity of what he called "a categorical non-interventionist approach toward excessive pricing", claiming that it is not necessarily more difficult to assess excessive pricing than it is to reach other conclusions, such as those in relation to market definition or predatory pricing. He further questioned the assumption that high prices attract new entry, which in turn can lower prices. Finally, he tackled the argument that capping the prices of a monopoly will reduce the incentive to compete for a monopoly position. The commissioner therefore advocated banning excessive pricing in certain circumstances under the antitrust laws. In the authority's annual conference he made clear that this position now represents the authority's policy.
Tougher position on merger control
Section 21(a) of the law states that the antitrust commissioner may object to a merger or stipulate conditions for its approval if he or she finds that there is a reasonable likelihood that, as a result of the merger, competition in the relevant sector would be significantly harmed or that the public would be injured in relation to:
- quality of products; or
- quantity of supply, its terms and its consistency.
For many years, it was commonly accepted that this provision empowered the antitrust commissioner to object to a merger if it was likely to create or increase market power. According to this interpretation, the term 'injury to the public' means an injury resulting from market power.
In the authority's annual conference, the new commissioner laid the ground for a different interpretation, noting that more careful attention should be given to the term 'injury to the public', as distinguished from the phrase 'harm to competition'. While the exact implications of these statements are unclear at this point, this should not be interpreted to mean that the authority's merger policy will rely on general, non-competition-based, public interest considerations as a basis to block mergers. Such policy would seemingly not be in line with former Israeli case law. Rather, a different (and probably less permissive) merger policy is expected.
This is illustrated by other comments made by the new commissioner during the conference, with respect to market concentration. The authority's well-established practice was that a merger can be blocked based on market concentration only if the high level of concentration, as well as other factors, suggests that the merger may yield market power. The authority applied the same rules for areas where there was a clear trend towards concentration, blocking mergers only when markets became significantly consolidated.
In contrast, the new commissioner explained that where the authority identifies a significant trend towards concentration, it may be justifiable to interrupt this trend at an early stage. This approach could lead, in theory, to the blocking of mergers resulting in relatively small market shares, if these are performed in an industry where the authority identifies a significant trend towards consolidation.
A merger policy that attempts to prevent concentration in its early stages, regardless of the probable effects of the transaction, may not serve the interest of competition and may be to the detriment of consumers. Such policy may have a chilling effect on mergers that, by themselves, are efficient and competitively benign. In a small economy such as Israel's, this may also hinder the ability of firms to obtain economies of scale or scope. Such policy may also lack a clear and acceptable methodology, which is key to maintaining a consistent and economically founded merger policy.
For further information on this topic please contact Shai Bakal at Tadmor & Co by telephone (+972 3 684 6000), fax (+972 3 684 6001) or email ([email protected]).