On 11 April 2016, the Commission published a competition policy brief that summarizes the Commission's position on the influence of innovation competition on merger control investigations. The competition policy brief discusses three key topics: the benefits of competition for innovation in light of economic theories, summarization of the EU merger control rules for assessing innovation effects, and the application of those rules in merger cases.
The Commission concludes that economic theories conflict as to whether market power may lead to more or less innovation. However, the Commission notes that EU merger control rules allow the Commission to assess both the positive and negative influences a transaction may have on innovation competition, in line with the economic principles of contestability, appropriability and synergies. In addition, the Commission notes that in recent horizontal pharmaceutical and medical devices mergers, as well as in the GE/Alstom case, the mergers were found to lessen innovation competition and that remedies typically include divestment of products that are still in the pipeline.
In addition to the horizontal mergers, the Commission also noted recent vertical mergers in the ICT sector that may impact the ability of rivals to innovate. The Commission states that such mergers, depending on the specifics of each case, can be solved by means of access remedies and/or other non-divestiture remedies. The Commission also commented that it will account for pro-efficiency innovation synergies that can arise from the merger of two operations, provided that the efficiencies put forward by the merging parties are beneficial for consumers, merger-specific and verifiable. In such cases, the innovation synergies may offset anti-competitive effects.
Source: Competition Policy Brief on EU Merger Control and Innovation
On 8 April 2016, the Commission decided to lift commitments made binding on Deutsche Bahn AG and its subsidiaries DB Energie GmbH ("DB Energie"), DB Mobility Logistics AG, DB Fernverkehr AG and DB Schenker Rail Deutschland AG (together "Deutsche Bahn"). Such commitments were imposed in December 2013 in order to address competition concerns regarding DB Energie's pricing system for traction current in Germany. Traction current is electricity used for powering locomotives, and it is an indispensable input for railway companies. The Commission decided to relieve Deutsche Bahn of its commitments ahead of the original schedule, because it found that the competition concerns were addressed by the market entry of several competing energy providers.
Prior to the entry into force of the commitments, DB Energie was the only traction current supplier in Germany. The Commission had concerns that the company's pricing system for traction current could have prevented equally efficient competitors from operating profitably in the markets for rail freight and long-distance passenger transport in Germany. This would have created a so-called margin-squeeze in breach of Article 102 of the Treaty of the Functioning of the European Union ("TFEU"). In December 2013, the Commission accepted a commitment package from Deutsche Bahn in which DB Energie committed to grant electricity providers access to its network for supplying traction current and amend its pricing system. The main purpose of the commitments was to enable electricity providers not belonging to the Deutsche Bahn group to enter the monopolized market.
The commitments were originally due to apply for five years, but included a provision allowing them to expire if alternative energy providers managed to supply over 25% of the total traction current demand of non-Deutsche Bahn railway companies in one calendar year. This threshold was reached in 2015, when the alternative providers supplied over 50% of demand. Accordingly, the Commission considered that the commitments had been successful and decided to terminate Deutsche Bahn's legal obligation to comply with them as of 8 April 2016. Source: Commission Press Release 08/04/2016
Competition: Commission amends fine imposed on Société Générale in euro interest rate derivatives decision
On 6 April 2016, the Commission announced that it has amended the fine imposed on Société Générale for its participation in a cartel in euro interest rate derivatives ("EIRD cartel"). The amended fine is based on amended value of sales data provided by Société Générale in February 2016 after it realized that it had initially provided incorrect data to the Commission.
In December 2013, the Commission fined eight international financial institutions a total of EUR 1.49 billion for participating in illegal cartels in markets for financial derivatives covering the European Economic Area ("EEA"). The Commission found that four of these institutions participated in the EIRD cartel. Six of them participated in one or more bilateral cartels relating to interest rate derivatives denominated in Japanese yen ("YIRD cartel"). The Commission adopted both decisions under the settlement procedure. Therefore, the fines were reduced by 10 percent for the companies agreeing to settle. The Commission initially imposed a fine of EUR 445.884 million on Société Générale.
The Commission now states that the data that Société Générale initially submitted to the Commission contained errors. Therefore, the Commission has modified the fine to reflect the corrected value of sales provided by Société Générale. The amended fine was calculated using the same methodology used in the December 2013 decision. The corrected fine now amounts to EUR 227.718 million.
Source: Commission Press Release 06/04/2016 and Commission Press Release 04/12/2013
Competition (Sweden): Swedish Competition Authority rejects Swedish government's proposal on price regulation of designated electricity contracts
On 8 April 2016, the Swedish Competition Authority ("SCA") published its opinion on the Swedish government's memorandum on proposals for minimizing the use of designated contracts in electricity supply. Designated contracts are contracts between a consumer and an electricity company designated by the consumer's electricity network company. These contracts are used when consumers stay inactive and have not chosen their electricity company, or when consumers for some reason are not able to choose the electricity company. Designated contracts often have higher prices, sometimes up to 30%, than regular electricity contracts where consumers have actively chosen their electricity company. In the memorandum, the Swedish government suggests that prices applied by designated electricity companies should not exceed certain levels during a limited period of time following the designation.
In its opinion, the SCA favors the government's objective to minimize the number of electricity customers with designated contracts. However, the SCA criticizes the proposal for imposing some form of price regulation to solve the situation. According to the SCA, the proposed price regulation, although limited in time, is not an appropriate measure in a market with effective competition. Nevertheless, the SCA supports other suggestions in the memorandum for different ways of improving the provision of information to customers in order to decrease the prevalence of designated electricity contracts. The SCA also suggests that it should not be possible for electricity network companies to re-designate customers who once have actively entered into a contract with a selected supplier. The same should apply in cases where customers move i.e. the customer's previously chosen type of supply contract should automatically be renewed. Source: Swedish Competition Authority Press Release 08/04/2016, Swedish Competition Authority Opinion 07/04/2016 and Swedish Government Memorandum 11/03/2016
Merger control (Finland): Finnish Competition and Consumer Authority conditionally approves Ruokakesko's acquisition of Suomen Lähikauppa
On 11 April 2016, the Finnish Competition and Consumer Authority ("FCCA") approved the acquisition of Suomen Lähikauppa Oy ("Suomen Lähikauppa") by Ruokakesko Oy ("Ruokakesko"), subject to conditions. Both companies are active in the food retail industry in Finland. Ruokakesko's store network comprises approximately 900 grocery stores, and its share of the market for retail of daily consumer goods is 32.7%. Suomen Lähikauppa operates over 600 Siwa and Valintatalo stores and one Euromarket store in Finland. The company's market share is 6.4%.
The FCCA's investigation showed that, following the transaction, the Finnish market for retail of daily consumer goods would become increasingly concentrated because one nationwide grocery chain would exit the market. The FCCA used a variety of econometric methods to analyze the effects of the transaction on competition and identified 60 local markets out of 667 total markets, where the transaction was likely to raise competition concerns. The FCCA also assessed the effects of the transaction on Ruokakesko's prices. Even though in some local markets prices could increase considerably, the FCCA concluded that, overall, the transaction would not have a significant impact on the price level. As regards the market for procurement of daily consumer goods, the FCCA found that the transfer of Suomen Lähikauppa's volumes from Tuko Logistics Cooperative ("Tuko Logistics"), a long-term supplier and logistics partner of Suomen Lähikauppa, to Ruokakesko's procurement and logistics system could weaken Tuko Logistics's competitive position, thereby affecting competition on the wholesale level. Finally, in making this assessment the FCCA took into account that Suomen Lähikauppa's poor competitive position and financial standing would force the company out of the market in the near future. The FCCA's investigation showed that there were no other Finnish or foreign prospective acquirers interested in Suomen Lähikauppa. Thus, the Finnish food retail industry would have become increasingly concentrated even without the transaction.
In order to address the FCCA's competition concerns, Ruokakesko offered a remedy package, including both structural and behavioral commitments. Firstly, Ruokakesko committed to divest a Suomen Lähikauppa store in each of the 60 problematical markets to existing or potential competitors. However, the FCCA did not make the implementation of the transaction conditional on the success of the divestment, because it noted that the parties might face difficulties in finding a suitable buyer and the exit of Suomen Lähikauppa from the market in the near future was inevitable in any case. Under the commitments, Ruokakesko will initially try to find a suitable buyer within a fixed period time, after which the process will be handed over to an independent trustee. The FCCA did not set a minimum sales price for the divested assets. Secondly, Ruokakesko committed to continue purchasing from Tuko Logistics for a fixed period of time and to transfer its procurement on a gradual basis. The FCCA found that, without the transaction, Suomen Lähikauppa's business would certainly have ended and, therefore, its supplies from Tuko Logistics would also have ceased rapidly. According to the FCCA, the commitments will help Tuko Logistics adapt its business in a controlled manner.
Source: Finnish Competition and Consumer Authority Press Release 11/04/2016
State aid: Commission's interim report of sector inquiry into national capacity mechanisms shows significant shortcomings
On 13 April 2016, the Commission published an interim report presenting the initial findings of its state aid sector inquiry into national capacity mechanisms ("Interim Report"). Capacity mechanisms aim to ascertain that adequate capacity to produce electricity is available at all times and ensure a reliable electricity supply. The Commission launched the state aid sector inquiry in April 2015 in order to gather information on capacity mechanisms and to examine whether they ensure sufficient electricity supply without distorting competition or trade in the EU Single Market. The Commission found 28 capacity mechanisms, which can be categorized in six different types. The most common type is a strategic reserve, by which a Member State pays a capacity provider for keeping power plants operational, if needed.
The Interim Report suggests that Member States should be more thorough both in assessing the necessity of capacity mechanisms and their design in order to ensure that capacity mechanisms are cost-effective and do not distort competition. Capacity mechanisms may be necessary in specific cases where the market may not maintain the appropriate level of security of supply in certain regions due to rather low price caps or a lack of investment. However, the initial results of the sector inquiry showed significant shortcomings in existing systems. Firstly, many existing capacity mechanisms have been designed without prior assessment of whether a security of supply problem exists in the relevant market. The methods to assess these problems are rarely comparable across Member States, and many national assessments do not take into account possible deliveries from neighboring countries. According to the Interim Report, without a thorough and more harmonized method to identify problems and calculate risk, capacity mechanisms threaten to use public funds to finance expensive unnecessary capacity, thereby leading to higher prices for EU consumers and companies. The Interim Report also highlights substantial problems in the design of capacity mechanisms. Many Member States have not adequately assessed the best ways to increase the security of supply. In the majority of Member States, the price paid for electricity capacity is not determined through a competitive process, but is instead set administratively by the Member State or negotiated bilaterally between the Member State and the capacity provider. This creates a risk of overpayment. Furthermore, many capacity mechanisms do not allow all potential capacity provides or technologies to participate, which is not cost efficient and may unnecessarily limit competition among suppliers. Finally, power plants from other Member States are rarely allowed to directly or indirectly participate in national capacity mechanisms.
If the Commission's concerns are confirmed, capacity mechanisms may distort competition and create obstacles to cross-border trade in electricity. However, the Commission's initial findings do not prejudge the assessment of any individual capacity mechanism under EU state aid rules. The Interim Report is now open for public consultation. Based on the comments received, the Commission will publish a final report later this year. Source: Commission Press Release 13/04/2016 and Commission Interim Report of the Sector Inquiry on Capacity Mechanisms
In addition, kindly note the following merger control decisions by the Commission which are published on the website of the Commission’s Directorate-General for Competition:
- Commission clears acquisition of a container terminal in Cameroon by CMA CGM and Bolloré
- Commission clears acquisition of ENI Hungaria and ENI Slovenija by MOL