What is the substantive test applied by the relevant authority to assess whether or not to clear the merger, or to clear it subject to remedies?

Merger Control (2nd Edition)

United Kingdom Small Flag United Kingdom

The CMA has a duty to open a detailed second-phase investigation (known as 'referring' or 'making a reference' of the merger) if it has a reasonable belief, objectively justified by the relevant facts, that there is a realistic prospect that the merger will or may be expected to result in a substantial lessening of competition (SLC) in any market. By 'realistic prospect' is meant not only a prospect that has a more than 50% chance of occurring, but also a prospect that has a less than 50% chance of occurring, but is more than fanciful, though within this latter range the CMA can exercise its judgement.

If a second-phase investigation is opened, the CMA must decide whether a relevant merger situation has been created and, if so, whether that situation is likely – on the balance of probabilities – to result, or to have resulted, in an SLC in any market.

Italy Small Flag Italy

A concentration is prohibited if it creates or strengthens a dominant position on the national market, thus eliminating or appreciably reducing competition on a lasting basis.

Notably, the national rule formally differs from the (more extensive) “substantial lessening of competition” test adopted at the EU level. However, the ICA tends to interpret the “dominance test” rather broadly, thus mirroring the approach followed by the EU Commission.

United States Small Flag United States

Section 7 of the Clayton Act prohibits mergers or acquisitions where ‘the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.’ The 2010 Horizontal Merger Guidelines set out the agencies’ framework and general approach to determining whether a merger is likely to enhance or create market power or facilitate an exercise of market power. Merger review is forward-looking and attempts to determine whether a merger may lead to anticompetitive effects by facilitating increased prices, reducing output, or diminishing innovation, or would otherwise harm consumers as a result of a reduction in competition. The agencies analyse two ways in which a merger can reduce competition: by enhancing the ability of the remaining competitors to act in a coordinated way (coordinated effects) or by enabling the merged firm to independently raise prices profitably (unilateral effects).

Germany Small Flag Germany

The basic test is whether a merger would result in a significant impediment of competition and whether a dominant market position may result from, or further increase by, the merger. The FCO will take horizontal, vertical, unilateral and coordinated effects of the transaction into account. The test takes a forward-looking approach when assessing future developments and potential effects on the market. Considerations about the structure of the market are a very important factor as a market share of 40% is sufficient for a rebuttable statutory presumption of a dominant market position in German competition law. The FCO examines a timeframe of up to five years of developments in the market.

German merger control provides further for a de-minimis provision for the substantive test. This de-minimis provision was originally part of the formal assessment but it was recently moved to the substantive test. According to this de-minimis rule, the FCO cannot take any effects into consideration that occur on a market which exists for more than five years and whose market volume in Germany does not exceed EUR 15 million. In practice, the definition of the markets concerned and the total market volume is of high relevance in this context.

In addition, there is also a newly introduced exemption for press companies if the target is a small or medium press company which achieved a significant loss in the last three years prior to the transaction and who could not survive without the transaction. In addition to the aforementioned prerequisites the parties have to prove that there was no other acquirer available.

Japan Small Flag Japan

The substantive test under the Antimonopoly Act is whether a proposed merger may substantially restrain competition in any relevant market. In applying the substantive test to an actual case, the JFTC will consider unilateral and coordinated effects potentially caused by horizontal, vertical and conglomerate aspect of the merger.

In the substantive analysis, the JFTC will consider every relevant factor, such as the market shares of the parties, the number of competitors in the market, the extent of import trade barriers and entry barriers, the likelihood of entry from adjacent markets, market power that customers possess, and efficiency that the transaction will bring about. Market shares and HHI basically take an important position in the JFTC’s analysis. The JFTC usually does not put significant weight on efficiency. The JFTC provides a “safe harbour” that applies to both horizontal and vertical effects analysis on the basis of the HHI.

Austria Small Flag Austria

Different to the EUMR which uses the SIEC-Test (Significant Impediment of Effective Competition Test), Austrian merger control still employs the dominance test. Hence, the authorities examine whether or not the notified transaction creates or strengthens a dominant position.

Pursuant to jurisprudence, a dominant position is given if an undertaking can prevent the maintaining of effective competition on the relevant market by being able to behave independently with regard to its competitors, customers and/or consumers to a notable extent.

In applying the substantive test, the Cartel Court (the BWB does not issue any binding decision but may simply refrain from or waive its right to ask for an in-depth examination of a merger case) evaluates the effects of the concentration on the market structure in a predictive approach. Competition conditions before and (hypothetically) post implementation of the concentration are compared. All circumstances may be taken into account, with market shares being a major factor. Strong buyer power, for example, is also considered.

In many cases, the Cartel Court relies on (economic) expert opinions.

Besides, when a merger concerns sectors subject to specific regulation (e.g. electricity and gas, broadcasting and telecommunication), the competition authorities collaborate closely with experts from the sector specific regulators.

Canada Small Flag Canada

The substantive test the Bureau applies when reviewing transactions is whether the transaction is likely to prevent or lessen competition substantially in a market. Bureau guidance suggests that a substantial prevention or lessening of competition results only from mergers that are likely to create, maintain or enhance the ability of the merged entity, unilaterally or in coordination with other firms, to exercise market power.

Unlike the US or EU merger review paradigms, the Canadian regime includes an express efficiency defence to otherwise anti-competitive mergers, which applies to cases where the efficiencies brought about by the merger are likely to be greater than, and offset any effects of, the prevention or lessening of competition that results from the merger.

Chile Small Flag Chile

Under the new merger control regime, the substantive test applied is the “substantial lessening of competition” test. Therefore, the FNE shall authorize a concentration in case the operation, purely and simply or subject to remedies, is not suitable to substantially reduce competition.

Neither DL 211 not the FNE’s Guidelines indicate how this test will be applied in practice. However, the FNE’s Guidelines on Jurisdiction expressly states that for horizontal mergers the FNE will use as a reference the substantive criteria set out in the FNE’s Guide on Horizontal Concentration Operations Analysis, dated October 2012. The above, until the issuance of new substantive guidelines by the FNE.

The FNE considers in general the horizontal, vertical, conglomerate, unilateral and coordinated effects arising from the operation, whereby it may use the doctrine and decision practice of especially the European Commission and the US authorities as guidance.

Cyprus Small Flag Cyprus

The substantive test for compatibility of a concentration with competition in the market is whether such concentration does or does not significantly impede effective competition in Cyprus or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position.

In assessing the compatibility of a concentration, the CPC takes into consideration the following criteria:

  • the need to maintain and develop conditions of effective competition in the relevant markets, taking into account, inter alia, the structure of the affected markets, other markets upon which the concentration may have significant effects and the potential competition on behalf of undertakings within or outside Cyprus;
  • the position in the market of the undertakings concerned and undertakings connected to them;
  • the financial power of such undertakings;
  • the alternative sources of supply of products or services in the affected markets and/or other markets upon which the concentration may have significant effects;
  • any barriers of entry to the affected markets and/or other markets upon which the concentration may have significant effects;
  • the interests of the intermediate and end consumers of the relevant products and services;
  • the contribution to technical and economic progress and the possibility of such contribution being in the interest of consumers and not obstructing competition; and
  • the supply and demand trends for the relevant markets.

To the extent a joint venture that constitutes a concentration has as its object or effect the coordination of competitive conduct of undertakings that remain independent, the Service shall particularly take into account:

  • whether two or more parent companies retain, to a significant extent, activities in the same market as the joint venture or in a market which is downstream or upstream from that of the joint venture or in a neighbouring market closely related to this market; and
  • whether the coordination that directly emanates from the creation of the joint venture provides the undertakings concerned the ability to eliminate competition for a substantial part of the relevant products or services.

While the Law is silent in this regard, the CPC’s approach and analysis of harm is substantially aligned with the respective approach of the European Commission. Besides high market shares, the assessment usually takes into account the anti-competitive effects that could potentially arise out of a concentration, such as coordinated effects as well as unilateral effects.

Denmark Small Flag Denmark

In essence, the substantive test applied by the DCCA to assess whether or not to clear a merger is whether the merger will significantly impede effective competition, in particular due to the creation or strengthening of a dominant position. When carrying out merger control, the DCCA will in general apply the same tests as the Commission. Thus, the Commission’s merger practice and relevant case law from the EU Courts will apply. The Commission’s guidelines on the assessment of horizontal mergers as well as non-horizontal mergers will also provide an important contribution to the interpretation of the DCCA’s merger assessments.

Historically, the Council and the DCCA seemed to apply a more static, market-share based approach to findings of dominance and unilateral effects compared to the Com-mission. Over the last few years, however, there has been a change towards a more economic approach, and recent merger decisions thus show an increasing use of economic evidence such as diversion ratios and upward pricing pressure (UPP) calculations.

Furthermore, public statements from the DCCA indicate that the use of diversion ratios and UPP calculations is becoming the new standard in cases concerning consumer-related markets, and that diversion ratios and UPP calculations may also be used for the purpose of defining the relevant markets. Nonetheless, during the initial assessment of a merger, the classic approach of defining markets and calculating market shares is still applied. The initial test may then be supplemented with a more economic assessment in case the DCCA finds that the merger could potentially give rise to concerns.

EU Small Flag EU

The substantive test is whether the concentration could significantly impede effective competition in the EEA, or a substantial part of it, in particular as a result of the creation or strengthening of a dominant position. The wording of the EUMR clearly establishes that a merger may be prohibited, even if it does not create or strengthen a dominant position, as long as a significant impediment to effective competition is established. This means that the substantive assessment on which decisions are based is a forward-looking evaluation of the market conditions.

There are two possible defences against the potential impediment of competition: the “efficiency defence” and the “failing firm defence”. In making its appraisal the Commission must take into account substantiated claims of efficiencies brought about by the merger, as well as evidence that one of the parties to the concentration is a “failing firm”. The rationale behind the failing firm doctrine is that the company concerned would have exited the market anyway because of its financial difficulties, so any reduction of competition caused by the loss of that specific market player would occur even without the merger.

France Small Flag France

The test focuses on whether the transaction is likely to significantly lessen competition, by either producing unilateral or coordinated effects.

The assessment starts by identifying the relevant markets concerned by the transaction i.e. horizontal overlaps, actual or potential vertical relationships and potential conglomerate effects (complementarity). Depending on the market positions of the parties in the relevant markets (primarily assessed by reference to their respective market shares and those of the competitors), the FCA assesses whether there are risks of distortions of competition. Market shares are a first indicia but not the only one to be considered. The FCA assesses the market structure form a supply and demand side. In the case of a newly created full function joint venture, the FCA also assesses the risk of coordination between parent companies. Ultimately, the FCA may take into account efficiency gains subject certain conditions are met.

Among the determinant factors in the FCA's assessment, the feedback from the market test. If the transaction is likely to raise antitrust issues and the results of the market test confirm it, the notifying party may wish to propose remedies. There are several approaches to remedies and several stages at which they may be proposed to obtain clearance in complex cases.

Malta Small Flag Malta

The DG will determine if the concentration might lead to a substantial lessening of competition in Malta by taking into account, inter alia:

  • the need to maintain and develop effective competition in Malta in view of, among other things, the structure of the markets concerned and the actual or potential competition from undertakings located either within or outside Malta;
  • whether the business of a party to the concentration has failed or is likely to fail;
  • the nature and extent of development and innovation in a relevant market;
  • the market position of the undertakings concerned and their economic power, the alternatives available to suppliers and users, their access to markets, any legal or other barriers to entry;
  • supply and demand trends for the relevant goods and services, the interests of the intermediate and ultimate consumers, and the development of technical and economic progress.

Concentrations that bring about or are likely to bring about gains in efficiency that will be greater than and will offset the effects of any lessening of competition resulting from or likely to result from the concentration shall not be prohibited if the undertakings concerned prove that such efficiency gains cannot otherwise be attained, are verifiable and likely to be passed on to consumers in the form of lower prices, or greater innovation, choice or quality of products or services.

Norway Small Flag Norway

The substantive test currently in force since 1 July 2016 is the SIEC test (significant impediment to effective competition) which follows the same principles as under the EU Merger Regulation.

Romania Small Flag Romania

The Competition Council analyses if the notified economic concentrations may significantly impede effective competition in the Romanian market or in a part of it, in particular due to the creation or the strengthening of a dominant position. It is presumed, until proven to the contrary, that one or several undertakings are in a dominant position when the market share or the cumulated market shares in the relevant market are in excess of 40%.

In making this assessment, the Competition Council applies, in particular, the following criteria established by the European legislation:

(i) the need to protect, maintain and develop an effective competition in the Romanian market or in a substantial part of it, by taking into account, inter alia, the structure of all concerned markets and the actual or potential competition;

(ii) the market position of the concerned parties and their economic and financial power, the alternatives available to suppliers and users, their access to sources of supply or markets and any legal or other type of barriers to entry in the market, the supply and demand trends for the relevant goods and services, the interests of the intermediate and final consumers, the technical and economic progress provided that it is to the benefit of the consumer and does not constitute an obstacle to competition.

Serbia Small Flag Serbia

KN: The substantive test is based on assessing whether a merger would cause a significant prevention, restriction or distortion of competition, in particular as a result of the creation or strengthening of a dominant position on the market. The Competition Commission therefore applies the significant impediment of effective competition (SIEC) test.
In applying the substantive test, the Competition Commission will take into account various factors and based on the Competition Law, it will especially consider the following:

  1. The structure of the relevant market;
  2. Actual and potential competitors;
  3. The market position of the parties to the concentration and their economic and financial power;
  4. Existence of possibility to choose a supplier and consumer,
  5. Legal and other barriers to entry on the relevant market;
  6. Level of competitiveness of parties to the concentration;
  7. Supply and demand trends of relevant goods and services,
  8. Technical and economic developments and trends; and
  9. Consumers’ interests.

Given that there are no additional local guidelines in relation to this assessment, the Competition Commission may consult the relevant EU legislation and case law, although it is not obligated to do so.

South Africa Small Flag South Africa

Where a merger occurs, the test is whether the merger is likely to substantially prevent or lessen competition, and, if so, whether any technological, efficiency or other pro-competitive gains are likely to result from the merger that may offset the lessening of competition. Relevant factors to be considered are:

  • the strength of competition in the market;
  • the probability that firms in the market will behave competitively following the merger;
  • the actual and potential level of import competition;
  • ease of entry into the market, including tariff and regulatory barriers;
  • the level and trends of concentration and history of collusion in the market;
  • degree of countervailing power in the market;
  • likelihood of the merged firm having market power;
  • dynamics of the market, including growth, innovation and product differentiation;
  • the nature and extent of vertical integration;
  • whether the business of a party has failed or is likely to fail; and
  • whether the merger will result in the removal of an effective competitor.

Turkey Small Flag Turkey

The substantive test is a typical dominance test. As a matter of Article 7 of Law No.4054 and Article 13 of the Communiqué, mergers and acquisitions which do not create or strengthen a dominant position and do not significantly impede effective competition in a relevant product market within the whole or part of Turkey, shall be cleared by the Board.

Article 3 of Law No.4054 defines a dominant position as “any position enjoyed in a certain market by one or more undertakings by virtue of which, those undertakings have the power to act independently from their competitors and purchasers in determining economic parameters such as the amount of production, distribution, price and supply”.

However, the substantive test is a two-prong test and a merger or acquisition can only be blocked when the concentration not only creates or strengthens a dominant position but also significantly impedes the competition in the whole territory of Turkey or in a substantial part of it.

Ukraine Small Flag Ukraine

As a matter of practice, the AMC clears a predominant majority of transactions.

If the AMC reveals that the proposed transaction may result in the monopolisation or substantial restriction of the competition in any Ukrainian market, it may apply divestment/behavioural remedies to the concentration participants, such as:

  • divestment of undertakings (assets, integral property complexes);
  • prohibition to increase prices without reasonable grounds;
  • prohibition to reduce the volume of production;
  • prohibition to create barriers for new competitors;
  • request to provide the AMC with certain data on the volume of production/supply during a specified time period, etc.

If the AMC considers that the proposed transaction may severely negatively affect the domestic competition environment, it may refuse to grant the merger control clearance. In that event, the Ukrainian central government (the Cabinet of Ministers of Ukraine) may approve the transaction, if its positive effects and results for the public interest outweigh the negative impact of the restriction of the competition caused by the implementation of the transaction.

Therewith, the Cabinet of Ministers cannot approve the transaction, if the restrictions provided by the transaction:

  • are unnecessary for reaching the aim of the concentration; or
  • constitute a threat for the domestic market economy system.

Brazil Small Flag Brazil

Please refer to the answer to question 4.

Updated: October 11, 2017