Antitrust Law Daily Wrap Up, ACQUISTIONS & MERGERS NEWS: Canada Competition Bureau discloses tools, techniques for investigating retail mergers, (Sep 16, 2014)

By Greg Hammond, J.D.

The Competition Bureau of Canada issued a white paper yesterday, analyzing economic tools and techniques the Bureau has used recently in investigating retail mergers. The paper—“Economic Analysis of Retail Mergers at the Competition Bureau” by Dr. Renée Duplantis—discusses the Bureau’s approach to analyzing both the downstream and upstream portion of a retail merger.

Preliminarily, the paper notes that the factors relevant to the economic analysis of retail mergers differs from case to case, depending—in part—on: (1) the number of products offered by the merging parties; (2) whether the products offered are homogeneous or differentiated; and (3) the extent of the parties’ geographic reach. Retail mergers also are unique in that they might involve both downstream and upstream issues, and the merging parties could be competing on bundles, instead of individual products. Consequently, the paper focuses on providing a list of tools used or considered in recent retail merger reviews, and is not a step-by-step guide.

Downstream retail analysis. The Bureau frequently begins its analysis by determining the relevant product and geographic market. To define the relevant product market, the Bureau considers qualitative evidence of substitutability across stores, including consumer switching studies. The relevant geographic market is determined through the use of maps and trade or draw areas. The Bureau also may utilize diversion ratio analyses, critical loss analyses, price correlation/cointegration analyses, and regression analyses in determining both the relevant product and geographic markets.

Next, the Bureau conducts a concentration analysis of a retail merger by analyzing the market shares of the merging parties in the relevant product and geographic markets. To analyze competitive effects, the Bureau may undertake a unilateral competitive effects analysis, upward pricing pressure analysis, empirical examination of natural experiments, and merger simulation models. The Bureau could also consider whether the merger makes coordination at the downstream retail level more likely or more effective. Factors that coordination would become more likely post transaction include: (1) recognition of mutual benefits to coordination; (2) the ability to monitor conduct and detect deviations; (3) the ability to respond to deviations by using deterrent mechanisms; and (4) external factors that may limit coordination.

Upstream analysis. The Bureau also highlighted some factors it considers when assessing how a retail merger will affect the upstream market—the effect on the sale of the product by the supplier to the retailer. The paper identifies the following factors: (1) horizontal unilateral effects—“whether the merged entity will have the incentive and ability to raise prices unilaterally after closing the transaction”; (2) vertical effects—“the likelihood that the merger will result in anticompetitive effects stemming from any vertical aspects of the transaction”; and (3) monopsony power—“whether the transaction could be expected to create, maintain or enhance monopsony power.”

News: AcquisitionsMergers Antitrust