JAANA BOËLIUS Interregulation of Oligopolistic Markets ACTA WASAENSIA 350 SCIENCE OF LAW 16 BUSINESS LAW Finnish Merger Control in View of EU Merger Regulation and EU Case Practice Reviewers Professor Matti Rudanko Aalto University School of Business Department of Accounting P.O. Box 21220 FI-00076 Aalto Professor Risto Nuolimaa School of Management (JKK) FI-33014 University of Tampere III Julkaisija Julkaisupäivämäärä Vaasan yliopisto Toukokuu 2016 Tekijä(t) Julkaisun tyyppi Jaana Boëlius Väitöskirja Julkaisusarjan nimi, osan numero Acta Wasaensia, 350 Yhteystiedot ISBN Vaasan yliopisto Kauppatieteellinen tiedekunta Taloustieteen ja talousoikeuden yksikkö PL 700 65101 VAASA 978-952-476-669-2 (painettu) 978-952-476-670-8 (verkkojulkaisu) ISSN 0355-2667 (Acta Wasaensia 350, painettu) 2323-9123 (Acta Wasaensia 350, verkkojulkaisu) 1457-7992 (Acta Wasaensia.Oikeustiede16, painettu) 2341-7854 (Acta Wasaensia. Oikeustiede 16, verkkojulkaisu) Sivumäärä Kieli 210 englanti Julkaisun nimike Oligopolististen markkinoiden interregulaatio – Suomen yrityskauppavalvonta EU:n keskittymäasetuksen ja ratkaisukäytännön valossa Tiivistelmä Tutkimuksessa selvitetään, millä tavoin EU:n yrityskauppavalvonnan kehitys on vai- kuttanut Suomen yrityskauppavalvonnan kehitykseen oligopolistisilla markkinoilla. Tut- kimuksen kohteena on siten niin sanottu interregulaatio, jolla tarkoitetaan tässä tutki- muksessa yrityskauppasäännösten ja tapauskäytännön välistä keskinäistä riippuvuutta eri regiimien välillä. Tutkimuksen painopistealueena on yrityskauppojen kilpailu- vaikutusten arviointikriteerit ja niiden kehitys. Arviointikriteerejä tarkastellaan tutkimalla yrityskauppavalvontaa koskevia sääntöjä, lain esitöitä, suuntaviivoja ja ratkaisukäytäntöä. Yrityskauppojen arviointikriteerien kehitys on siirtynyt rakenteellisesta lähestymis- tavasta käyttäytymistä painottavampaan peliteoreettiseen lähestymistapaan. Arviointi- kriteerien kehitys on tutkimuksessa jaoteltu tarkasteltavien yrityskauppatapausten perusteella kolmeen erilaiseen vaiheeseen: i) arviointikriteerien monimuotoisuus, ii) arviointikriteerien formalisointi ja iii) arviointikriteerien vakiinnuttaminen. Jaottelu antaa mahdollisuuden tarkastella arviointikriteerejä systemaattisesti. Eri kehitysvaiheiden vedenjakajana voidaan pitää EU:n ensimmäisen asteen tuomio- istuimen (nykyisin yleinen tuomioistuin) ratkaisua asiassa T-342/99 DEP Airtours plc v Commission. Kyseisessä ratkaisussa tuomioistuin antoi kolme välttämätöntä ehtoa yhteisen määräysvallan toteamiseksi (niin sanotut Airtours-kriteerit). Interregulaation osalta tutkimuksessa todetaan, että EU:n yrityskauppavalvonta on merkittävästi vaikuttanut Suomen yrityskauppasääntöjen tulkintaan ja täytäntöön- panoon. EU:n yrityskauppavalvonnan kehitys voidaan siten nähdä Suomen yrityskauppavalvonnan kehityksessä. Kriteerit ja niiden painotus muuttuvat kuitenkin edelleen. EU:n tuomioistuin on myöhemmin todennut muun muassa, että Airtours- kriteerien erillistä, mekaanista tarkastelua tulee välttää. Nähtäväksi jää, kuinka mahdollinen tuleva kehitys EU:ssa vaikuttaa Suomen yrityskauppavalvonnan kehi- tykseen. Asiasanat oligopolistiset markkinat, interregulaatio, kilpailuoikeus, yrityskauppavalvonta V Publisher Date of publication Vaasan yliopisto May 2016 Author(s) Type of publication Jaana Boëlius Doctoral thesis Name and number of series Acta Wasaensia, 350 Contact information ISBN University of Vaasa Faculty of Business Studies Department of Economics and Business Law P.O. Box 700 FI-65101 Vaasa Finland 978-952-476-669-2 (print) 978-952-476-670-8 (online) ISSN 0355-2667 (Acta Wasaensia 350, print) 2323-9123 (Acta Wasaensia 350, online) 1457-7992 (Acta Wasaensia. Science of Law 16, print) 2341-7854 (Acta Wasaensia. Science of Law 16, online) Number of pages Language 210 English Title of publication Interregulation of Oligopolistic Markets – Finnish Merger Control in View of EU Merger Regulation and EU Case Practice Abstract The study examines how the development in EU merger control has affected the development in Finnish merger control in oligopolistic markets. Hence, the objective of the study is interregulation which, for the purposes of this study, refers to the interdependence of the merger control provisions and case practice between different regimes. The focus is on the assessment criteria and the development of the said criteria. The assessment criteria are examined by studying the merger control provisions, preparatory legislative works, merger guidelines and case practice. The assessment criteria have moved from a structure-based approach to a more behavioural, game-theoretic approach. The study identifies three different phases of the development of the assessment criteria based on the findings of the selected merger cases: i) the diversity of the assessment criteria, ii) the formalization of the assessment criteria and iii) the stabilisation of the assessment criteria. This division provides an opportunity to examine the assessment criteria in a systemised way. The judgment of the Court of First Instance (currently the General Court) in Case T-342/99 DEP Airtours plc v Commission can be considered as a watershed in different phases of the development of the assessment criteria. In this judgment, the Court adopted three necessary conditions for the finding of collective dominance (so-called Airtours criteria). As regards the question of interregulation, the study shows that EU merger control has significantly affected the interpretation and enforcement of the Finnish merger provisions. The development of EU merger control can thus be seen in the development of Finnish merger control. However, the criteria and their emphasis are subject to changes. The Court of Justice has later stated, for example, that in applying the Airtours criteria it is necessary to avoid a mechanical approach involving a separate verification of each of the criteria taken in isolation. It will be seen how the tentative future development in the EU will affect the development in Finnish merger control. Keywords oligopolistic markets, interregulation, competition law, merger control VII ACKNOWLEDGEMENTS First and foremost, I would like to express my sincerest gratitude for my supervisor Professor Vesa Annola at the Department of Economics and Business Law at the University of Vaasa for his support and advice throughout this process and the time he has devoted to the manuscript. His valuable comments, suggestions and insightful views have greatly improved the quality of this thesis. His guidance and support ensured the completion of the thesis. I am also grateful for the official pre-examiners of the thesis, Professor Matti Rudanko at the Aalto University and Professor Risto Nuolimaa at the University of Tampere for their thorough and helpful evaluation of the manuscript. I would also like to express my gratitude for Professor Matti Rudanko for accepting an invitation to act as an official opponent of the thesis. I would also like to thank my former superiors at the then Department of Business Law at the University of Vaasa, Professor Emeritus Juha Tolonen and Professor Emeritus Asko Lehtonen for providing me with the opportunity to work as a research assistant, assistant and deputy lecturer, and, together with other staff at the Department of Business Law and the neighbouring departments, for creating an ideal environment for research. In particular, I am grateful to Professor Emeritus Juha Tolonen for his valuable help in applying grants and guidance to the direction of my current work. The University of Vaasa provided a good basis for taking the next steps abroad and later in Finland. I would like to thank John Shepherd, M. Ed (EFL); Ph. Lic, for proofreading the manuscript. I am grateful to him for his helpful comments and guidance. I would also like thank Merja Kallio and Riikka Kalmi for their editorial assistance and help in finalizing the thesis. I am grateful to Evald and Hilda Nissi Foundation and Jenny and Antti Wihuri Foundation for providing financial support. I was also able to participate one year at the Graduate School in a Changing World which I highly appreciate. I would also like to thank my current employer, the Finnish Competition and Consumer Authority and the previous Finnish Competition Authority, for providing me with the opportunity to work with the most interesting tasks, first at the Merger Control Unit and then at the Unit for International Competition Affairs and Advocacy Unit. I have been able to expand and deepen my knowledge in competition law enforcement, international cooperation and competition advocacy. It has been a privilege to work at the Authority. For these VIII opportunities, I am grateful for all my former and current superiors, in particular Director General Juhani Jokinen, Director Timo Mattila, Assistant Director Rainer Lindberg and Assistant Director Arttu Juuti. I would also like to thank my former and current colleagues for providing me with a wider perspective for competition and consumer law enforcement within their own expert fields. Finally, I would like to thank my husband Jari for his constant and unconditional support also in this project. I am also thankful for my parents and friends for their support. I am now happy to be able to concentrate on finalising my other thesis which I have written alongside this thesis. IX Contents ACKNOWLEDGEMENTS .......................................................................... VII 1 INTRODUCTION ................................................................................. 1 1.1 Background ............................................................................. 1 1.2 Objective of the Study .............................................................. 4 1.3 Method and Sources of the Study ............................................. 9 1.4 Structure of the Study ............................................................ 13 2 REGULATORY FRAMEWORK FOR THE CONTROL OF OLIGOPOLIES IN FINLAND ......................................................................................... 15 2.1 Merger Control in Finnish Competition Policy ........................ 15 2.2 Substantive Test for Merger Assessment ................................ 23 2.2.1 Change of Substantive Test ..................................... 23 2.2.2 Elements of SIEC Test .............................................. 25 2.2.3 Scope of SIEC Test ................................................... 28 2.2.4 Role of Dominance Test .......................................... 30 2.3 Role of Market Definition in Merger Control ........................... 34 2.3.1 Concept of Relevant Markets ................................... 34 2.3.2 Definition of Product and Geographic Markets ........ 35 2.4 Anti-competitive Effects of Mergers in Oligopolistic Markets .. 37 3 ROLE OF MARKET ELEMENTS ............................................................ 39 3.1 Economics and Oligopolistic Markets ..................................... 39 3.2 Characteristics of Oligopolistic Markets ................................. 41 3.3 Market Power as a Source of Competition Concerns ............... 43 3.3.1 Definition of Market Power ...................................... 43 3.3.2 Creation and Sustainability of Market Power and Effects of Market Power ........................................... 45 3.3.3 Identification of Market Power ................................. 49 3.4 Theories of Harm in Oligopolistic Markets ............................. 53 3.4.1 Coordinated Effects ................................................. 53 3.4.2 Non-coordinated Effects .......................................... 57 3.5 Assumptions Provided by Economic Theories and Models ...... 62 3.5.1 Market Structure ..................................................... 62 3.5.1.1 Market Shares and Level of Market Concentration ................................................. 62 3.5.1.2 Structure-Conduct-Performance Framework ..... 63 3.5.2 Market Behaviour .................................................... 70 3.5.2.1 Strategic Behaviour and Incentives for Collusion70 3.5.2.2 Game Theory and Oligopoly Analysis ............... 71 3.6 Conditions Conducive to Coordination ................................... 79 3.6.1 Indicators of Coordination....................................... 79 3.6.2 Characteristics of the Market ................................... 80 3.6.3 Sustainability of Coordination ................................. 86 3.7 Economic Evidence in Oligopolistic Mergers ........................... 86 X 4 ASSESSMENT TOOLS PROVIDED BY EU MERGER CONTROL ................ 89 4.1 Merger Control in EU Competition Policy ................................ 89 4.2 Substantive Test for Merger Assessment ................................ 91 4.2.1 SIEC Test under Merger Regulation .......................... 91 4.2.2 Dominance Test under Old Merger Regulation ......... 92 4.3 Anti-competitive Effects in Oligopolistic Markets .................... 96 4.3.1 Coordinated Effects ................................................. 96 4.3.2 Non-coordinated Effects .......................................... 98 4.3.3 Remedies Addressed to Anti-competitive Effects ... 100 4.4 Assessment Criteria for Coordinated Effects ........................ 103 4.4.1 Criteria Provided in Merger Regulation .................. 103 4.4.2 Criteria Provided in Horizontal Merger Guidelines . 106 4.4.3 Development of Criteria in EU Case Practice .......... 110 4.5 Diversity of Assessment Criteria .......................................... 115 4.5.1 Checklist Approach in Nestlé/Perrier Case ............ 115 4.5.2 Market Concentration in Mannesmann/Vallourec/Ilva Case ..................................................................... 117 4.5.3 Structural Links in France and Others v Commission case ...................................................................... 119 4.5.4 Economic Links in Gencor v Commission case ........ 120 4.5.5 Departure from Characteristics Conducive to Coordination in Airtours/First Choice Case ............ 122 4.6 Formalisation of Assessment Criteria ................................... 126 4.6.1 Necessary Conditions for Coordination in Airtours v Commission Case .................................................. 126 4.6.2 Ability to Monitor .................................................. 128 4.6.3 Deterrent Mechanism ............................................ 129 4.6.4 Inability of Third Parties to Jeopardise Collusive Outcome ............................................................... 132 4.7 Stabilisation of Assessment Criteria ..................................... 134 4.7.1 Necessary Conditions for Coordination and Mechanism of Hypothetical Tacit Coordination in Sony/BMG v Impala Case ....................................... 134 4.7.2 Confirmation of Mechanism of Hypothetical Tacit Coordination in ABF/GBI Business Case ................. 137 5 ASSESSMENT OF OLIGOPOLIES ....................................................... 140 5.1 Introduction ........................................................................ 140 5.2 Substantive Test .................................................................. 140 5.3 Anti-competitive Effects in Oligopolistic Markets .................. 141 5.4 Assessment of Coordinated Effects ...................................... 143 5.4.1 Guidance Provided by Preparatory Legislative Works143 5.4.2 Guidance Provided by Finnish Merger Guidelines ... 144 5.4.3 Development of Assessment in Finnish Case Practice146 5.5 Diversity Phase of Assessment ............................................. 153 5.5.1 Basic Conditions for Coordination in Fritidsresor/Finnmatkat Case ................................ 153 5.5.2 Internal and External Competition in Carlsberg/Orkla Case ..................................................................... 158 5.6 Formalisation Phase of Assessment ..................................... 162 XI 5.6.1 Development of Necessary Conditions in Lännen Tehtaat/Avena Case .............................................. 162 5.6.2 Basic Conditions for Coordination ......................... 163 5.6.3 Factors Increasing Likelihood of Coordination ....... 165 5.7 Stabilisation Phase of Assessment ....................................... 167 5.7.1 Necessary Conditions for Sustainability of Coordination in NCC/Destia Case .......................... 167 5.7.2 Ability to Monitor .................................................. 168 5.7.3 Deterrent Mechanism ............................................ 168 5.7.4 Inability of Third Parties to Jeopardise Collusive Outcome ............................................................... 169 6 CONCLUSIONS ............................................................................... 171 REFERENCES ........................................................................................ 181 Figures Figure 1. Traditional SCP framework ...................................... 63 Figure 2. Extended SCP framework ........................................ 69 Figure 3. Prisoner’s dilemma applied to a duopoly. ................ 73 Figure 4. Non-cooperative game with co-operation as the dominant strategy. .................................................. 75 Tables Table1. Merger Decisions in Finland 2007-2013 ......................... 22 XII Abbreviations CFI Court of First Instance CMRL Common Market Law Review CR Concentration Ratio EC European Community ECJ European Court of Justice ECN European Competition Network EU European Union DOJ Department of Justice FCA Finnish Competition Authority FCCA Finnish Competition and Consumer Authority FTC Federal Trade Commission FY Fiscal Year HHI Herfindal-Hirschmann-Index HSR Hart-Scott-Rodino Antitrust Improvements Act ICN International Competition Network MEE Ministry of Employment and the Economy OECD Organisation for Economic Co-operation and Development OJ Official Journal PPD Published Prices for Dealers SCP Structure-Conduct-Performance SLC Substantial Lessening of Competition SO Statement of Objections SSNIP Small but Significant Non-transitory Increase in Prices TFEU Treaty on the Functioning of the European Union TEU Treaty on European Union US United States XIII Cases Finland Finnish Competition and Consumer Authority (previously Finnish Competition Authority) Fritidsresor AB/Finnmatkat-Finntours Ab, Case No. 1976/81/99 (Fritidsresor/Finnmatkat), 5 April, 2000. Carlsberg AS/Orkla ASA:n panimoliiketoiminnat, Case No. 573/81/00 (Carlsberg/Orkla), 2 January 2001. Lännen Tehtaat Oyj/Avena Oy, Case No. 389/81/2002 (Lännen Tehtaat/Avena), 4 October 2002. NCC Roads Oy/Destia Oy and Destia Kalusto Oy, Case No. 249/14.00.10/2011, 5 August 2011 (NCC/Destia). NCC Roads Oy/Destia Oy and Destia Kalusto Oy Asphalt Coating Business, Case No. 913/14.00.10/2011, 24 November 2011. Market Court (previously the Competition Council) Valio II, Case No. 1/359/94. Alfons Håkans Oy and Finntugs Oy, Case No. 23/359/98 (Alfons Håkans and Finntugs), 29 June 2000. Telia Finland Oy/Sonera Oy/Oy Radiolinja Ab, Case No. 22/690/2000 (Telia Finland/Sonera/Radiolinja), 11 December 2001. NCC Roads Oy, Destia Oy and Destia Kalusto Oy, Case No. 499/11/KR (NCC/Destia), 2 November 2011. European Union European Commission Case IV/M.190 – Nestlé/Perrier, 22 July 1992, OJ 1992 L 356/1. Case IV/M.315 – Mannesmann/Vallourec/Ilva, 31 January 1994, OJ 1994 L 102/15. Case IV/M.308 – Kali und Salz/MdK/Treuhand, December 1994, OJ 1994 L 186. Case IV/M.390 – Akzo/Nobel Industrier, 10 January 1994, OJ 1994 C 19/13. Case IV/M.619 – Gencor/Lonrho, 24 April 1996, OJ 1997 L 11/30. Case IV/M.1016 – Price Waterhouse/Coopers & Lybrand, 20 May 1998, OJ 1999 L 50/27. Case IV/M.1225 – Enso/Stora, 25 November 1998, OJ 1999 L 254/9. Case IV/M.1313 – Danish Crown/Vestjyske Slagterier, 9 March 1999, OJ 2000 L 20/1. Case IV/M.1383 – Exxon/Mobil, 29 September 1999, OJ 2004 L 103/1. Case IV/M.1524 – Airtours/First Choice, 22 September 1999, OJ 2000 L 93/1. Case COMP/M.1741 – MCI Worldcom/Sprint, 28 June 2000, OJ 2003 L 300/1. Case COMP/M.1882 – Pirelli/BICC, 19 July 2000, OJ 2003 L 70/35. XIV Case COMP/M.2097 – SCA/Metsä Tissue, 31 January 2001, OJ 2002 L 57/1. Case COMP/M.2201 – MAN/Auwärter, 20 June 2001, OJ 2002 L 116/35. Case COMP/M.2498 – UPM-Kymmene/Haindl, 21 November 2001, OJ 2002 L 233/38. Case COMP/M.2499 – Norske Skog/Parenco/Walsum, 21 November 2001, OJ 2002 L 233/38. Case COMP/M.3333 – Sony/BMG, 3 October 2007, OJ 2008 C 94/19. Case COMP/M.4980 – ABF/GBI Business, 23 September 2008, OJ 2009 C 145/11. Court of Justice of the European Union (previously the Court of Justice of the European Communities) Court of Justice Joined Cases C-395-396/96 P Compagnie maritime belge transports SA, Compagnie maritime belge SA) and Dafra-Lines A/S v Commission (Compagnie Maritime Belge v Commission), 16 March 2000, [2000] ECR 1-1365, EU:C:2000:132. Joined Cases C-68/94 and C-30/95 French Republic and Sociéte Commerciale des Potasses et de l’Azote (SCPA) and Entreprise Minière et Chimique (EMC) v Commission (France and Others v Commission), 31 March 1998, [1998] ECR I- 1375, EU:C:1998:248. Case C-413/06 P Bertelsmann and Sony Corporation of America v Independent Music Publishers and Labels Association (Sony/BMG v Impala), 10 July 2008, [2008] ECR I-4951, EU:C:2008:392. General Court (previously the Court of First Instance) Case T-24/93 (Joined Cases T-24/93, T-25/93, T-26/93 and T-28/93) Compagnie maritime belge transports SA and Compagnie maritime belge SA, Dafra-Lines A/S, Deutsche Afrika-Linien GmbH & Co. and Nedlloyd Lijnen BV v Commission (Compagnie Maritime Belge v Commission), 8 October 1996, [1996] ECR II-01201, EU:T:1996:139. Case T-102/96 Gencor Ltd v Commission (Gencor v Commission), 25 March 1999, [1999] ECR II-753, EU:T:1999:65. Case T-342/99 DEP Airtours plc v Commission (Airtours v Commission), 6 June 2002, [2002] ECR II-2585, EU:T:2002:146. Case T-464/04 Independent Music Publishers and Labels Association v Commission (Impala v Commission), 13 July 2006, [2006] ECR II-2289, EU:T:2006:216. XV Legislation and soft law Finland Regulations Act on Competition Restrictions (480/1992), amended by Act 318/2004. Competition Act 948/2011. Preparatory Legislative Works Government Bill of 2010 for the Competition Act, HE 88/2010. Government Bill of 1997 for the Act on Competition Restrictions, HE 243/1997. Decrees and Decisions of the Government Decision by the Ministry of Trade and Industry on the Obligation to Notify a Concentration (499/1998). Decree by the Ministry of Trade and Industry on the Calculation of Turnover of a Party to a Concentration (377/2004). Government Decree on the Calculation of Turnover of a Party to a Concentration (1011/2011). Government Decree on the Obligation to Notify a Concentration (1012/2011). Communications of the Finnish Competition and Consumer Agency Finnish Competition Authority’s Guidelines on the Control of Concentrations of 1998. Finnish Competition Authority’s Guidelines on the Revised Provisions on the Control of Concentrations. Finnish Competition Authority (FCA) Guidelines on Merger Control, Guidelines on the Application of the Competition Act, 1/2011. Finnish Competition Authority (FCA) Guidelines, Immunity from and Reduction of Fines in Cartels Cases, Guidelines on the Application of the Competition Act, 2/2011. European Union Treaties Treaty Establishing the European Community (consolidated version 1997), 1997 OJ C 340/173. Treaty of Lisbon Amending the Treaty on the European Union and the Treaty Establishing the European Community, OJ 2007 C 306/1. Treaty on the European Union (consolidated version 2012), OJ 2012 C 326/13. Treaty on the Functioning of the European Union (hereinafter TFEU) (consolidated version 2012), OJ 2012 C 326/47. Council and Commission Regulations Council Regulation (EEC) No 4064/89 of 21 December 1989 on the Control of Concentrations between Undertakings, OJ 1989 L 395/1-1, corrigendum, OJ XVI 1990 L 257/13; amended by Council Regulation (EC) No 1310/97 of 30 June, OJ 1997 L 180/1-6, corrigendum, OJ 1998 L 40/17. Council Regulation (EC) No 1/2003 of 16 December 2002 on the Implementation of the Rules on Competition laid down in Articles 81 and 82 of the Treaty, OJ 2003 L 1/1-25. Council Regulation (EC) No 139/2004 of 20 January 2004 on the Control of Concentrations between Undertakings, OJ 2004 L 24/1-22. Commission Regulation (EC) No 802/2004 of 7 April 2004 implementing Council Regulation (EC) No 139/2004 and its Annexes (Form CO, Short Form CO and Form RS), OJ 2004 L 133/1-39; amended by Commission Regulation (EC) No 1033/2008, OJ 2008 L 279/3-12. Communications of the European Commission Commission Notice on the Definition of the Relevant Market for the Purposes of Community Competition Law, OJ 1997 C 372/5-13. Commission Notice on the Application of Competition Rules to Access Agreements in the Telecommunications Sector, OJ 1998 C-265/2. Guidelines on the Assessment of Horizontal Merger under the Council Regulation on the Control of Concentrations between Undertakings, OJ 2004 C 31/5-18. Commission Notice on a Simplified Procedure for Treatment of Certain Concentrations under Council Regulation (EC) No 139/2004, OJ 2005 C 56/32- 35. Commission Notice on Case Referral in Respect of Concentrations, OJ 2005 C 56/2. Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the Control of Concentrations between Undertakings, OJ 2008 C 95/1-48. Commission Notice on Remedies Acceptable under Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004, OJ 2008 C 267/1-27. Guidelines on the Assessment of Non-horizontal Mergers under the Council Regulation on the Control of Concentrations between Undertakings, OJ 2008 C 265/6-25. Other Sources Proposion de Reglément (CEE) du Conceil sur le Contrôle des Concentrations, OJ 1973 C 92/2. Amendment to the Proposal for a Council Regulation on the Control of Concentrations between Undertakings, COM(84) 59 final, OJ 1984 C 51/8-9. Amended Proposal for a Council Regulation on the Control of Concentrations between Undertakings, OJ 1982 C 36/3-8. Amended Proposal for a Council Regulation (EEC) on the Control of Concentrations between Undertakings, COM(88) 97 final, 25 April 1988, OJ 1998 C 130/4-11. XVII Amended Proposal for a Council Regulation (EEC) on the Control of Concentrations between Undertakings, COM(88) 734 final revised version, OJ 1989 C 22/14-22. Agreement between the Government of the United States and the Commission of the European Communities Regarding the Application of their Competition Laws, entered into force on 23 September 1991, OJ 1995 L 95/47-50. Proposal for a Council Regulation on the Control of Concentrations between Undertakings. COM(2002) 711 final – 2002/0296 (CNS) (2003/C 20/06), OJ 2003 C 20/4. Draft Notice on the Assessment of Horizontal Mergers under the Council Regulation on the Control of Concentrations between Undertakings. COM(2002) 711 final – 2002/0296 (CNS), OJ 2003 C 20/4. Best Practice on Submission of Economic Evidence and Data Collection in Cases concerning the Application of Articles 101 and 102 TFEU and Merger Cases, Staff Working Paper, available at http://ec.europa.eu/competition/antitrust/legislation/best_practices_subsmissi on_en.pdf. 1 INTRODUCTION 1.1 Background According to economic theory, markets have a tendency to concentrate. One type of concentrated markets is termed oligopolistic markets. Oligopolistic markets refer to a market structure which is characterized by a limited number of firms and the existence of barriers to entry. The main characteristic of oligopolistic markets is that firms’ behaviour regarding output and price influences the market outcome and may therefore provoke reactions from other firms.1 In other words, firms in oligopolistic markets are interdependent.2 Oligopolistic markets as such are not considered anti-competitive. The outcome in these markets may result in anything between a monopoly and perfect competition. 3 The competition authority is requested to make a distinction between behaviour which is peculiar to the oligopolistic market structure, sometimes also termed oligopolistic interaction, and coordination which results in collusive outcome and leads to price increases. This requires an understanding of an inherent tension between competition and collusion in oligopolistic markets4 as well as tools to assess the effects of a merger on competition in these markets. A benchmark against which the effects of a merger on competition is set, is provided in the substantive test. In Finland, the Finnish Competition and Consumer Authority (hereinafter the FCCA, previously the Finnish Competition Authority, FCA) 5 assesses under the so-called SIEC test 6 , whether a concentration7 would significantly impede effective competition, in particular as 1 Peeperkorn (1999), p. 24. OECD, Competition Enforcement in Oligopolistic Markets, Issues Paper by the Secretariat, DAF/COMP(2015)2, p. 3; Whish and Bailey (2012), p. 561. 2 EU Horizontal Merger Guidelines, para. 25, footnote 29. 3 For the main conditions of pure monopoly and pure competition, see e.g. Oinonen (2010), pp. 38-39. 4 Clarification of the control of collective dominance was required, e.g. in the Green Paper on the Review of the Merger Regulation, COM 96(19) final (hereinafter Commission, Green Paper 1996) 5 The Finnish Competition Authority and the Finnish Consumer Agency were merged on 1 January 2013 into the Finnish Competition and Consumer Authority. 6 The term SIEC derives from the “significant impediment to effective competition”. 7 Similar to EU merger control, the concept of concentration covers a various types of transactions such as mergers, acquisitions and certain joint ventures. For the 2 Acta Wasaensia a result of the creation or strengthening of a dominant position. In the affirmative, the FCCA will intervene in the merger. This assessment is carried out by examining a certain type of criteria. The assessment of the effects of a merger on competition in oligopolistic markets is challenging. On the one hand, firms in oligopolistic markets may fiercely compete against each other on all important parameters of competition, such as price, quality, and innovation. On the other hand, under certain market conditions competition may be replaced by coordination.8 These two situations must be separated and, therefore, the criteria are needed based on which the effects of a merger on competition can be assessed. The assessment is complex. Some of the factors may suggest the likelihood of coordination whereas others may suggest the opposite. The factors may also contradict in a single case. The merger control in Finland has been affected by the EU Merger Regulation and the guidance related to the Regulation as well as EU case practice. The term case practice refers both to the decision practice of the competition authorities and the case law of the courts. There are a number of reasons for this development in Finland. Firstly, merger control provisions were adopted in Finland almost ten years after being adopted in the EU.9 By that time there was already an established case practice in the EU that provided guidance for the application of national merger control provisions in Finland. Secondly, the preparatory legislative works (travaux préparatoires) and case law explicitly request the national competition authority to seek guidance from the EU for the application of merger control provisions in Finland. Thirdly, both the preparatory legislative works and case law in Finland refer to the convergence between the national and EU competition laws. In Finland, the Competition Act (948/2011) entered into force on 1 November 2011, replacing the Act on Competition Restriction (480/1992), amended on 1 purposes of this study the concept of merger is applied in order to describe a transaction where control is changed either through a merger or an acquisition or through establishing a so-called full-function joint venture. A distinction between the concepts of merger and acquisition is made in some cases discussed in this study in order to decribe the exact nature of the transaction. However, sometimes the exact nature of a transaction may be unclear. This is especially true in those cases where holding companies are involved. As regards the substantive appraisal, the distinction between the concepts of concentration, merger and acquisition is not of relevance. The concepts are also often used interchangeably 8 Peeperkorn (1996), p. 1. 9 The old Merger Regulation was adopted in the EU in 1989 and the merger control provisions were adopted in Finland in 1998. Acta Wasaensia 3 May 2004 (318/2004). 10 One of the major changes brought about by the Competition Act was the change of the substantive test. The dominance test, which prevailed since the adoption of the first Finnish merger provisions in 1998, was changed into the SIEC test, which measures the significant impediment to effective competition. The SIEC test is applied, among other things, in the EU and in almost all member states. The change of the test also increased the convergence between the national merger control provisions and the EU merger control provisions. A similar type of test, i.e. the so-called SLC test, which measures the substantial lessening of competition, is applied in the US. If the merger will significantly impede effective competition, in particular as a result of the creation or strengthening of a dominant position, the FCCA will either clear the merger subject to conditions or seek a prohibition before the Market Court. The emphasis of the SIEC test is on the effects of a merger on competition11. Under the SIEC test, the FCCA is no longer required to establish a dominant position possessed by a single firm, i.e. single dominance, or by a number of firms in a market characterised by an oligopolistic structure, i.e. collective dominance. 12 In addition, the SIEC test eliminated uncertainty regarding whether the merger control provisions apply to mergers that do not lead to a dominant position but may nevertheless lead to non-coordinated behavior of firms in oligopolistic markets.13 In Finland, oligopolistic markets have often been subject to competition law enforcement. For example, a number of mergers subject to a detailed investigation and a conditional approval as well as a number of antitrust cases, i.e. cartels and abuses of dominant positions, have concerned oligopolistic markets. In addition, a recent amendment to the Competition Act (948/2011) provides an example of addressing problems arising from an oligopolistic market structure by legislative action. By the amendment a sector-specific threshold of 30% was established in the grocery retail markets for finding a dominant position. In accordance with the amendment, the prohibition of abuse of a 10 The Government Bill on the new Competition Act was passed by the Finnish Parliament on 12 August 2011. 11 Finnish Competition Authority (FCA) Guidelines on Merger Control, Guidelines on the Application of the Competition Act, 1/2011 (hereinafter the Finnish Merger Guidelines), p. 60. 12 The concepts of collective dominance and oligopolistic dominance, as well as joint dominance can be used interchangeably. See, e.g. Lexecon Competition Memo, The Airtours Case, 12 November 1999. 13 Finnish Merger Guidelines, p. 61. 4 Acta Wasaensia dominant market position can be applied to firms whose national market share in grocery retail markets exceeds 30%.14 While the significance and the long-term effects of mergers are recognised, a vast majority of mergers are still either neutral or beneficial. Mergers may, for example, provide economies of scale that remain otherwise unattainable.15 1.2 Objective of the Study The objective of the study is to examine the integration of the EU Merger Regulation 16 and EU case practice into Finnish merger control regarding oligopolistic markets. The focus is on the assessment criteria and the development of the said criteria from a structural approach to a more behavioral approach. Of particular interest is whether the approach adopted will complement, change or confirm an earlier approach and, furthermore, whether certain decisive criteria that will form a core for the assessment can be identified. An important concept of the study is interregulation.17 For the purposes of this study, the concept refers to the interdependence of the merger control provisions and case practice between different regimes.18 The focus here is on the EU and 14 FCCA Press Release, “Competition Act Provision on Grocery Trade Became Effective on 1st of January”, 2 January 2014. As regards retail sector, the President of the European Commission, Jean-Claude Juncker stated a need for breaking some retail oligopolies. See Juncker (2015), “State of the Union 2015: Time for Honesty, Unity and Solidarity”, Speech of 9 September 2015, Strasbourg. 15 Dunning (1994), pp. 21-24. 16 Council Regulation (EC) No 139/2004 of 20 January 2004 on the Control of Concentrations between Undertakings, OJ 2004 L 24/1-22 (hereinafter the EU Merger Regulation); Council Regulation (EEC) No 4064/89 of 21 December 1989 on the Control of Concentrations between Undertakings, OJ 1989 L 395/1-1, corrigendum, OJ 1990 L 257/13; amended by Council Regulation (EC) No 1310/97 of 30 June, OJ 1997 L 180/1-6, corrigendum, O J 1998 L 40/17 (hereinafter the old Merger Regulation). 17 The concept of interregulation has been applied, e.g. in the context of European integration and globalization. For this description see, e.g. Ziller (2004). In Finland, the concept was launched by Professor Vesa Annola at the University of Vaasa. The use of the concept is, however, not established. 18 Here, the concept refers to as the interdependence between the Commission and the member states as well as the interdependence between the member states. For the interdependence between the Commission and the member states, see e.g. Monti (2014). It could be argued that the interregulation results in convergence between different regimes. The aim to achieve convergence e.g. between the EU and member states is explicitly stated, e.g. with regard to the application of antitrust rules under Regulation 1/2003. Acta Wasaensia 5 Finnish merger control regimes.19 Furthermore, interregulation is analysed from the perspective of Finnish merger control, i.e. how the development in EU merger control has affected the development in Finnish merger control, in particular merger assessment in oligopolistic markets. In this study, interregulation manifests itself in one direction, i.e. from the EU level to the national level. Interregulation is further strengthened by economic theories regarding oligopolistic markets, i.e. assumptions about concentrated markets and the behaviour of firms in these markets, which will form a common basis for merger provisions and the assessment criteria in these regimes. The role of economics in the merger assessment is discussed in detail in chapter 3. The concept of interregulation has also been used to describe the multiple level of decision-making by a number of competent public authorities in different sectors.20 This description, however, is too narrow for the purposes of this study. Also the concept of legal transplant which describes the adoption of legal rules from one regime to another, is too narrow for the purposes of this study.21 As interregulation may manifest itself as a voluntary alignment of national merger control provisions and case practice into the development of the EU Merger Regulation and guidance related to the Regulation as well as EU case practice, it could also be termed soft convergence. However, soft convergence may not necessarily cover a situation where the preparatory legislative works and case law explicitly request the national competition authority to seek guidance from the EU. Therefore, for the purposes of this study the concept of interregulation is considered best describing the interdependence between the EU and Finnish merger control regimes and the resulting development in Finnish merger control. 19 A similar type of interregulation can be identified – at least at the level of merger control provisions and the guidelines – in other member states, such as Germany, the United Kingdom and France. In Germany, the SIEC test is provided in Article 36 of the German Act against Restraints of Competition. For its application, see e.g. Bundeskartellamt Guidance on Substantive Merger Control of 2012. In France, the SIEC test is provided in Article L430-6 of the Commercial Code. For its application see, e.g. Autorité de la Concurrence, Merger Control Guidelines. The UK applies the SLC test that is similar to the SIEC test. For the application of the SLC test, see e.g. UK Merger Assessment Guidelines of 2010. 20 See, e.g. Ziller (2004). This description of interregulation could be used, e.g. for examining the enforcement of the antitrust rules under Regulation 1/2003. Here, the national competition authorities and the courts have parallel competence with the Commission and the EU courts to apply Regulation 1/2003. However, as regards merger control, the power to investigate mergers is divided between the Commission and the national competition authorities. The allocation of cases is based on the turnover of the undertakings concerned. 21 For the concept of legal transplant, see e.g. Watson (2000) and Spamann (2009). 6 Acta Wasaensia The assessment criteria are examined by studying the Finnish merger control provisions 22, the EU Merger Regulation 23 and the guidance provided by the Finnish Competition Authority (FCA) Guidelines on Merger Control, Guidelines on the Application of the Competition Act, 1/2011 (hereinafter the Finnish Merger Guidelines) and the Guidelines on the Assessment of Horizontal Mergers under the Council Regulation on the Control of Concentrations between Undertakings (hereinafter the EU Horizontal Merger Guidelines). The criteria are also examined by studying the decision practices of the FCCA and the Commission, as well as the case law of the Market Court, previously the Competition Council24, and the Court of Justice of the European Union, i.e. the Court of Justice and the General Court, previously the Court of Justice of the European Communities and the Court of First Instance (hereinafter jointly the Union Courts).25 Typically, merger assessment in oligopolistic markets requires an analysis of both the market structure and behaviour of firms. Market structure refers to factors such as the number of suppliers and buyers in the market, barriers to entry, cost structures and transparency, whereas behaviour refers to factors such as pricing, research and development (hereinafter R&D), entry and deterrence. As regards the merger assessment in oligopolistic markets, the following three questions can be posed: What type of criteria are decisive in analysing whether a merger results in a situation where firms have the ability and incentive to coordinate their behavior? What is the required level of likelihood to conclude that competition concerns exist? Will some of the criteria form a core for the assessment and prevail throughout the different phases of development in the merger control? The assessment criteria have moved from a structure-based approach to a more behavioural, game-theoretic approach. 26 The more behavioural approach was confirmed by the Court of First Instance in the Airtours v Commission case27, in 22 The study examines the merger control provisions provided in the Competition Act (948/2011) and in the Act on Competitive Restrictions (480/1992), amended by Act 318/2004. 23 The study examines both the EU Merger Regulation of 2004 and the old Merger Regulation of 1989. 24 The Market Court started as a special court on 1 March 2002. The Court hears market law, competition law, public procurement and civil IPR cases in Finland. 25 Under the Treaty of Lisbon, the Union has a new institutional framework. As a result, institutions have been renamed. The Court of Justice of the European Union consists of three courts: the Court of Justice, the General Court (created in 1988) and the Civil Service Tribunal (created in 2004). For more information, see http://curia.europa.eu/jcms/jcms/Jo2_6999/. 26 Petit and Neyrinck (2011), p. 1. 27 Case T-342/99 Airtours v Commission. Acta Wasaensia 7 which the Court established the three necessary conditions for the finding of collective dominance, also termed the Airtours criteria. The Court’s judgment has been interpreted so that the conditions are not sufficient. The Court did not provide any additional conditions that must be fulfilled in order to conclude that the merger would result in competition concerns. Therefore, it could be asked what other conditions must be fulfilled to find coordinated effects. What is the level of likelihood that triggers an intervention by the competition authority? What is the standard of proof to be established? Is intervention possible at the incipiency of the anti-competitive effects? What types of evidence can be used in the appraisal process? It is also important to understand the reason for certain conditions to be considered necessary. For this purpose, the study also discusses the assumptions that derive from economic theory. The theory of harm regarding coordinated effects is less certain compared to non- coordinated effects, also termed unilateral effects. In view of the variety of outcomes resulting in oligopolistic markets and the weak guidance provided by economic theory, the focus has been on the assessment criteria. The assessment criteria have been subject to discussions and analyses. Also, different approaches have been applied to the criteria as merger control provisions and case practice have developed in the EU and in the member states. The study identifies three different phases of the development of the assessment criteria based on the findings of the selected merger cases: i) the diversity of the assessment criteria, ii) the formalization of the assessment criteria and iii) the stabilisation of the assessment criteria. This division provides an opportunity to examine the assessment criteria in a systemised way. The study concentrates exclusively on merger control and, in particular, on the merger assessment in oligopolistic markets. Cases of abuse of a collective dominant position are discussed only briefly. As regards the effects of merger on competition, the focus is on coordinated effects or collective dominance.28 The concept of coordinated effects is mainly used under the SIEC test, whereas the concept of collective dominance was used under the dominance test. However, as the SIEC test states that effective competition can be significantly impeded in particular as a result of the creation or strengthening of a dominant position, the concept of collective dominance is therefore of importance also under the SIEC 28 A collective dominant position is created or reinforced between the merged entity and one or several competitors that remained on the market after the merger. However, e.g. in Case IV/M. 1393 - Exxon/Mobil the combination of number two and three of the market led to the creation or strengthening of a dominant position of the third party in the market. 8 Acta Wasaensia test.29 Both concepts refer to the actions of firms that would be profitable only if they are accompanied by the actions of other firms, i.e. accommodating reactions.30 The concepts of coordinated effects and collective dominance are also often equated with the concepts of a collective dominant position and a joint dominant position, as well as joint dominance and oligopolistic dominance. Also concepts of parallel anti-competitive behaviour and coordinated interaction are applied.31 The above-mentioned concepts can be equated with the concept of collusion, and, in particular, with the concepts of tacit collusion or implicit coordination32. Tacit collusion is an economic concept and refers to oligopolistic behaviour which enables prices to be raised above the competitive level.33 For the purpose of this study, the concepts are applied synonymously. For example, the FCCA has not made a difference between the concepts of collective dominance and coordinated effects in its decision practice. The FCCA has also explicitly stated that coordinated interaction can consist of tacit collusion.34 Economic and legal definitions of collusion are further discussed in section 3.4.1. In addition to coordinated effects, mergers in oligopolistic markets may also result in non-coordinated effects, i.e. unilateral effects. In contrast to coordinated effects, unilateral effects refer to the ability of a single firm to unilaterally increase prices without coordinating with its competitors.35 Basically, 29 Finnish Merger Guidelines, p. 76. See also the EU Horizontal Merger Guidelines, para. 4. For other types of guidelines in which similar types of criteria are discussed, see e.g. the Guidelines for Electric Communications, para. 94. 30 Willig (1991), pp. 292-293; OECD Roundtable on Substantive Criteria Used for the Assessment of Mergers, DAFFE/COMP(2003)5, p. 22. The concept of coordinated effects refers to a coordinated outcome the firm reaches even though they may be acting independently from each other, as in tacit collusion. Europe Economics (2001), p. 49. 31 It has been argued that the concept of coordinated interaction also includes tacit collusion and therefore extends beyond the concept of explicit collusion or concerted practice. See, e.g. OECD Roundtable on Substantive Criteria Used for the Assessment of Mergers, DAFFE/COMP(2003)5, p. 22; Leddy (1993), p. 18. See also FTC, Promoting Competition, Protecting Competition: A Plain English Guide to Antitrust Laws (hereinafter FTC Guide to Antitrust Laws). 32 For the concepts of explicit and tacit collusion, see OECD Roundtable on Unilateral Disclosure of Information with Anticompetitive Effects, DAF/COMP(2012)17, pp. 28- 30. See also Lexecon Competition Memo, The Airtours Case, 12 November 1999. See also Lexecon Competition Memo, Joint Dominance. The CFI Judgement on Gencor/Lonrho, 9 June 1999, which discusses the judgment of the CFI and the concept of tacit collusion. 33 It has been also argued that tacit collusion refers to conscious parallel behaviour without communication between the companies involved. In contrast to tacit collusion, expressed collusion is caused by explicit agreements or concerted practices. Faull and Nikpay (1999), pp. 25-26. 34 See, e.g. Fritidsresor/Finnmatkat, Case No. 1976/81/99. 35 See, e.g. FTC Guide to Antitrust Laws. Acta Wasaensia 9 unilateral effects include all anti-competitive effects which are not characterized as coordinated effects. 36 As the focus of the study is on coordinated effects, unilateral effects are discussed only briefly in the context of the scope of the substantive test. 1.3 Method and Sources of the Study The study examines the integration of the EU Merger Regulation and EU case practice into Finnish merger control regarding oligopolistic markets. The study applies the method of legal dogmatics which interprets and systemizes legal rules. Here, the interpretation is directed to the rules of the substantive tests in merger control, i.e. the SIEC test and dominance test. The tests are provided in the Finnish Competition Act and the preceding Act on Competition Restrictions as well as in the EU Merger Regulation. These set a benchmark for an anti- competitive merger. The focus of the systematization is on the assessment criteria. The assessment criteria are provided in the EU Merger Regulation and also in the guidance provided by the Commission and the FCCA, also referred to as soft law. The assessment criteria are examined by analysing the EU Merger Regulation, the guidance and decision practices of the FCCA and the Commission as well as the case law of the Market Court and the Union Courts, including the predecessors of these institutes. Legal dogmatics interprets and systemizes legal rules with the objective of producing reasoned interpretation and systematization statements of the law,37 and the weighing and balancing of legal principles and other legal standards which enjoy adequate institutional support and societal approval. 38 The methodology adopted in legal dogmatics is legal argumentation, in the sense of the above-mentioned interpretation and systematization of legal rules.39 Legal dogmatics is based on the institutional sources of law such as legislation, preparatory legislative works, and precedents.40 Non-institutional sources of law 36 OECD Roundtable on Substantive Criteria Used for the Assessment of Mergers, DAFFE/COMP(2003)5, p. 23. 37 Siltala (2004), p. 959; Siltala (2001), pp. 17-18; Hirvonen (2011), pp. 21-22, 25. Research results or outcomes of legal dogmatics comprise a set of legal statements concerning the interpretation and systematization of legal rules with reference to the prevalent normative ideology that is collectively internalized by the judiciary and other law-applying officials. Siltala (2004), pp. 936-937. 38 Siltala (2004), p. 936. 39 Siltala (2004), pp. 945-947. 40 Siltala (2004), p. 946. For the sources of law, see e.g. Tolonen (2003). Institutional sources of law consist of legislation, preparatory works, and precedents, which are then rephrased by legal dogmatics in favour of a certain legal outcome. By 10 Acta Wasaensia refer to arguments presented in legal dogmatics. Other arguments that may have legal significance consist, for example, of legal comparative arguments outside the context of a constant and uniform practice of interpreting EU law and arguments derived from the economic analysis of law.41 In this study, legal dogmatics is manifested in that the legal rules are interpreted and the assessment criteria systematized by examining the merger control provisions, including the preparatory legislative works, the guidance provided by the competition authorities in the form of guidelines, as well as case practice, including the decision practice of the competition authorities and case law.42 In line with legal dogmatics, the study is based on the prevalent legal source doctrine in Finland. As regards institutional sources of law, the EU law is prioritized. The substantive provisions of the Finnish Competition Act and the EU Merger Regulation, as well as the guidance provided in the Finnish Merger Guidelines and the EU Horizontal Merger Guidelines for the interpretation of these provisions are very similar. The preparatory legislative works regarding Finnish merger control also explicitly requests the FCCA to seek guidance from EU competition law. This provides a basis for examining the legal rules and assessment criteria through a general objective of interregulation. The Government Bill of 1997 for the Act on Competition Restrictions requested the FCA to seek guidance from the old Merger Regulation, which was in force at that time, and therewith from the EU case law for the interpretation of the dominance test pursuant to Article 11d of the Act on Competition Restrictions. However, the Government Bill of 2010 for the Competition Act did not explicitly request the FCCA to seek guidance from the EU competition law but referred to the convergence of the Finnish provisions with the EU provisions. institutional sources of law are meant, for example, EU legislation, EU regulations, directives, and decisions given by EU organs the material ratio of which may also be extended to apply to other cases of a similar kind; national legislation; travaux préparatoires; precedents and other court decisions, the material ratio of which can be generalized to apply to other cases of a similar kind; legal standards that can be inferred from the decisions given by the European Court of Justice; decisions given other by law-applying officials, the material ratio of which can be generalized to apply to other cases of a similar kind and constant and uniform practice in interpreting EU law; and other law-applying officials in the countries which belong to the European Union. See Siltala (2004), pp. 942-943. 41 Siltala (2004), pp. 942-943. 42 Competition law research can arguably be restricted to legal dogmatics with the purpose of defining current legal state with the assistance of legal rules, legislative history and case law. Kuoppamäki (2003), p. 10. Acta Wasaensia 11 The FCA, and later the FCCA, has constantly referred to the decision practice of the Commission and the case law of the Union Courts in its own decision practice. The Market Court, for its part, has referred to the convergence between the national competition law and EU competition law. For example, in the NCC/Destia case43 the Market Court firstly stated that the antitrust provisions – even if the case concerned merger control - provided in the Treaty Establishing the European Community (hereinafter the EC Treaty), currently in the Treaty on the Functioning of the European Commission (hereinafter the TFEU), are directly applicable in national law. This statement is in line with the Treaty on European Union (hereinafter the TEU), which states that the case law of the Union Court is directly applicable and should be taken into account in the national authorities’ decision practice. Secondly, the Market Court stated that even if the antitrust provisions are not applicable to merger control, the Court considers that the purpose of the TEU is the convergence between the national competition law and EU competition law, and that guidance should be sought from the EU provisions and case law and decision practice. 44 Hence, EU competition law is a major source of law in this study. The interpretation and systematization of legal rules needs to be tailored for the legislative context and for the environment of the phenomenon. For the purposes of this study, tailoring requests that the interdependence of legal rules and the role of economics in merger control are taken into account. A common basis for merger control both in Finland and in the EU is provided by economic theories. Competition law, including merger control provisions, applies the tools and research outcomes of industrial economics which form a common basis for the enforcement of legal rules.45 In legal argumentation, the methodology needs to be adjusted for the type of legal source in question. Legal rules are usually wide and general in scope, and the legislator has given them an express norm-formulation.46 The wording of the SIEC test, for example, only states that the merger should not significantly impede effective competition, in particular as a result of the creation or strengthening of a dominant position. Therefore, other sources of law become important for the interpretation and systematization of legal rules. In addition to 43 NCC Roads Oy, Destia Oy and Destia Kalusto Oy, Case No. 499/11/KR (hereinafter NCC/Destia). 44 NCC/Destia, Case No. 499/11/KR, paras 191-193. 45 In competition law enforcement, legal and economic arguments overlap. Hence, enforcement renders it possible to combine theory and case practice. Kuoppamäki (2003), p. 12. 46 Siltala (2004), p. 946. 12 Acta Wasaensia the guidelines provided by the competition authorities, an important source for the examination of the assessment criteria and the arguments concerning the interpretation and systematization of legal rules is provided in case practice.47 As regards Finnish merger control, the following cases are discussed in detail: Fritidsresor/Finnmatkat 48 , Carlsberg/Orkla 49 , Lännen Tehtaat/Avena 50 and NCC/Destia51. These cases are selected due to their ability to demonstrate the development of the assessment criteria in Finnish merger control as well as to show the influence that derives from the EU Merger Regulation and EU case practice. These cases are all assessed under the Act of Competition Restrictions and, therewith, under the dominance test. Other decisions in which oligopolistic markets are also discussed are referred to only briefly. As regards EU case practice, the following cases and the guidance they provide are discussed in detail: Nestlé/Perrier 52 , Mannesmann/Vallourrec/Ilva 53 , France and Others v Comission 54 , Gencor v Commission 55 , Airtours/First Choice 56 , Airtours v Commission 57 , Impala v Commission 58 , Sony/BMG v Impala59 and ABF/GBI Business60. With the exception of the ABF/GBI Business case, all cases are assessed under the old Merger Regulation and, therewith, under the dominance test. However, the guidance provided under the dominance test is also relevant as the Commission explicitly stated that the precedence under the dominance test is still relevant according to the SIEC test. The SIEC 47 Competition law is typically characterized by a rough framework for the provision provided by the law and the legislative history and the case law and the decision practice is required to fulfill this gap. Kuoppamäki (2003), p. 10; Dethmers (2005), p. 640. 48 Fritidsresor Holding AB/Oy Finnmatkat-Finntours Ab, Case No. 1976/81/99 (hereinafter Fridtidsresor/Finnmatkat). 49 Carlsberg AS/Orkla ASA:n panimoliiketoiminnat Case No. 573/81/00 (hereinafter Carlsberg/Orkla). The target consisted of ASA’s brewery businesses. 50 Lännen Tehtaat Oyj/Avena Oy, Case No. 389/81/2002 (hereinafter Lännen Tehtaat/Avena). 51 NCC Roads Oy/Destia Oy and Destia Kalusto Oy, Case No. 249/14.00.10/2011; NCC Roads Oy, Destia Oy and Destia Kalusto Oy, Case No. 499/11/KR (hereinafter NCC/Destia). 52 Case No. IV/M.190 – Nestlé/Perrier. 53 Case No. IV/M.315 – Mannesmann/Vallourec/Ilva. 54 Joined Cases C-68/94 and C-30/95 France and Others v Commission. 55 Case T-102/96 Gencor v Commission. 56 Case IV/M1524 – Airtours/First Choice, 57 Case T-342/99 Airtours v Commission. 58 Case T-464/04 Impala v Commission. 59 Case C-413/06 Bertelsmann and Sony Corporation of America v Impala. 60 Case COMP/M.4980 - ABF/GBI Business. Acta Wasaensia 13 test also provides the creation or strengthening of a dominant position as a particular example of the significant impediment to effective competition. The EU cases are selected due to their ability to illustrate the development in EU merger control which, in turn, has affected the development of Finnish merger control. These cases are also referred to in Finnish case practice. The analysis of the EU cases will also provide information about whether the decision practice and case law have complemented, changed or confirmed the approach adopted in previous case practice. 1.4 Structure of the Study The study consists of six chapters. Chapter 1 provides an introduction to the subject and formulates the objective of the study as well as describes the method applied. The study aims to examine the integration of the EU Merger Regulation and EU case practice into Finnish merger control regarding oligopolistic markets. The focus is on the assessment criteria and the development of the criteria from a structure-based approach to a more behavioral approach. Chapter 2 discusses the regulatory framework and the extent to which the Finnish merger control provisions are applicable to competition concerns identified in oligopolistic markets and, therewith, discusses the scope for intervention. Chapter 3 discusses the assumptions on which both Finnish and EU merger controls are based. These presumptions derive from economic theory on market structure and market behaviour. The chapter also discusses the indicators regarding these assumptions. In addition, the chapter discusses the characteristics of oligopolistic markets and provides underlying theories of competitive harm: coordinated effects and non-coordinated effects. The chapter briefly discusses the role of economic evidence. Chapter 4 discusses the scope of the EU merger control provisions and the assessment criteria for mergers in oligopolistic markets as well as the development of these criteria in the light of the selected merger cases. The study identifies three different phases of the development of the assessment criteria based on the findings of the selected merger cases: i) the diversity of the assessment criteria, ii) the formalization of the assessment criteria and iii) the stabilisation of the assessment criteria. This division provides an opportunity to examine the assessment criteria in a systemised way. The cases are grouped according to this division. The emphasis is on the tools the assessment criteria provide for merger assessment in different phases of the development. The chapter also discusses the specific characteristics of mergers in oligopolistic 14 Acta Wasaensia markets and how the characteristics affect the design of remedies. Of particular interest is whether remedies are targeted on structural features of the market or market conduct, or both simultaneously. Chapter 5 discusses the criteria that have been applied to merger assessment in oligopolistic markets in Finland and the development of these criteria in the light of the development in EU merger control. In chapter 4, the assessment criteria are grouped into different phases of the development and the emphasis is on the tools they provide for merger assessment. In this chapter, the emphasis is on the actual application of these criteria in merger cases in Finland. The chapter also discusses the types of remedies that have been applied in order to eliminate anti- competitive effects on mergers. Chapter 6 provides concluding remarks and discusses the tentative development of the assessment criteria for mergers in oligopolistic markets. Acta Wasaensia 15 2 REGULATORY FRAMEWORK FOR THE CONTROL OF OLIGOPOLIES IN FINLAND 2.1 Merger Control in Finnish Competition Policy This chapter describes the development of the Finnish merger control provisions. The chapter focuses on the control of mergers in oligopolistic markets but also provides general information about merger provisions such as the substantive test, the role of market definition in merger control and the anti-competitive effects which may arise in oligopolistic markets. The chapter also discusses particular aspects of oligopoly control within the regulatory framework. The first Finnish merger control provisions entered into force on 1 October 1998 with the effect that there could be intervention with concentrations 61 with adverse effects on competition in Finland or in a substantial part thereof. The provisions were adopted as an amendment to the Act on Competition Restrictions (480/1992).62 The Act itself entered into force on 1 September 1992, but the amendments with merger control provisions were passed by the Finnish Parliament on 24 March 1998. Simultaneously with the entry of merger control provisions in 1998, the FCA issued the Guidelines on the Control of Concentrations (hereinafter the first Finnish Merger Guidelines). These guidelines provided detailed information, inter alia, on the concept of concentration, the calculation of turnover, joint ventures, and the assessment of the effects of a merger on competition. When merger control provisions were adopted in Finland in 1998, an established approach was that the provisions also covered collective dominance. This approach was provided, inter alia, in the Government Bill 243/1997 for the Act on Competition Restrictions of 30 December 1997, in the Report of the Ministry of Trade and Industry63, in Article 3(2) of the Act on Competition Restrictions, and in the first Finnish Merger Guidelines, and most importantly, in an 61 Similar to EU merger control the concept of concentration covers various types of transactions such as mergers, acquisitions and certain joint ventures. For the purpose of this study the concept of merger is applied in order to describe a transaction where control is changed either through a merger or an acquisition or through establishing a so-called full-function joint venture. 62 Act on Competition Restrictions (480/1992), amended on 1 May 2004 (318/2004). 63 Reforming the Finnish Competition Law – Merger Control and Competence Issues. Committee Report by the Ministry of Trade and Industry, 3/1993. 16 Acta Wasaensia established approach with regard to the scope of the old Merger Regulation. Also the fact that the merger control provisions did not exclude collective dominance formed a basis for the assumption that they could be applied to collective dominance. The preparatory legislative works confirms this interpretation. The first merger control provisions of 1998 were based on the dominance test. The test was provided in Article 11d of the Act on Competition Restrictions where it is stated that a merger may be prohibited64 if as a result of it, “a dominant position shall arise or be strengthened which significantly impedes competition in the Finnish market or in a substantial part thereof”. The wording was identical to the dominance test provided in the old Merger Regulation. The Act on Competition Restrictions was amended several times, notably on 1 May 2004 (318/2004). 65 The amendments resulted mainly from the modernization of Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (hereinafter Regulation 1/2003). The amendments to the Act on Competition Restrictions entered into force on 1 May 2004, i.e. at the same time as the adoption of Regulation 1/2003. In the course of the review in 2004, the dominance test prevailed as a substantive test for merger control in Finland. This was despite the fact that the substantive test was changed in the EU and that the scope of the dominance test was questioned. The reason that the substantive test was not changed in Finland was mainly due to the fact that the recast Merger Regulation66 - with the effect that the substantive test was changed in the EU - was adopted after the national preparatory legislative works amending the Act on Competition Restrictions was concluded.67 Presumably, the change of the substantive test was on the agenda when the Act would be amended next time. The preparatory legislative works with the aim of amending the Act on Competition Restrictions was initiated on 13 June 2007 when the Ministry of 64 In Finnish merger control the prohibition decision is given by the Market Court on the proposal of the FCCA. 65 The Ministry of Trade and Industry provided a proposal for the amendments on 20 February 2004. 66 Proposal for review of the Merger Regulation was adopted by the Council on 27 November 2003. See European Council, 2547th Council Meeting – Competitiveness – (Internal market, Industry and Research). 15141/03 (Presse 337). Brussels, 26-27 November 2003. See also the European Commission Press Release, “Commission welcomes agreement on new Merger Regulation.” IP/03/1621, 27 November 2003. 67 FCA Yearbook 2004, p. 3. Acta Wasaensia 17 Trade and Industry (currently the Ministry of Employment and the Economy, MEE) appointed a working group, i.e. the Competition Act 2010 Working Group. The working group was assigned the task of identifying the need for reform of the Act and to prepare proposals for the required amendments.68 A majority of the working group's proposals aimed to clarify and update the current provisions of the Act. The proposals also contained reforms for merger control provisions such as changing the substantive test, elimination of the deadline set for compulsory notification for mergers and the possibility to extend processing time limits. The working group published a report stating, inter alia, that a merger which leads to the creation or strengthening of a dominant position with potential negative phenomena makes the market structure more rigid for a longer time and assists collusive behaviour.69 The report also stated that in duopolistic or oligopolistic markets further concentration would increase the risk of cartelisation and that the elimination of a competitor would promote the sustainability of a cartel.70 The report recognised that in certain situations firms may coordinate without a concerted action, i.e. an action subject to a prohibition decision under the antitrust rules. This type of behaviour is often based on the signals that firms send to the market independently of each other. In particular, in the presence of a homogeneous product and high barriers to entry, a situation may occur where the members of an oligopoly may through a coordinated pricing policy increase the price above the competitive level. The report further states that this situation should be taken into account in merger assessment in a concentrated market and that the potential for collective dominance must be assessed.71 The new Competition Act (948/2011) entered into force on 1 November 201172, thus replacing the Act on Competition Restrictions. The purpose of the Competition Act is to protect sound and effective economic competition from harmful restrictive practices. Special attention is paid to the protection of the operating conditions of the markets and the freedom of undertakings to operate 68 Competition Act 2010 Working Group, MEE Publications, Competitiveness 4/2009, available at http://www.tem.fi/files/21617/TEM4.pdf. 69 Competition Act 2010 Working Group (2009), p. 88. 70 Competition Act 2010 Working Group (2009), p. 159. 71 Competition Act 2010 Working Group (2009), p. 159. 72 FCA Press Release, “New Competition Act effective from 1 November”, 12 August 2011. For information about the new Competition Act, see e.g. Lindberg (2011a), pp. 249- 261; ECN Brief, 02/2011, "Finland: New Competition Act approved by the Parliament", p. 33; ECN Brief 03/2011,"Finland: Public Consultation on Guidelines complementing the new Competition Act", p. 32. 18 Acta Wasaensia so as to allow customers and consumers to benefit from competition.73 In the new Act, merger control provisions are provided in Chapter 4. The chapter describes, among other things, the concept of concentration, the scope of the application of the merger control provisions, the notification criteria, calculation of turnover, prohibition criteria, time limits and implementation rules. One of the major changes brought about by the Competition Act was the change of the dominance test into the SIEC test. By the time the Act was amended, Finland could benefit from the experience the Commission already had in applying the SIEC test. In addition to changing the test, the Competition Act also clarified certain procedural rules for merger enforcement regarding the right of appeal and implementation of the notified merger. Alongside the Competition Act, the new Finnish Competition Authority (FCA) Guidelines on Merger Control (hereinafter the Finnish Merger Guidelines) were adopted74. The new guidelines replaced the first Finnish Merger Guidelines of 1998 and were aligned with the EU Horizontal Merger Guidelines published in 2004. The Finnish Merger Guidelines provide guidance, among other things, on the notification criteria, calculation of turnover, appraisal process, assessment of competitive effects, and remedies. The Competition Act also brought other amendments. The antitrust provisions were already harmonized with Articles 101 and 102 TFEU in 2004 and thus remained unchanged.75 However, the definition of the concept of undertaking was now harmonized to that applied in the EU. Other changes were mostly procedural. The Competition Act, for example, clarified the rights to defense in competition enforcement proceedings, for example, in terms of self- incrimination and legal professional privilege. The Competition Act also provided explicit prioritisation rules by stating that the FCCA shall prioritise its tasks and that it shall not investigate a case if certain criteria are met.76 In addition, the Competition Act introduced a new provision, according to which a firm which coerced other firms to participate in the cartel would not be eligible for immunity from fines. Although the leniency provisions in Finland have been aligned with the European Competition Network’s Model Leniency Programme, the 73 The content of the new Act is discussed in detail by Lindberg (2011b) and Kuoppamäki (2012). 74 Finnish Competition Authority (FCA) Guidelines on Merger Control, Guidelines on the Application of the Competition Act, 1/2011, available at http://www.kilpailuvirasto.fi/tiedostot/Suuntaviivat-1-2011-Yrityskauppavalvonta- EN.pdf. 75 Kilpailunrajoituslain uudistus 2004, available at http://www.kilpailuvirasto.fi/tiedos tot/krl-esite.pdf. 76 The FCCA is entitled to prioritise, for example, if a complaint is ‘manifestly groundless’. Acta Wasaensia 19 Competition Act introduced concrete provisions concerning the amount of fines to be reduced, as well as further requirements to qualify for immunity or for the reduction of fines.77 The Competition Act did not bring any changes to a penalty system which remained based on administrative fines.78 The Competition Act also strengthened the FCCA’s investigative powers. 79 In addition, the Competition Act modified provisions regarding damage compensation.80 Alongside the adoption of the Competition Act, the Government published a decree on the calculation of turnover of a party to a concentration (1011/2011)81 and a decree on the obligation to notify a concentration (1012/2011) 82 . In addition to the Finnish Merger Guidelines, guidelines on the assessment of the amount of the fines and on prioritisation rules, as well as revised guidelines on leniency were published.83 As regards the notification criteria, the transaction must form a concentration within the meaning of Section 21 of the Competition Act84 and meet the turnover thresholds pursuant to Section 22 of the Competition Act. Currently, a merger must be notified to the FCCA if the combined aggregate worldwide turnover of 77 According to the Competition Act, immunity may also be granted after the FCCA has carried out an inspection. 78 The provisions for calculating the limitation period are now similar to those provided by Regulation 1/2003. 79 The Competition Act also provided the FCCA with power to inspect non-business premises. Previously, the FCCA had only the power to inspect business premises. Inspection of non-business premises is, however, subject to an authorization by the Market Court. 80 According to the Competition Act any individual, not only business undertakings as previously stated, is able to seek compensation. 81 Government Decree on the Calculation of Turnover of a Party to a Concentration (1011/2011), available at http://www.kilpailuvirasto.fi/cgi- bin/english.cgi?luku=legislation&sivu=decree-on-calculation-of-turnover. 82 Government Decree on the obligation to notify a concentration (1012/2011), available at http://www.kilpailuvirasto.fi/cgi-bin/english.cgi?luku=legislation&sivu=decree- obligation-to-notify. 83 Finnish Competition Authority (FCA) Guidelines, Immunity from and Reduction of Fines in Cartels Cases, Guidelines on the Application of the Competition Act, 2/2011, available at http://www.kilpailuvirasto.fi/tiedostot/Suuntaviivat-2-2011-Leniency- EN.pdf. 84 Merger control provisions cover the following transactions: i) the acquisition of control referred to in Chapter 1, Article 3, of the Companies Act (734/1978) or an acquisition of a corresponding actual control; ii) the acquisition of the entire business operations or a part thereof; iii) a merger and iv) setting up of a joint venture which shall perform on a lasting basis all the functions of an autonomous economic unit, i.e. a so- called full-function joint venture. 20 Acta Wasaensia the parties exceeds EUR 350 million and the turnover of a minimum of two parties derived from Finland exceeds EUR 20 million.85 Mergers are notified by submitting a notification form.86 The notifying party or parties must provide information about, among other things, the type of transaction, company structure, affected markets and the position of the merging parties in the affected markets, as well as information about competitors, customers and suppliers. A simplified notification procedure can be applied if the effects of a merger on competition are likely to be minor or if all information that is requested in the standard notification form is not relevant for the merger assessment in this particular case.87 A merger that fulfils the national notification criteria under the Competition Act will be assessed by the FCCA. If the notification criteria provided in the Merger Regulation are fulfilled the merger will be exclusively investigated by the Commission. The case allocation between the Commission and the national competition authorities is based on turnover criteria. Under certain circumstances mergers can also be referred from a national competition authority to the Commission, and vice versa. This type of case referral system is provided in the Merger Regulation. In the pre-notification phase, cases can be referred by the Commission to the member states pursuant to Article 4(4) of the Merger Regulation and from the member states to the Commission pursuant to Article 4(5). 88 In the post-notification phase, cases can be referred from the Commission to the member states pursuant to Article 9, and from the member states to the Commission pursuant to Article 22.89 Due to the case allocation and referral systems, national merger control cannot differ too much from that of the EU. 85 Detailed information about the turnover criteria are published in the Decree by the Ministry of Trade and Industry on the Calculation of Turnover of a Party to a Concentration (377/2004). 86 The notification form is provided in the Decree by the State Council on the obligation to notify a concentration (1012/2011). See also the FCA’s Guidelines on the Control of Concentrations (hereinafter the Finnish Merger Guidelines) and the FCA’s Guidelines on the Revised Provisions on the Control of Concentrations. 87 These consist of arrangements “where companies to which turnover derives from Finland, set up a joint venture or obtain joint control in a company which has no connection to the Finnish markets. There is no connection to the Finnish markets if the joint venture does not engage business in Finland and no turnover derives to it from Finland.” See, e.g. ICN Merger Notification and Procedures Template, Finland, available at http//www.internationalcompetitionnetwork.org. 88 Commission Notice on Case Referral, paras 16-32, OJ 2005 C 56/5-9. 89 Commission Notice on Case Referral, paras 33-45, OJ 2005 C 56/9-11. Acta Wasaensia 21 The merger assessment consists of two phases. In the first phase, the FCCA must decide whether the transaction will be investigated under the Competition Act, and in the affirmative, either to clear the transaction as such or under certain conditions, or initiate an in-depth investigation, also termed a second-phase investigation, pursuant to Section 26 of the Competition Act. The first phase lasts one month and the time limit is calculated from the date the FCCA receives a notification form. In case the notification is significantly incomplete, a one- month time limit does not begin. The time limits can be extended if the information which may be requested by the FCCA under Section 33 of the Competition Act and which the firms are obligated to submit is not provided on time. The time limits are extended by the same number of days that the submission of information is delayed (a so-called stop-the-clock provision). This extension applies both in the first phase and in in-depth investigations. If the FCCA initiates an in-depth investigation, it must, within three months from that decision either clear the transaction as such or under certain conditions or make a proposal to the Market Court to prohibit the merger. The FCCA itself cannot prohibit a merger. A merger can only be prohibited by the Market Court upon proposal by the FCCA. The Market Court must provide a decision within three months starting from the date the FCCA proposal is received. The Market Court can prohibit the merger as proposed by the FCCA or attach conditions on the implementation of a merger. So far, the FCCA has proposed a merger to be prohibited by the Market Court only in two cases.90 The table below provides statistics on the FCCA’s merger decisions. 90 The first prohibition proposal concerned the acquisition of joint control by Sonera Oyj in Digita Oy, a subsidiary of the Finnish Broadcasting Corporation Yleisradio Oy in 2000. The second prohibition proposal concerned the merger between NCC Roads and Destia Oy in 2011. The latter case is discussed later in this study. See the FCA Press Release, “FCA Proposes Prohibition of Merger between NCC and Destia”, 5 August 2011. 22 Acta Wasaensia Table1. Merger Decisions in Finland 2007-2013 2007 2008 2009 2010 2011 2012 2013 Decisions 35 24 14 23 28 24 23 Clearance without conditions - Phase I 34 23 14 23 26 19 18 - Phase II 1 - - - - 2 Clearance with conditions - - - - 1 - - - Phase I - - - - - - - - Phase II - 1 - - 1 - 1 Proposal to prohibit a merger - - - - 1 - - Other decisions - - - - - 391 4 The first merger provisions in Finland came into effect on 1 October 1998. During the early years of merger control there was a strong growth in cases that fulfilled the notification criteria under the Act on Competition Restrictions. For example, during 2000-2002 the FCA made over 100 decisions per year. In 2004, the notification criteria were changed as the Act on Competition Restrictions was amended. As a result of the amendment the number of notifications decreased. Currently, the FCCA receives approximately 20 notifications per year. The table above also illustrates three general outcomes of the merger assessment: a clearance as such, a clearance under certain conditions or a decision to propose 91 These decisions are decisions to initiate second phase proceedings. With regard to the year 2009, in those cases where second phase proceedings were initiated the FCA also made a final decision in the same year. Acta Wasaensia 23 a prohibition.92 If the merger does not result in competition concerns, it will be cleared as such. If competition concerns are identified, a merger can be cleared subject to remedies proposed by the merging parties provided that remedies adequately address the competition concerns identified. If adequate remedies are not available, either due to the nature of the transaction or the lack of the merging parties’ willingness to provide them, the FCCA will propose the Market Court to prohibit a merger. As illustrated in the table, the vast majority of mergers are cleared in the first phase without any conditions set for the approval. 2.2 Substantive Test for Merger Assessment 2.2.1 Change of Substantive Test The Competition Act in 2011 changed the dominance test into the SIEC test. The SIEC test is provided in Section 25 of the Competition Act and states that the Market Court may, upon the proposal of the FCCA, prohibit a merger, order a merger to be dissolved, or attach conditions on the implementation of a merger if the merger would “significantly impede effective competition in the Finnish markets or a substantial part thereof, in particular as a result of the creation or strengthening of a dominant position”. The test is identical to the substantive test provided in Article 2(3) of the Merger Regulation. By the time the SIEC test was adopted in 2011, Finland could already benefit from the discussion that was initiated by the Commission by publishing a Green Paper on the Review of Council Regulation (EEC) No. 4064/89 (hereinafter the Green Paper) in 2001.93 As regards the merits of the competitive tests, one of the subjects discussed in the Green Paper was whether the dominance test covers non-coordinated effects, also termed unilateral effects, in the oligopolistic market structure. The Green Paper discussed differences between the dominance test and the SLC test. The new concept of the SIEC test was only introduced when the final version of the recast Merger Regulation was adopted in 2004. One of the reasons for changing the substantive test was that the SIEC test would better - compared to the dominance test - cover all types of anti-competitive 92 The notifying parties, however, will always have the possibility of withdrawing in any phase of the appraisal process, for example, in order to avoid the prohibition decision taken by the competition authority. 93 Commission, Green Paper on the Review of Council Regulation (EEC) No. 4064/89. COM (2001) 745 final (hereinafter Green Paper (2001)). 24 Acta Wasaensia effects a merger may result in. An often-referred example of a situation that is not covered by the dominance test is a merger between the second- and third-largest firms in the market, where both firms have a product range that would pass as a close substitute for another’s range. Another precondition for this situation is that the merged entity would not become a market leader with a dominant position. This type of situation is known as a gap case and it may result in significant impediment to effective competition. The situation is covered by the SIEC test, whereas the use of the dominance test would normally require that a collective dominant position is established between the merged entity and the market leader.94 A single dominant position would be difficult to establish for the following reasons. Firstly, it would be difficult to argue that the merged entity that is not a market leader could act independently of its competitors, customers and consumers. Secondly, the market leader would allegedly enjoin market power and would potentially act as a competitive constraint against the merged entity.95 Another reason that would promote for the change of the test is that under the dominance test non-coordinated effects may be mis-characterized as coordinated effects.96 The risk would arise for several reasons. Firstly, a number of unilateral effects cases cannot be captured under a dominant position standard and there is an alleged temptation to characterize them as coordinated effects. Secondly, a merger which combines two smaller firms to attain the size of competitors increases the symmetry in the market and on that ground presumably facilitates collusion. However, a relevant threat in this situation would more likely arise from unilateral effects.97 94 Green Paper (2001), p. 39. Some commentators for the Green Paper referred to the so- called Beech Nut case decided by the FTC in the US. In this case Heinz was to acquire Beech Nut to become number two after the market leader Gerber in the market for baby food. Commission, Green Paper on the Review of Council Regulation 4064/89, 2001 – Summary of the Replies Received, available at http://europa.eu.int/comm/competition/mergers/review/comments/summary_publ ication.pfd (hereinafter Comments on the Green Paper (2001)). 95 In its report, the Competition Act 2010 Working Group stated that mergers in concentrated markets may also have positive effects. If a dominant firm already exists in the market, a merger between smaller competitors can lead to more competitive behaviour as the merged entity may force a dominant firm to compete. Competition Act 2010 Working Group (2009), p. 88. It could be asked whether the statement indicates that the merger between the second- and the third-largest company in the market, without the merged entity becoming a market leader, might not always result in competition concerns. 96 OECD Roundtable on Substantive Criteria Used for the Assessment of Mergers, DAFFE/COMP(2003)5, pp. 8, 325. 97 OECD Roundtable on Substantive Criteria Used for the Assessment of Mergers, DAFFE/COMP(2003)5, p. 325. Acta Wasaensia 25 A merger that would create or strengthen a single dominant position is expected to result in cuts in the output. By analogy, in the case of coordinated effects each of the coordinating firms is expected to cut output post-merger. There is no such analogy related to non-coordinated effects which result from a merger believed to create or strengthen a collective dominant position held by a set of non- structurally linked members of an oligopoly. In such a case only the merging parties would be expected to cut output. Competitors - unless they are not capacity constrained - would be expected to increase outputs. The concept of collective dominance would therefore be difficult to extend to cover unilateral effects arising post-merger among a group of non-structurally linked members of an oligopoly.98 The risk of mis-characterization of competitive effects could be avoided, for example, by lowering the threshold linked to dominance. This would, however, lead to markets where more than one firm could hold a single dominant position.99 There might also be a risk of mis-characterization of competitive effects if a merger results both in non-coordinated effects and coordinated effects. Due to the greater theoretical clarity of non-coordinated effects, it could be preferable to apply a theory of harm which relates to non-coordinated effects. The mis- characterization may also lead to the adoption of incorrect remedies and foster legal uncertainty. The dominance test has been argued to import mis- characterization risk and force unilateral effects into some kind of dominance story which ultimately involves pushing things into a “black box”.100 2.2.2 Elements of SIEC Test The wording of the SIEC test requires the FCCA to assess whether a merger would ”significantly impede effective competition in the Finnish markets or a substantial part thereof, in particular as a result of the creation or strengthening of a dominant position”. Hence, the SIEC test is based on significant impediment to effective competition. The creation or strengthening of a dominant position is only one example of this type of effect. 98 OECD Roundtable on Substantive Criteria Used for the Assessment of Mergers, DAFFE/COMP(2003)5, p. 8. 99 OECD Roundtable on Substantive Criteria Used for the Assessment of Mergers, DAFFE/COMP(2003)5, p. 8. 100 OECD Roundtable on Substantive Criteria Used for the Assessment of Mergers, DAFFE/COMP(2003)5, p. 325. 26 Acta Wasaensia The parts of the SIEC test are identical to those of the dominance test but are presented in reverse order. As regards the dominance test, the test consists of the creation or strengthening of a dominant position and the significant impediment to effective competition. At the time the dominance test was applied, a question was occasionally raised as to whether test was a single or a two-fold test and whether the emphasis of the different parts of the test differed. In Finland, the two parts were equally relevant in the merger assessment.101 For example, the first Finnish Merger Guidelines stated that the effects of a merger on competition should be assessed as a whole by assessing the creation or strengthening of a dominant position and significant impediment to effective competition which results from the said position. It could be argued that the assessment of a dominant position refers to a so-called "qualified dominance". The Government Bill for the Competition Act in 2010 further stated that the first investigative step under the dominance test is whether a merger creates or strengthens a dominant position and, consequently, whether the said position leads to a significant impediment to effective competition.102 According to the Finnish Merger Guidelines competition will be significantly impeded if the anti-competitive effects of a merger are either long-lasting or strong. Competition is not significantly impeded if a dominant position is l