Turning Point Arrives in Competition Policy

Financial News, July 14, 2002 | Go to article overview

Turning Point Arrives in Competition Policy


Byline: Patrick Blum in Brussels

Few expected the European Court to overturn an EU competition authority's veto of a merger between two travel industry minnows, and to do it with damming criticism of the way the Commission conductedits case.Now the dust has settled on the decision, many foresee a new era for European takeovers with both the Commission and companies working under clearer regulatory skies.

On June 6, the European Court of First Instance annulled a Commission decision declaring a merger between Airtours, a UK package holidays operator now known as MyTravel Group, and rival First Choice, as incompatible with the internal market.

The Commission had argued that Airtours' acquisition of First Choice would result in increased concentration and lead to a position of collective dominance. The merged company and two other operators would be able to co-ordinate their conduct tacitly, without needing to enter into an agreement or a cartel, and, by adopting a common policy, impose higher prices than those dictated by competition. Small independent tour operators would thus be marginalised or pushed out of the market.

The court, however, argued that if a concentration is to be prohibited "it must have the direct and immediate effect of creating or strengthening a collective dominant position significantly and lastingly impeding effective competition in the market".

The court said the Commission had not proved that the concentration would have created a collective dominant position capable of restricting competition in the UK short-haul package holiday market.

It resolved that the Commission's decision was "vitiated by errors relating to factors fundamental to any determination of the question of the creation of a collective dominant position". The ruling concluded that the Commission "prohibited the transaction without proving that it would actually have an adverse effect on competition".

The complainants were vindicated, though they were no longer in a position to benefit from the decision which came three years after the initial Commission veto. The ruling was a big setback for the EU's competition authorities and encouraged others hoping to challenge commission decisions. EU lawyers believe it may mark a turning point.

Vincent Brophy, an EU lawyer with Brussels law firm Linklaters, says the decision and tough questioning by judges in a more recent hearing have sent a clear message to the Commission: "If you're going to play with sophisticated theories, then you had better get it right."

The court's new mantra is that decisions must be made on sound economics and hard evidence, he says.

Competition authorities are faced with three requirements, Brophy says. They should "make clear how they are going about their assessment; the economic theories used must have a fair consensus among economists; and the evidence must be there".

Theories can be flawed or controversial and the evidence may not be there to support it, as was the case of the Commission veto of General Electric's planned merger with Honeywell, Brophy says.

Three other important decisions are in the works. An appeal against a Commission veto of a takeover bid by paper packaging firm Tetra Laval of Sidel, a French plastic bottling company, was heard earlier this month with a ruling due in October.

A hearing took place last week on a complaint by Schneider Electric, the French electrical manufacturer, against the Commission's veto of its merger with Legrand. In the biggest case of all, General Electric and Honeywell are challenging a Commission ban of their planned merger.

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