On June 27, 2011, the Competition Bureau (the “Bureau”) released its draft revised Merger Enforcement Guidelines (the “Draft Guidelines”).
In the Fall of 2010, the Bureau announced that it would revisit the Merger Enforcement Guidelines (the “MEGs”), issued in 2004, and have a critical look at whether they required updating. Following its consultations, the Bureau decided that it would undertake moderate revisions to the MEGs, which would more accurately reflect current Bureau practice when reviewing mergers, as well as current economic and legal thinking.
One of the key changes to the Draft Guidelines is a clarification of the role of market definition. While the MEGs currently state that defining the relevant markets is typically “the first stage” in the Bureau’s review of a merger, the Draft Guidelines reflect recent changes to the U.S. Horizontal Merger Guidelines in downplaying market definition. The Draft Guidelines state that the Bureau’s assessment of whether a merger is likely to create, maintain or enhance market power will involve two related considerations: defining the relevant markets and assessing the competitive effects of the merger in those markets. The Bureau does not see market definition as an end in itself and in certain circumstances, the Bureau may choose not to define a market in its review of a merger.
Another important feature of the Draft Guidelines is the expanded list of examples of how powerful buyers are able to constrain the ability of a seller to exercise market power ("countervailing power"). For example, buyers can refuse to purchase a seller’s products in other geographic markets where the competitive conditions are different or they can impose costs on the seller. In addition, the Draft Guidelines explain how a merger of competing buyers can create or enhance the ability of the merged firm to exercise monopsony power.
Other notable changes in the Draft Guidelines include:
- Clarification on “interlocking directorates” (where a director of one firm is an employee, executive, partner, owner or director of a second firm, or has another interest in the business of the second firm) in the context of the definition of a “merger” and when acquisition of a “significant interest” occurs. The Bureau explains how it will determine whether an acquisition of a minority interest or an interlocking directorate may confer the requisite level of influence to constitute a merger;
- Further guidance on the economics underlying the Bureau’s approach to unilateral effects cases, as well as the framework for assessing coordinated effects cases;
- The elimination of the two‐year time frame for entry in the Bureau’s analysis of whether timely entry by potential competitors would likely constrain a material price increase in a relevant market when assessing the competitive effects of a merger;
- Clarification on the Bureau’s approach to mergers where there is pre‐existing market power. For example, the Bureau states that smaller impacts on competition may more readily meet the test of a “substantial” lessening of competition where the merging firms have pre‐existing market power; and
- Further elaboration of how the Bureau assesses non‐horizontal mergers.
The Draft Guidelines are available on the Bureau’s website here. Comments on the revisions can be submitted to the Bureau before August 31, 2011.
Final revised MEGs are expected to be published this Fall.