The leveraging theory as a tool in EC merger control

Abstract: In the early years of EC merger control, the Commission generally concluded that conglomerate mergers would not cause competitive harm. In recent years, however, the Commission has increasingly developed theories of competitive harm which are applicable to mergers which lack appreciable horizontal and vertical effects. The leveraging theory is typically applied in conglomerate mergers, where the markets concerned are neighbouring ones. The prediction is that the merger would provide a dominant or leading company with the tools to leverage its market power into its merging party's product market, by bundling or tying the products together. This would reduce the number of customers of the competitors in the tied market and ultimately force competitors out. This thesis establishes the conditions under which a merger may be prohibited on grounds of leveraging and examines the applicability of the theory. Moreover, the thesis reflects on the adequacy of pursuing arguments based on leveraging in the merger procedure, considering the post-merger availability of Article 82 EC. The Community Courts have not yet accepted the Commission's appraisal of leveraging. However, the Merger Regulation does not preclude basing a prohibition decision on grounds of leveraging. According to the jurisprudence of the Tetra/Sidel and GE/Honeywell cases, it must be shown that the parties possess both the ability and the incentive to engage in the alleged behaviour. Moreover, it must be established that the activities would lead to the emergence of a SIEC in the relatively near future. In the fulfilment of this test lie a number of problematic issues. For example, predictions on future behaviour involve evidentiary difficulties. As regards the capability of leveraging of causing competitive harm, the legalistic and economic-based approaches differ substantially. Whilst economists underline the efficiencies and short-term consumer benefit normally deriving from conglomerate mergers, the SIEC test requires an examination of the overall effects on competition. The crucial factor is whether the merger would lead to a sufficient competitor foreclosure in the relatively near future. The advantages of the ex post examination of leveraging have been emphasised in the doctrine. For instance, a wait-and-see approach would allow the competition authority to see whether the practices will actually occur and whether they are exclusionary or efficiency enhancing. However, some of the conduct capable of creating a SIEC under the Merger Regulation would not be abusive under Article 82 EC. This would be the case where, e.g., the leveraging strategy would lead to high entry barriers but not to increased prices. Hence, the sole application of Article 82 EC would not suffice in order to deal with the conduct predicted in merger cases.