Reducing Uncertainty in Judicial Review of
Economic Analysis in Merger Decisions
Master thesis by
M.P.C. Rozenbroek
Student number: 10002310 Supervisor: mr. A.S.M. Galama LLM European Union Law, University of Amsterdam Final version: 24-06-2016
Table of Contents
INTRODUCTION p. 4
LEGAL BACKGROUND p. 7
1. The EU Merger control system: At what moment judicial review comes into p. 7 play?
1.1 Introduction p. 7
1.2 Short overview of EU Merger control system p. 7
1.3 Commission’s analysis p. 8
1.3.1 Phase I review p. 8
1.3.2 Phase II review p. 8
1.3.3 Four step analysis of the Commission: When does a concentration p. 9 significantly impedes competition in the relevant market?
1.4 Opportunity to obtain judicial review p. 9
1.5 Conclusion p. 10
2. Prospective analysis: What is the relationship between prospective analysis and the p. 11 Commission’s four step analysis in deciding on an application to merge?
2.1 Introduction p. 11
2.2 Prospective analysis p. 11
2.3 The Commission’s four steps of the substantive assessment and prospective p. 12 analysis
2.4 Conclusion p. 15
3. Standard(s) of judicial review in merger control cases: What elements are p. 16 important in deciding on the scope of judicial review of merger decisions?
3.1 Introduction p. 16
3.2 Intensity of judicial review in the EU: sliding scale p. 16 3.3 Standard of judicial review in merger control cases p. 17 3.3.1 What considerations determine whether the Court conducts an p. 18 intense or light review?
3.4 Standard of proof p. 19
3.5 Ex tunc assessment p. 20
3.6 Conclusion p. 20
ASSESSMENT OF PRACTICE p. 21
4. EU Merger cases: How do European Courts assess econometric evidence in merger p. 21 decisions of the European Commission?
4.1 Introduction p. 21
4.2 Case law: towards a more intensive review p. 21
4.3 What if…? p. 25
4.4 Conclusion p. 25
5. Netherlands: How do Dutch Courts assess econometric evidence in merger p. 27 decisions of the Dutch Competition Authority (ACM)?
5.1 Introduction p. 27
5.2 Dutch merger control system p. 27
5.3 Nuon/NMa p. 28
5.3.1 Decision of the NMa based on economic models p. 29 5.3.2 How did the Dutch Courts assess the decision of the NMa? p. 29
5.3.3 CBb and Prospective analysis p. 30
5.4 Bolletje case p. 31
5.4.1 Decision of the ACM and the ruling of the p. 31 Rotterdam District Court
5.4.2 Ruling of the CBb p. 32
5.5 Conclusion and relevance of Nuon/NMa and Bolletje p. 33
6. Recommendations p. 35
CONCLUSION p. 40
Introduction
The role of economics is indispensable in the enforcement of merger control rules both on the administrative and judicial level.1 There is an increasing use of economic modelling in EU
merger control proceedings, which is mainly visible in the treatment of econometric evidence in merger decisions made by the European Commission (hereinafter the EC).2 However, it is
the Court of Justice of the EU (hereinafter the CJEU3) which shapes the standard of proof in
EU merger decisions. Therefore, it is vital to know how the CJEU works with economic modelling and how it can guarantee sufficient legal safeguards.
There is debate about whether econometric models are subject to a standard of evidence similar to that applicable to theories and facts that the EC normally uses for assessments in merger decisions or whether the EC has some margin of discretion left when assessing economic evidence.4 The first possibility entails the CJEU would review the EC’s
use of economic evidence in an intensive manner. The second possibility means the CJEU would adopt a different approach, since reviewing econometric evidence entails something different than reviewing facts. Although economic modelling intends to explain with a relatively high degree of probability what consequences a merger will bring to the relevant market, because of its complexity the EU Courts may not have all the expertise themselves to ‘re-do’ the assessment of the EC in order to verify whether the modelling is valid and grounded on facts of the case and is also in conformity with mainstream economic theories.5
This complexity can have the consequence that Courts do not delve too much into the modelling and rather prefer to carry out a light review of economic evidence.6
Therefore, this thesis will try to answer the question how the CJEU can guarantee sufficient legal safeguards when verifying economic evidence used by the Commission in merger decisions.
1 Vesterdorf 2006. 2 Botteman 2006, p. 72.
3 The CJEU consists of two major courts and one specialized court: The European Court of Justice (ECJ) which
hears applications from national courts for preliminary rulings, annulment and appeals; the European General Court (EGC), which hears applications for annulment from individuals and companies; and the Civil Service Tribunal, a specialized court which hears disputes between the EU and its staff.
4 Botteman 2006, p. 73.
5 Gore, Lewis, Lofaro & Dethmers 2013, p. 4. 6 Gerbrandy 2013, p. 343.
Research Methodology
This research is conducted on the basis of the doctrinal method of reviewing academic literature and the study of EU and national case law, legislation, decisions and other legislative instruments. Speeches and contributions on highly regarded blogs are also used to provide context to the academic sources.
The limited scope and size of this thesis has several implications for the research method. Firstly, it is necessary to make a selection of valuable sources, which inevitably excludes other sources that can be of comparable weight. Secondly, due to the limited size of this thesis it is impossible to extensively analyse every possibly relevant legal issue. Therefore, some potentially relevant legal issues will have to be left out, or are only looked into briefly. Any limitation in scope, source or data selection will be made explicit throughout the thesis. Taking into account this limitations, this thesis does not claim to provide an exhaustive analysis and answer to the research question in the general sense. The eventual answer given should be read in the specific context, its limitations and source selections.
Although many cases from EU Courts are significant in developing the law, only a few are so revolutionary that they announce standards that many other (national) courts may follow. Therefore, this thesis selects these ‘landmark cases’ concerning the review of economic analysis in EU merger decisions.
Although this thesis adopts an EU-wide perspective, case law of the CJEU has effect beyond the individual that brings the case before the CJEU: it also provides general justice for future mergers in the national legal order, since national competition authorities and Courts apply standards of the CJEU. Although these legal ‘precedents’ are not formally binding on national courts, they are an important source for legal development.7 To examine
how the CJEU can guarantee legal safeguards, it is relevant to look at the consequences of case law of the CJEU in the national legal order. Therefore, this thesis also looks into the Dutch merger control system. The Dutch Competition Authority (now part of the Authority Consumer & Market, hereinafter ACM8) was set up in 1998, and the Dutch Competition Act
(Mededingingswet) also came into force in 1998. The experience of ACM with economic analysis is relatively new which makes it interesting to discuss. ‘Cross-fertilization’9 can lead
to new insights, since the characteristics of the agencies and Courts are the same and they face the same problems in dealing with economic evidence.
7 Gerbrandy 2014, p. 17.
8 Formerly NMa (Nederlandse Mededingingsautoriteit). 9 Ottow 2015, p. 19.
Structure
The core of the research is divided into three sections. The first part looks into the legal regime of EU merger control and tries to clarify the starting points, explains the context and defines terms that are used in the thesis. Chapter 1 provides an overview of the various steps the EC has to go through in deciding on an application to merge, and discusses the moment the EU Courts can come into play. Chapter 2 discusses the relevance of the concept of prospective analysis10 in relationship to economic analysis in merger decisions. Decisions
with a prospective character entail uncertainty about whether the predicted situations will actually occur, and this brings questions as to how Courts should review merger decisions based on prospective elements. The third chapter will look into the standard(s) of review that EU Courts have applied in the past, ranging from a very marginal test to a very intensive review. This leads to the question about which standard of judicial review applies to merger decisions where economic and prospective analyses are used.
The second part discusses case law concerning the review of economic analysis in merger decisions. Judicial review of mergers is rare: in about 1% of the notified transactions (in the period 1990-2016) an action for annulment of a Commission decision was brought before the EU Courts.11 The standard of judicial review of economic analysis in EU merger
decisions will be discussed in chapter 4. As explained in the previous paragraph, not only the practices of the EC and the CJEU will be examined but also the practices of the Dutch Competition Authority and Dutch Administrative Courts will be looked into in chapter 5. The third part provides a practical perspective and brings clarity on how Courts can verify economic analysis in merger decisions and guarantee legal safeguards while allowing the competition authority a certain margin of discretion. In chapter 6 evidentiary guidelines are proposed to address the constraints the CJEU encounters when verifying economic analysis in EU merger decisions, based on the review of academic literature and study of case law of EU and national courts. Lastly, in the conclusion the main findings will be summarised and general conclusions based on the findings in this thesis are drawn.
10 Prospective analysis is a definition dr. Anna Gerbrandy Ph.D. (professor Competition Law at Utrecht
University) uses when explaining ex ante analysis of competition authorities. In my thesis I will use this term to refer to this particular area of merger control.
11 Statistics are available on the website of the EC. European Commission, ‘Mergers: Statistics’,
LEGAL BACKGROUND
I. The EU Merger control system: At what moment judicial review comes into play?
1.1 Introduction
In most jurisdictions around the world, an administrative authority enforces merger control rules. In the Europea Union (hereinafter the EU) this role has been assigned to the EC and in particular its Directorate General for Competition. As will be discussed later on12, judicial
review of Commission’s merger decisions is the exception. However, the few cases that have been reviewed by EU Courts have contributed to the substantive development of merger control in the EU.13 This chapter provides a short overview of the EU merger control system,
and clarifies at what moment judicial review comes into play.
1.2 Short overview of EU Merger control system
The EU merger control system is based on the 2004 Merger Regulation.14 The Merger
Regulation lays down the conditions under which the Commision or the National Competition Authorities (hereinafter NCAs) have jurisdiction over concentrations. The Merger Regulation applies to any ‘concentration’ which has, or is deemed to have, an ‘EU dimension’.15 The Commission takes a decision either prohibiting or approving future
transactions, referred to as a ‘concentration’ in the Merger Regulation, that have been notified to the Commission. The concept of ‘concentration’ includes the merger of two or more independent undertakings; the acquisition of direct or indirect control (essentially by purchase of assets or securities, by contract or otherwise) of the whole or parts of one or more undertakings; or the establishment of a joint venture where this involves the acquisition of joint control of a full-function joint venture undertaking.16 Notification of a concentration
must be done by one or more parties involved in the transaction when certain thresholds are
12 See chapter 4.
13 For example, theories on conglomerate effects of mergers were examined in detail by the EGC in EGC, 2
June 2002, T-342/99, (Airtours v. Commission). See: Jaeger 2011, p. 295-314. See also: Petit 2013, p. 397 a.f.
14 Council Regulation (EC) No. 139/2004, Control of Concentrations Between Undertakings, 2004 O.J. (L 24)
(hereinafter 2004 Merger Regulation.).
15 Whether a concentration has an EU dimension depends on whether it satisfies certain jurisdictional turnover
thresholds. These thresholds are applied without looking into substantive competition issues, the nationality of the parties involved, the country where the transactions takes place or the law applicable to the transaction. Therefore, it is possible the Merger Regulation applies with little or no EU connection. This thesis does not aim to give a full overview of these thresholds, therefore this details are not mentioned.
met. In particular circumstances, the national competition authorities in EU Member States can refer transactions to the Commission and the other way around. Also, the parties involved in the merger can request for such referalls.
1.3 Commission’s analysis
The test the Commission uses is whether a transaction will lead to a ‘significant impediment to effective competition’17, which will often be the case due to the creation or strenghtening
of a dominant position on a specific market. When the Commission considers this to be the case, it declares the transaction incompatible with the internal market. The Commission prohibits its implementation, unless the parties involved in the transaction offer binding commitments that remedy the competition concerns. In most cases such commitments entail for example the divestment of a business on a relevant market to a buyer approved by the Commission. If however the Commission decides the transaction does not result in a ‘significant impediment to effective competition’, it will give approval to the proposed transaction.18
1.3.1 Phase I review
The notification of a concentration to the Commission, is usually preceded by prenotification discussions in which the parties involved together with the Commission decide on initial questions on the concentration and examine the relevant market. After the formal notification, the Commission has twenty-five working days to reach a decision on the future transacton.19
During this ‘so-called’ phase I review, the Commission requests more information from the parties and consults market participants (customers, competitors and suppliers) in order to test the arguments of the parties that notified to the Commission.
1.3.2 Phase II review
If the Commission has no serious concerns that the transaction will lead to a ‘significant impediment to effective competition’, it will approve the transaction at the end of Phase I. However, if it does have serious concerns, it can start an in-depth (or Phase II) investigation,
17 Article 2 (2) and Article 3, EU 2004 Merger Regulation. 18 Renshaw & Blockx 2013, p. 498.
19 This can be extended to thirthy-five working days, if the parties propose commitments within twenty working
which happens only in approximately three to four percent of the cases.20 In Phase II the
Commission will request more information and market consultations will continue. If the Commission is of the opinion competition will be harmed, it formulates its ‘statement of objections’ to which the notifying parties have a possibility to respond. In this phase, the parties that want to merge can request an oral hearing.21 The Commission will take its final
decision after consulting the advisory committee, consisting of represenatives from EU Member States.
1.3.3 Four step analysis of the Commission: When does a concentration significantly impedes competition in the relevant market?
The Merger Regulation does not contain a specific evidentiary threshold that the Commission must meet in order to prohibit a merger due to incompatibility with the internal market. In literature, certain commentators have stated that the probability a merger is anticompetitive should be somewhere around 70%.22 However, the Merger Regulation does state that the
Commission has a duty to make an assessment as to whether a concentration ‘significantly impedes competition in the relevant market’. In general, the Commission takes four steps to analyse whether a merger should be prohibited or not. The Commission has to gather all relevant facts (step 1), develop the basic theory of anti-competitive harm (step 2), specify the relevant test(s) (step 3) and apply the appropriate economic tools that support its decision (step 4). Important to note, is that these four steps do not take place within a specific order. It is a dynamic and revolving process and the four steps influence each other; the facts will determine the theories and tests to be used and the other way around. This will be discussed further in chapter 2.23
1.4 Opportunity to obtain judicial review
In principle, it is only possible to obtain judicial review after the Commission has taken a decision on the proposed merger, either at the end of Phase I or II. The review is exercised on the basis of Article 263 TFEU by the EGC and the ECJ on appeal. It should be noted that the
20Statistics are available on the website of the EC. Total number of notified cases in the period 1990-2016: 6125.
Total phase II proceedings in the period 1990-2016: 240. 240/6125 x 100 = 3.9 %. See: European Commission, ‘Mergers: Statistics’, http://ec.europa.eu/competition/mergers/statistics.pdf, last reviewed on 11-03-2016.
21 The oral hearing is headed by a hearing officer, an EC official whose function is to act independently and
safeguard the procedural rights of the parties during the hearing (and more generally, during the administrative procedure before the EC). It should be noted that the hearing officer does not take a decision on the substance. See Renshaw & Blockx 2013, p. 499.
22 Botteman 2006, p. 74. 23 Ibid.
EGC can assess the facts of the case, whereas the ECJ is only able to consider appeals on issues of law not on the facts (Article 256 (1) TFEU).
1.5 Conclusion
This chapter provided a general overview of the EU merger control system. The 2004 Merger Regulation lays down the conditions under which the Commision or the NCAs have jurisdiction over concentrations. If it has jurisdiction, the Commission takes four steps to analyse whether a merger is a ‘significant impediment to effective competition’. The Commission has to gather all relevant facts, develop the basic theory of anti-competitive harm, specify the relevant test(s) and apply the appropriate economic tools that support its decision. This steps will be examined further in chapter 2. In principle, it is only possible to obtain judicial review after the Commission has taken a decision on the proposed merger.The review is exercised by the EGC and the ECJ on appeal. The EGC can assess the facts of the case, whereas the ECJ is only able to consider appeals on issues of law.
II. Prospective analysis: What is the relationship between prospective analysis and the Commission’s four step analysis in deciding on an application to merge?
2.1 Introduction
Prospective analysis in EU merger control entails that the post-merger situation is predicted, based on the current market situation, by using economic theories and models. Decisions with a prospective character entail uncertainty because it is not certain that the expectations or future developments will actually occur.24 As set out in chapter 1 in paragraph 1.3.3, the
Commission takes four steps to analyse whether a merger should be prohibited or not. This section sets out the relationship between these steps and prospective analysis. This also brings questions as to how Courts should review merger decisions based on prospective elements. This will be discussed later on in chapter 3 and 6.
2.2 Prospective analysis
In general, one can say that judges, authorities and lawyers look back when handling a case: legal disputes revolve around facts and situations that actually happened.25 These facts are
associated with prior action of the parties involved in the legal dispute.26 However, judicial
review of a merger decision made by a competition authority entails something different27,
because the ‘true’ facts are still in the future. The question is if any real truth can be established if the facts have not yet occurred? In a merger decision, prospective elements are part of the procedure assessing an application of parties willing to merge. The competition authority will asses how the situation post-merger will look. The evaluation of the actual final situation can only be done ex post. However, EU Courts must review the decision of the Commission where the facts are based on future events, in other words, it must make a prospective analysis (ex ante).28
Naturally, prospective analysis of economic evidence in merger control forms part of an area dealing with law and expertise. A distinction can be made between ‘hard’ and ‘soft’
24 This definition is defined by dr. A. Gerbrandy, see introduction. 25 Gerbrandy 2014, p. 1.
26 Ibid.
27 Important to mention, is that competition law is not the only area in law where Courts have to review a
prospective analysis with economic facts that lie in the future or are uncertain. Another example is calculating future damages which involves risks and statistics.
28 As explained in paragraph 1.4, it should be noted that the EGC can assess the facts of the case, whereas the
expertise. For example, an expert opinion of a psychologist is known as ‘soft expertise’, since it is recognized that there are also psychologists with other opinions and therefore it is not presented as the absolute truth. Examples of hard expertise are economic models, risk models and statistics made by economists. Economists often present economic evidence as the absolute and objective truth.29 However, one should bear in mind that economic models are
constructed to predict the future situation and a real truth cannot be established.
2.3 The Commission’s four steps of the substantive assessment and prospective analysis
This section sets out the relationship between the Commission’s substantive assessment of a notified transaction (paragraph 1.3.3) and prospective analysis. The assessment of the Commission consists of an analysis of the current market situation and of an analysis of the market situation that would arise if the concentration would be approved, including the effect of the merger on competition. Firstly, the Commission gathers all relevant facts of the current situation of the market and parties involved (step 1 of the assessment). No future facts are involved. However, the analysis of the post-merger market situation examines future facts and the effects on or consequences for competition. It does so by developing a basic theory of anti-competitive harm (step 2), specifying the relevant test(s) (step 3) and applying the appropriate economic tools (step 4).
With regard to the first step, it is recognized that the Commission has a duty to conduct a ‘thorough and painstaking’30 investigation of the current market situation and make
a complex assessment of economic and legal facts. It must collect all relevant qualitative and quantitative market information from parties involved. The Merger Regulation provides for wide discretionary powers to gather information from notifying parties, its competitors, suppliers and customers. Also, the EGC has given a relatively wide margin of discretion to the Commission when it comes to requesting information, laid down in Article 11 of the Merger Regulation.31
To determine the current market situation, in general, a definition of the relevant market is established, which is the market on which the merging parties are active and an assessment of their position in that market. Although the assessment of the current market
29 Markovits 2008, p. 23.
30 ECJ, 15 February 2005, C-12/03 (Commission v. Tetra Laval (Tetra Laval II), para. 74 of the Opinion of AG
Tizzano.
situation is based on the actual situation, it is also based on a chosen model.32 Therefore, the
analysis is not only based on simple facts, but also entails a choice for a model to determine the relevant market. What makes the determination of the current market situation more complicating, is that the future market behaviour can be used to establish the current situation. For example, the SSNIP-test (Small but Significant Non-transitory Increase in Prices), a common model that is used to establish the relevant market, also involves future behaviour. It tests whether producers or consumers will change their behaviour, in reaction to a small but significant non-transitory increase in the price of a certain product or service. The test can be done empirically and hypothetical. When it is performed empirically it looks into actual and possibly true facts. However, most of the times it is performed hypothetically, which means that part of the assessment of the current situation is based on a prospective analysis.
The ‘real’ prospective analysis however, starts with determining the position of parties after the merger (step 2, 3, and 4). The post-merger situation can, in the absence of uncertainty in the current situation, be examined based on current facts. The combined position of both parties after the merger, can be determined on the basis of the current market situation and the current position of parties on the market. After determining the joint position of the combined parties after the merger, the possible effects on competition have to be determined by using a theory of harm and economic models. This involves gathering information about probabilities in the future.
With regard to the second step, part of the investigatory process and on the basis of the information provided by all parties, the Commission will start to develop an anti-competitive harm theory: an economic thesis regarding the consequences of the merger, mostly on consumer welfare, by using economic models and theories.33 It will look into the
anti-competitive effects that the merger may generate and it makes a distinction between horizontal34, conglomerate35 or vertical effect theories.36 Often, the coordinated and unilateral
32 This model is the relevant framework in which the facts should be viewed in order to come to new outcomes. 33 Gerbrandy 2014, p. 5.
34 Most competition issues in EU merger control, are associated with horizontal mergers. A horizontal merger is
one between parties that are competitors at the same level of production and/or distribution of a good or service, i.e. in the same relevant market. There are two types of anticompetitive effects associated with horizontal mergers: unilateral effects and coordinated effects. Unilateral effects, also known as non-coordinated effects, arise where, as a result of the merger, competition between the products of the merging firms is eliminated, allowing the merged entity to unilaterally exercise market power, for instance by profitably raising the price of one or both merging parties’ products, thus harming consumers. Coordinated effects arise where, under certain market conditions (e.g. market transparency or product homogeneity), the merger increases the probability that merging parties and their competitors will successfully be able to coordinate their behaviour in an
effects theories under the Horizontal Merger Guidelines will serve as useful instruments to identify and frame the issues.37 The task of the Commission is not only to articulate a theory
of anti-competitive harm, but also to lay out a test and criteria that must be meet before clearing a merger (step 3). With regard to step 4, the Commission uses economic tools to verify whether a concentration might significantly impede competition in the relevant market. Different types of instruments are used, such as market-share information, diversion ratios38,
win/loss analyses or critical loss analyses39, regressions40 and bid and merger simulation
models.41 Which of the economic tools is suitable, depends on the underlying theory of
anti-competitive harm.
Of course, this four step assessment can be made more complicated. Firstly, an efficiency defence can be raised which means that parties state the merger will lead to efficiency gains that will offset the potential harm to competition. Secondly, a proposal for remedies is often also part of the assessment. This will be assessed only after concluding on
35 Conglomerate mergers involve firms that operate in different product markets, without a vertical relationship.
They may be product extension mergers, i.e., mergers between firms that produce different but related products or pure conglomerate mergers, i.e., mergers between firms operating in entirely different markets. Potential harm may arise when the merging parties are likely to foreclose other competitors from the market in a way similar to vertical mergers, particularly by means of tying and bundling their products. When as a result of foreclosure competitors become less effective, consumers may be harmed.
36 Vertical mergers are mergers between firms that operate at different, but complementary levels in the chain of
production (e.g. manufacturing and an upstream market for an input) and/or distribution (e.g. manufacturing and a downstream market for re-sale to retailers) of the same final product. Vertical effects can produce competitive harm in the form of foreclosure. Foreclosure happens if actual or potential rivals’ access to supplies or markets is hampered or eliminated as a result of the merger, thereby reducing these companies’ abilities and/or incentive to compete.
37 See note 19.
38 Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of
concentrations between undertakings, OJ 2004 C31/5, para 29. Diversion ratios calculate the amount of last sales by product X to product Y, if the price of product X increases by a certain percentage. To calculate diversion ratios, own-price and cross-price elasticity can be used. Products are substitutes, when the diversion ratio is high.
39 In the standard critical loss test there is one homogenous product. There is a starting situation in which Q units
of the products are sold at price P, which gives rise to a price-cost margin M= (P-C)/P (where C stands for marginal costs). Then there is a hypothesised price increase X = ∆ P/P, which results in a fall of the quantity sold of ∆ Q. The price increase leads to a gain in profits of P (Q - ∆Q)X, whereas the quantity decrease gives rise to a loss of profits of P ∆QM. The key question is then: What is the maximum decrease the quantity may suffer before the price increase becomes unprofitable? The answer is: it is the ∆Q for which the profit gains from the price increase are equal to the loss of profits from the decrease in quantity, this leads to a ‘break-even’ point. See: Oxera 2008. An example of a merger case where the Commission used the critical loss analysis is the European Commission, decision of 2 October 2003, Case COMP/M 3060 (UCB/Solutia), para 42.
40 Regression analysis assesses the relationship between variable X (‘the dependant’) and one or more other
variables Y, Z called ‘explanatory’. Analysis based on regression is used to examine how the variable in question (e.g. the price) is affected by other variables (e.g. reduction in amount of competitors). An example where the regression model is used is European Commission, decision of 26 October 2004, COMP/M.3216 (Oracle/PeopleSoft).
41 Merger simulation models are quantitative techniques used for an estimation of the price effects of a
concentration. See for example, European Commission, decision of 2 October 2003, COMP/M. 3191 (Philip Morris/Papastratos) para 32.
the possible effects on competition. Interestingly, examining whether remedies offset the negative effects of the proposed merger entails that a hypothetical solution to the also hypothetical problem is given under the assessment.
2.4 Conclusion
This chapter demonstrated the relationship between the four step analysis of the Commission when deciding on an application to merge and prospective analysis. In merger decisions the post-merger situation is predicted, based on the current market situation, by using economic theories and models. These decisions entail uncertainty, since it is not sure whether these predicted developments will actually occur. The next chapter will discuss the elements that EU Courts should take into account when reviewing merger decisions based on prospective elements.
III. Standard (s) of judicial review in merger control cases: What elements are important in deciding on the scope of judicial review of merger decisions? 3.1 Introduction
Merger decisions of competition authorities, such as the Commission, can be challenged before European Courts. Courts play an important role in the effective legal protection of market parties' rights and can hold competition authorities accountable for their acts.42 Courts
dealing with merger decisions of competition authorities have a complex task, since Courts have to adopt a more economic approach towards the application and interpretation of competition law. This more economic approach has led to the question about which 'standard' of judicial review should apply to merger decisions where economic and prospective analysis have been used. Before this question can be answered, the different phases of judicial review and considerations that should be taken into account will be described.
3.2 Intensity of judicial review in the EU: sliding scale
In the EU, intensity of judicial review can best be described as a sliding scale, ranging from a very marginal test to a very intensive review.43 This thesis will identify four different 'phases'
on the scale.44 The first phase is the extremely marginal test, where the Court limits its
intervention to clearly unreasonable decisions. The Court only quashes a decision if it is so unreasonable that no reasonable competition authority could have adopted it.45
Second, when the Court uses the marginal test it will review the legality of the challenged decision. This phase is illustrated by the opinion of AG Tizzano in Tetra Laval II.46 With regard to this case47, AG Tizzano states that the Court has to limit itself to 'verify
whether the rules on procedure and on the statement of reasons have been complied with, whether the facts have been accurately stated and whether there has been any manifest error
42 Lavrijssen 2009, p. 175-177. 43 Lavrijssen & de Visser 2006, p. 112.
44 It should be noted that it can be difficult to draw a neatly separated line between two different phases and that
the main goal of this chapter is to give an idea of the possibly ways Courts review decisions of competition authorities.
45 Lavrijssen & de Visser 2006, p. 112.
46 Opinion of AG Tizzano, 25 May 2004, C-12/03 (Commission v. Tetra Laval (Tetra Laval II). 47 The merits of this case will be discussed in chapter 4.
of appraisal or misuse of powers.'48 In contrast with the extremely marginal test, the marginal
test is not so much whether the decision is unreasonable, but rather whether the decision is reasonable.49
Third, the Court can review a decision intensively, which means the Court fully assesses the merits of the case. The Court looks whether all relevant facts are taken into account and whether the assessment of facts and application of law has been done in a correct manner. A manifest error of the competition authority is no longer needed for an intervention by the Court; any error can be sufficient to annul a decision.50
Lastly, there is extremely intense review, where the Court can substitute its own decision for that of the competition authority. It can do so because it believes its own decision is more suitable for the particular situation.51 If the Court acts in this way, it functions as a de
facto decision maker. An example of the fourth phase is illustrated by Article 261 TFEU which gives the Court unlimited jurisdiction regarding fines.
3.3 Standard of judicial review in merger control cases
The more economic approach the Court has to use when dealing with merger control decisions has raised questions about which test the Court should use when verifying economic evidence. A mix of economic and legal analysis is required within a legal context. Competition authorities have the expertise and experience for making economic assessments. Therefore, an important question is, whether the Court should respect the margin of appreciation of the competition authority and thus use a more marginal review or should the Court conduct an intensive review of whether the competition authority has correctly exercised its power?52 The current standard of review EU Courts use when verifying
economic analysis in merger decisions will be explained in chapter 4. This section sets out the discussion in literature regarding the elements that determine whether the Court should conduct an intense or light review.
48 ECJ, 15 February 2005, C-12/03 (Commission v. Tetra Laval (Tetra Laval II), Para. 83 of the Opinion
referring to Joined Cases C-204/00 P, C-205/00 P, C-211/0 P, C-213/00 P, C-217/00 P and C-219/00 P.
49 Craig 2004, p. 833.
50 Lavrijssen & de Visser 2006, p. 113. 51 Ibid.
3.3.1 What considerations determine whether the Court conducts an intense or light review?
In literature, several arguments plead for an intensive review by Courts. Monitoring by Courts is needed in order to correct errors made by competition authorities.53 A more intense
review by the Court can function as a corrective mechanism for biases that competition authorities or their agency officials may demonstrate in their assessments.54 Furthermore,
Courts can ensure objectivity when verifying assessments of competition authorities by keeping in mind procedural safeguards and legal protection against interventions of competition authorities. Next, the ECJ developed the principle of effective judicial protection on the basis of the EU principle of effectiveness, which implies that all individuals should be able to enforce their rights conferred on them by EU law.55 In addition, Courts can provide
effective judicial protection when rules on evidence of competition authorities are too strict (from the perspective of an individual seeking to enforce its rights). Lastly, Courts check whether competition authorities are acting within their legal mandate to check whether their actions are in line with the tasks and roles that they have been granted.
However, too much interference by the Court can frustrate the effectiveness of market control by competition authorities. In literature there are good arguments that point towards a more limited judicial review. Firstly, competition authorities need to have discretionary powers in order to fulfil their task. Assessing the impact of mergers can be complex and requires specialized expertise, which the Courts may lack. A competition authority has been set up specifically for its expertise and experience and therefore its views should be challenged only when the Court encounters a manifest error, as the competition authority is better placed to perform these tasks. If decisions made by competition authorities are reasonable and reliable methodologies have been used, intervention by a Court may not be desirable: the EU Courts should not become a de facto competition authority. Furthermore, if Courts conduct a very intensive review and they replace the competition authorities’ decision by its own, this may distort competition if the judgements are done when market conditions already have changed. Next, EU law in general provides an argument in favour of a less
53 Ottow 2015, p. 17. 54 Wils 2004.
intense review by the Court. Rules on the division of powers between the Commission and the EU Courts are fundamental to the EU institutional system.56
3.4 Standard of proof
The question regarding what kind of judicial review should be used when verifying economic analysis in a merger decision, can not be answered without examining issues related to evidence and standard of proof.57 The standard of proof refers to how difficult it is to prove a
point in a particular case and stands for the degree to which a decision of the competition authority must be convincing.58
In EU merger control, the standard of proof is the test enshrined in Article 2 (Appraisal of concentrations) of the Merger Regulation. According to Vesterdorf59, the
standard of proof lies between the ‘balance of probabilities standard’ (civil law) and ‘beyond reasonable doubt standard’ (criminal law). From Tetra Laval, the standard of proof can be derived: the ECJ held that evidence on which the Commission relies must be ‘factually accurate, reliable and consistent,’ ‘contain all the information which must be taken into account in order to assess a complex situation’, and should be ‘capable of substantiating the conclusions drawn from it.’60
Although a theoretical distinction exists between the standard of proof and the standard of review, these standards are closely connected.61 For example, review of Courts
will fluctuate depending on the underlying standard of proof: when the burden of proof resting on the competition authority is higher, the Court will review the decision more intensive and look deeper into the facts and context of the case.62
The standard or proof in EU merger control law, differs from the standard of proof in economics. Economists look whether there is ‘a plausible economic theory or model (and corroborating evidence) that links the challenged conduct to anti competitive effects
56 ECJ, 15 February 2005, C-12/03 (Commission v. Tetra Laval (Tetra Laval II), Para. 89 of the Opinion of AG
Tizzano.
57 Ottow 2015, p. 225. 58 Forrester 2010, p. 407. 59 Vesterdorf 2005, p. 3.
60 ECJ, 15 February 2005, C-12/03 (Commission v. Tetra Laval (Tetra Laval II), para 39. 61 Vesterdorf 2005, p. 3-33.
generally’. This is a lighter standard of proof than the standard of proof in EU merger control law.63
3.5 Ex tunc assessment
In both instances of appeal the ex ante assessment of the EC will be reviewed ex tunc by the judge, not ex post. This means that facts that have changed in the timeframe between the decision of the competition authority and the review of the Court are not taken into account by judges, since this will go into the margin of discretion of the competition authority.64
Naturally, parties can submit a new merger notification to the competition authority when relevant facts have changed between the decision of the EC and the review of the Court. The competition authority can assess the new situation.
3.6 Conclusion
This chapter discussed the different standards of review, ranging from a very marginal to a very intensive review. It looked into considerations that EU Courts should take into account when reviewing merger decisions. It demonstrated the link between the standard of judicial review and the rules on the standard of proof. The standard of review of Courts, which will be discussed in the next chapter, fluctuates. When the burden of proof resting on the competition authority is higher, the Court will review the decision more intensive and look deeper into the facts and context of the case. Furthermore, Courts review decisions of the Commission ex tunc: it implies that justice is done on the basis of a situation that may be different from the situation existing at the time of assessment.
63 Singer 2011, p. 2. 64 Gerbrandy 2014, p. 7.
ASSESSMENT OF PRACTICE
IV. EU Merger cases: How do European Courts assess econometric evidence in merger decisions of the European Commission?
4.1 Introduction
This chapter focuses on case law demonstrating the way EU Courts review economic analysis in merger decisions of the Commission. EU Courts have an essential function in the EU merger control system. Although judicial review of mergers under the EU model for merger control is relatively rare65, the possibility of bringing an appeal and the Courts’ scrutiny of
EC’s analysis in the cases that have been brought over the past years, has forced the EC to improve the quality of its analysis.66
4.2 Case law: towards a more intensive review
According to Article 263 TFEU, EU Courts are only competent to review the legality of EC acts, that is a marginal review that inquires whether conclusions drawn from the economic evidence are exempt from manifest errors.67 This is nicely illustrated by the EGC in RJB
Mining:
‘As regards the evaluation of the situation resulting from economic facts or circumstances underlying the contested decision, it is settled case law that the Court, in conducting its review, must confine itself to ascertaining whether the Commission misused its powers or manifestly failed to observe the provisions of the ECSC Treaty or any rule of law relating to its application. In that context, the term manifest ... presupposes that the failure to observe legal provisions is so serious that is appears to arise from an obvious error in the evaluation, of the situation in respect of which the decision was taken.’ 68
65 Statistics are available on the website of the EC. European Commission, ‘Mergers: Statistics’,
http://ec.europa.eu/competition/mergers/statistics.pdf, last reviewed on 11-03-2016. In about 1% of the notified transactions (in the period 1990-2016) an action for annulment of a Commission decision was brought before the European Courts.
66 Renshaw & Blockx 2013, p. 497.
67 Art. 263 TFEU needs to be contrasted with art. 261 TFEU. With regard to fines, an intense review is carried
out in order to ensure a greater protection for the rights of the parties.
However, since the Tetra Laval judgment69, the ECJ and the EGC are moving towards a more
intensive review. In this case the ECJ, while formally adhering to the legality control, in fact carried out an intense review and set out its criteria for reviewing economic analysis in EC merger decisions.
In October 2001, the EC blocked Tetra Laval’s takeover of Sidel. The EC argued that Tetra Laval had a dominant position in carton drinks packaging, and Sidel was a market leader in the machines for the production of PET plastic bottles. The EC had concerns, although conglomerate mergers are in general regarded competitively neutral.70 Tetra Laval
and Sidel were no direct competitors and had no vertical relationship, nevertheless the EC believed the merger would encourage Tetra Laval to use its market power to persuade its customers to buy Sidel’s machines in the future. The EC found that the substitution between the use of carton and PET, although too weak in the same market, was still significant enough to strengthen the dominant position of Tetra Laval in carton, since a future substitution to PET would be performed by Sidel. The EC used an economic leverage model and made a prospective analysis. The economics of leveraging concerns the motivation that a firm extends its monopoly power to a neighbouring market. It could do so by bundling through price discounts or by technological ties.
In October 2002 the decision of the EC was annulled by the EGC. It provided several arguments. Regarding the economic leverage model, the EGC found the EC did not provide relevant evidence. The fact that a firm has an ability to leverage does not mean it will have the incentive to do so. Incentives depend on specific characteristics of the relevant market and special investments, which Tetra Laval did not make. According to the EGC, EC’s conclusions were based on ‘insufficient, incomplete, insignificant and inconsistent evidence’.71
After the judgment of the EGC, the EC appealed to the ECJ on a number of grounds. First, the ECJ dismissed EC’s argument that the EGC had imposed a too high burden of proof and that it overstepped its limits of judicial review. The Court stated that the EC has indeed a margin of discretion when making economic assessments in merger control decisions, however, this does not entail that the EGC cannot review EC’s interpretation of economic
69 ECJ, 15 February 2005, C-12/03 (Commission v. Tetra Laval (Tetra Laval II).
70 A conglomerate merger is neither purely horizontal nor purely vertical. Firstly, the anti-competitive effect can
be an increased incentive to price discriminate and thereby extracts rents from consumers. Secondly, the merged entity can engage in exclusionary practices (e.g. foreclosure through tying or bundling). See also chapter 2.
evidence. Furthermore, the margin of discretion does not prevent the EGC from establishing whether the evidence that the EC relied its decision on, is accurate, consistent, reliable, it contains all the information necessary and whether the information can support the decision of the EC. The ECJ found a more intense review necessary due to the prospective analysis72
engaged by the Commission in the case of a merger raising conglomerate issues. In addition, the quality of the evidence is important and according to the ECJ, the EGC had been correct in finding that the EC’s conclusions were based on ‘insufficient, incomplete, insignificant and inconsistent evidence’. The ECJ therefore dismissed the Commission’s appeal.
This case demonstrates that anticompetitive effects of a merger needs to be examined precisely, supported by convinincing evidence and circumstances producing the anticompetitive effects. Elaborating on chapter 3, the ECJ carried out more than a marginal review. Although the EC has a margin of discretion, the test the ECJ applies is substantive. The ECJ stated the following:73
‘Whilst the Court recognizes that the Commission has a margin of discretion with regard to economic matters, that does not mean that the Community Courts must refrain from reviewing the Commission’s interpretation of information of an economic nature. Not only must the Community Courts establish whether the evidence relied on is factually accurate, reliable and consistent but also whether that evidence contains all the information which must be taken into account in order to assess a complex situation and whether it is capable of substantiating the conclusions drawn from it. Such a review is all the more necessary in the case of a prospective analysis required when examining a planned merger with conglomerate effect.’74
The EGC has confirmed that were anticompetitive harm is not the normally expected outcome, the Commission needs to base its decision on particularly convincing evidence and the burden of proof rises in comparison with a situation where anticompetitive harm is the exptected outcome.75 The effects of the Tetra Laval judgment extend beyond review of
decisions relating to conglomerate mergers. An example can be found in the Ryanair case, where the EGC repeated the test of the ECJ in Tetra Laval.76 General Eletrics vs Honeywell77
72 Prospective analysis has been discussed in chapter 2. 73 See para. 39 of the judgement.
74 Ibid.
75 Lowe, Marquis & Monti 2013, p. 217.
76 EGC 6 July 2010, T-342/07, (Ryanair v Commission), paragraph 30. See also: ECJ, 15 February 2005,
C-12/03 P (Commission v Tetra Laval), paragraph 39; and ECJ, 22 November 2007, C-525/04 P (Spain v Lenzing), paragraphs 56 and 57, ECJ, 8 December 2011, C-386/10 P (Chalkor v Commission), paragraph 54.
is another case where the EGC stated a marginal review should be carried out, but in fact was intensive. In this case, the EGC stated the following:
‘It must be observed first that the Community has a margin of assessment with regard to economic matters (...) It follows that the Community judicature’s power of review is restricted to verifying that the facts relied on are accurate and that there has been no manifest error of assessment. (...) As to the nature of the Community judicature’s power of review, it is necessary to draw attention to the essential difference between factual matters and findings, on the one hand, which may be found to be inaccurate by the Court in the light of the arguments and evidence before it, and, on the other hand, appraisals of an economic nature.’78
Although the EGC framed the decision in marginal review, in fact it scrutinized the Commissions’ analysis not only for manifest errors, but any error it could find. This, in practice, would be an intensive review.79 If one takes a closer look at the judgment, it looked
into the economic and legal assessment of the Commission, even regarding the point of deciding which economic experts it believed to be more convincing.80 This is something that
goes into the margin of discretion of the competition authority, it is up to the authority to chose the economic experts.
In literature, there is a strong argument that Article 263 TFEU should be interpreted in conformity with fundamental rights, including those recognized by the European Court of Human Rights (ECHR).81 Under this approach, since Article 263 does not preclude an
intensive review and since respect for the appropriate degree of judicial protection requires it, such review should be seen as inherent and thus within the scope of Aritcle 263. The only limit to the intensity of judicial review carried out, is that EU Courts cannot substitute their own economic analysis for that of the Commission.82 As noted by Bay and Calzado, in light
of the increasing use of economic theories in competition law, defining clear boundaries between tasks of economists and laywers is extremely important.83
77 EGC, 14 December 2005, T-210/01, (GE/Honeywell). 78 Ibid., para 64.
79 Lavrijssen & de Visser 2006, p. 131. 80 Ibid., Paras. 407-473.
81 Lowe, Marquis & Monti 2013, p. 223.
82 ECJ, 6 October 2009, In Joined Cases C-501/06 P, C-513/06 P, C-515/06 P and C-519/06 P, (Glaxo v
Commission), Paras. 85 and 86. See also: ECJ, 10 July 2008, C-413/06 P, (Bertelsman v. Impala), para 145.
4.3 What if... ?
The case law discussed in the previous paragraph, looked into the judicial review of the Commission’s interpreation of econometric data. An important question is what would happen if the Courts were confronted with complex econometric studies constructed by the Commission and the parties involved, going beyond the Commission’s mere interpretation of econometric evidence. What if the econometric models constructed by the Commission and the parties, predict results that are both persuasive but at odds with each other? A possible answer would be, that the EU Courts could not review this by themselves but would need assistance of experts.84 These experts could help them understand how the Commission’s and
parties’ econometric models were construed and to provide their views on whether the models are reliable, reflect the market conditions and are robust.85 Previously the ECJ did
make use of experts opinions in cartel cases, perhaps the ECJ or EGC can also make use of them in merger cases.86
4.4 Conclusion
Although EU Courts recognize the EC has a certain margin of discretion with regard to economic matters, Courts do not refrain from reviewing the Commission’s economic assessments in an intensive manner. The cases discussed in this chapter, demonstrated that the Courts so far have reviewed the extent to which an economic study supports the argument that either the Commission or a party is trying to make in the judicial proceedings. EU Courts have not yet delved too much into considerations in relationship to econometric models that are constructed and which parameters have (and should have) been taken into account. A possible exception to this, is the Honeywell case in which the Court assessed which economic experts it believed to be more convincing. From existing case law, it can not be derived what Courts should do when the assessment involves two complex econometric models that are both plausible but at odds. Perhaps, lessons can be learnt from cartel cases, where expert
84 Previously, the ECJ asked for assistance of experts in the Woodpulp and Dyestuff cartel cases. See, ECJ, 31
March 1993, Joined cases C-89/85, C-104/85, C-114/85, C-116/85, C-117/85 and C-125/85, (Woodpulp II).
85 Botteman 2006, p. 87.
86 The assistance of experts in Woodpulp II, was to some extent motivated by the availability of the limited set
of facts. On the other hand, merger investigations are generally data and fact intensive. According to Botteman, when merger cases are factually well prepared, there is no need to call independent experts to testify before the Court. See: Botteman 2006, p. 87.
opinions are used to help the Courts understand how the econometric models were constructed.
V. Netherlands: How do Dutch Courts assess econometric evidence in merger decisions of the Dutch Competition Authority?
5. 1 Introduction
It is noteworthy that the EC is not the only agency whose decisions were annulled by judicial bodies. Case law of the CJEU has effect beyond the party that brings the case before the Court: it also provides general justice for future mergers in the national legal order, since national authorities and Courts apply standards of the CJEU. Therefore this chapter examines the way authorities and Courts in the Netherlands have dealt with econometric evidence in merger decisions in recent past, since this might lead to new insights for answering the main question. First, the Dutch merger control system will be examined. Second, two cases in which the Dutch competition authority (ACM) has faced the annulment of its decisions based on economic modelling will be discussed.
5.2 Dutch merger control system
Like the 2004 Merger Regulation in EU Competition law, the Dutch Competition Act (Mededingingswet, hereinafter Mw) determines that a proposed concentration is subject to merger control by the Dutch competition authority (which forms part of the Autoriteit Consument en Markt: hereinafter ACM) if certain thresholds are met.87 Whereas on EU level
these are the EU rules on competition law governed by the 2004 Merger Regulation and ex ante review by the Commission, on the national level the procedure of the Mw applies. The procedure concerning a proposed merger is covered both by the Mw and provisions of the Dutch General Administrative Law Act (the Awb).88 The ACM is the relevant adminstrative
authority in deciding on the prohibition or approval of a proposed merger.
The Dutch and EU merger control system are both based on ex ante permission.89 A
permission to merge will not be granted if the ACM establishes a significant impediment to
87 Gerbrandy 2014, p. 3.
88 There are two phases in this procedure: the notification phase, in which ACM is notified by the parties
involved in the merger, and the authorization phase, in this phase the application for authorization is started, but only when the ACM has decided that authorization is needed. This differs from the EU merger control system, where the second phase does not start with a new application for authorization. The substantive assessment of the proposed merger is in principle the same in both phases, however, the certainty of the findings differ as the first phase only contains a preliminary assessment. See Gerbrandy 2014, p. 15-16.
89The Dutch system is procedurally not an exact copy of the EU merger control system, however, since the
analysis does not aim to explain the procedural differences between two jurisdictions, this details are not mentioned in this thesis.
effective competition, especially when a dominant position is strenghtened or established.90
The merging parties have to apply for ‘authorization’: this procedure is governed by general procedural rules as laid down in the Awb. In addition the Mw also provides procedural rules, for example final deadlines for taking decisions: if the ACM does not decide on an application within set terms, it will result in automatic approval and the proposed merger can proceed.91
Judicial appeal is available for merger control decisions taken by the ACM. Appeals are heard by the specialist district Court for competition cases: the Rotterdam District Court (Rechtbank Rotterdam). The Rotterdam District Court has wide powers: it can uphold or overrule the ACM’s decision, require the ACM to revisit a decision and revise fines or penalties. A decision of the Rotterdam District Court can be appealed by a party that has an interest or the ACM on law and/or on facts92 to the Trade and Industry Appeals Tribunal
(College van Beroep voor het Bedrijfsleven: CBb), which is the highest administrative Court on appeals in competition law cases.93
In the Dutch merger control system the general standard of proof in administrative law is applied: according to the Dutch Trade and Industry Appeals Tribunal (CBb) the evidence should be ‘sufficiently plausible’ (‘voldoende aannemelijk’).94 This standard of
proof lies between the standard in civil law proceedings, which is lower (‘a balance of probability standard’), and criminal law (‘beyond reasonable doubt’), which is higher.
5.3 Nuon/NMa
In Nuon/NMa95 the Dutch Competition Authority (at the time NMa96) decided on the
acquisition by Nuon of the Reliant power station in the Netherlands. The NMa decided the combination of the two companies’ generation assets would create or strengthen a dominant position in electricity wholesaling. To obtain conditional clearance, Nuon undertook to hold a series of ‘virtual power plant’ auctions for 900 MW per annum for five year.
90 Article 41 Mw. 91 Article 44 Mw.
92 This differs from the EU, where the EGC can do both and the ECJ only on law. 93 Bellis & Elliott 2011, p. 483.
94 CBb, 28 November 2006, ECLI:NL:CBB:2006:AZ3274, (Nuon/NMa). 95 Ibid.
5.3.1 Decision of the NMa based on economic models
The Nma had relied upon a complex merger simulation model that it had commissioned from external economic consultants.97 The economic report investigated the way the electricity
market would operate before and after the merger, including the possibility of certain remedies. The model intended to predict strategic behaviour in an oligopolistic market setting. Strategic behaviour in this context means the ability to influence market outcomes by changing the price and/or capacity.
The wholesale electricity market has special features: electricity is an essential necessity of life, and when prices are high, customers can not simply switch to another product. Furthermore, there is no opportunity to save electricity. Due to this specific features the market position of electricity companies can vary each hour.98
NMa stressed that the increase of market share after the acquisition, the combination of marginal and flexible production of Nuon and Reliant and the loss of a competitor are factors that may create or strengthen a dominant position on the relevant market. According to the NMa the dominant market position after the merger will be structural. The NMa highlighted that a dominant position will not occur constantly, it will only occur at moments when demand increases or when capacity is not available. Given the characteristics of the wholesale electricity market and based on the economic models, the NMa argued that the proposed acquisition would create or strengthen a dominant position because of increased incentives of the companies to behave strategically in peak times and therefore to cause higher post-merger prices.
5.3.2. How did the Dutch Courts assess the decision of the NMa?
The Rotterdam District Court held that the NMA’s assessment concerning market power was insufficiently reasoned and it overturned the conditional clearance decision.99 The decision of
the Rotterdam District Court was upheld in appeal by the CBb.100
According to the CBb, the NMa has failed to meet the standard of Article 41 paragraph 2 Mw, which implies that a merger can only be prohibited when it is sufficiently
plausible that the conditions of Article 41 paragraph 2 are fulfilled. This standard also applies 97 NMa, 8 December 2003, 3386, (Nuon-Reliant Energy Europe).
98 CBb, 28 November 2006, ECLI:NL:CBB:2006:AZ3274, (Nuon/NMa), para. 3. 99 Rotterdam District Court, 31 May 2005, LJN AT:6440.
to conditions attached to a merger.101In the merger decision of 8 December 2003, the NMa
established that the potential price effects of the creation or strengthening of a dominant position may be significant. The CBb considers that the price increases do not necessarily lead to the creation or strengthening of a dominant market position, and the decision of the NMa is based on abstract notions on the incentives and opportunities for behaving strategically on a market. The NMa failed to make clear whether these opportunities also arise in the market where the merging parties are active. It only examined whether prices could rise as a result of the proposed merger. This possibility does not substantiate the general conclusion that a dominant position is created or strengthened.
The CBb found that the NMa used a methodology that was too abstract to substantiate its findings on the market and should provide more factual evidence to specify the circumstances of the market concerned and the possible effects that the merger may have on the position of the relevant parties.102 The Court’s comments have a direct bearing on the use
and interpretation of simulation models in merger cases. It is clear that economic analysis only improves the quality of analysis and decisions, if the employed methodologies are firmly based on specific economic principles, and not on ‘common sense’ and abstract rules.
5.3.3 CBb and prospective analysis
In Nuon/NMa the same review criteria as in Tetra Laval (see chapter 4) were used by the CBb. The CBb reviewed the prospective analysis103 of the NMa and stated that it contains
uncertainty in the legal sense since it aims to establish future facts. Therefore, the CBb stated that a prospective analysis needs to be executed carefully.104 A decision where economic
models are used, needs to be based on facts and circumstances before the merger, which passed the required standard of proof of being ‘sufficiently plausible’ (voldoende aannemelijk).105 In literature106, this care is expected to pertain to both the substantive
correctness of the facts in the current market situation (the first step of the competition authorities’ analysis, see also chapter 1 and 2) and the care taken in consideration when using economic modelling to predict future circumstances.107 The aim of this analysis is to examine
which causes can lead to possible future effects and the identification of plausible scenarios
101 CBb, 28 November 2006, ECLI:NL:CBB:2006:AZ3274, (Nuon/NMa), para. 8.3.3. 102 Ottow 2015, p. 229.
103 See chapter 2.
104 CBb, 28 November 2006, ECLI:NL:CBB:2006:AZ3274, (Nuon/NMa), para. 8.3.4. 105 Ibid., par. 8.3.3.
106 Gerbrandy 2014, p. 11.
