ABSTRACT
The most robust argument against the dominance test was that it may fail to forbid mergers between non-dominant firms having an adverse impact on competition.1 The “gap” corresponds to the situation where the postmerger entity’s market share falls below the level required for dominance but the merger may however lead to non-coordinated effects. The European Commission faced intense criticism after the Airtours/ First Choice 2 case, a case which appears to illustrate the existence of the socalled “gap” in the application of the original ECMR. The “gap” was a result of the application of the dominance test as the legal substantive test in the assessment of mergers.3 It corresponds to the situation where the post-merger entity’s market power would not amount to single firm or collective dominance but where the merger may nonetheless lead to noncoordinated effects in the post-merger oligopolistic market. This chapter presents the market structure as well as a non-exhaustive list of assessment criteria that the Commission may employ in examining whether a merger is likely to lead to non-coordinated effects in oligopolistic markets. Mergers that are deemed “gap” mergers lead to non-coordinated effects in oligopolistic markets if they result in the elimination of important competitive constraints on one or more firms apart from the merging parties. As a report prepared for the Commission by Ivaldi, Jullien, Rey, Seabright and Tirole (2003)4 (“Report”) emphasizes, unilateral effects include not only the impact of the merger on the merging firms but also the equilibrium effect resulting from the adjustment of the decisions of the incumbents to the decisions of the merged entity. The post-merger market structure will be oligopolistic and comprise of a small number of firms, whose products are not close substitutes.5 In addition, the competitors of the merged entity are not likely to be in a position to expand their capacity or switch their production and new firms have no incentives to enter the market in the presence of an increase in the price or a reduction in the quantity produced by the merged entity. The two terms “mergers leading to non-coordinated effects in oligopolistic markets” and “non-collusive oligopolies” refer to situations in which the remaining firms in the post-merger market have the incentive and
ability to adopt conduct inducing an adverse impact on competition, and thus profit from exerting their market power in the post-merger market, without being dependent on a coordinated response on the part of the other members of the oligopolistic market structure.6
