UK & EU Competition Law

Question 4: Airtours Case Effects on EU Merger Control - Coordinated Effects and Tacit Collusion By[Student’s Name] Course Professor's Name University Location of the University Date The Airtours case was vital in the context of European Union (EU) merger control, which necessitates discussion concerning competition and coordinated effects since this is where antitrust focuses on curbing unhealthy competition. Also, the EU Merger Regulation (EUMR) and state laws are other critical factors influencing merger control, precisely tacit collusion. This paper will look at what coordinated effects entail under law, put them into perspective by going through the Airtours case, and finally discuss the consequences of blocking powers given to the European Commission regarding mergers. Also, it brings out a broad framework of laws on competition that safeguard competitive markets and how EU merger control opposes secretive collusion, according to which this paper argues that Airtours' ruling affects EU Merger Control, resulting in changing scrutinising coordinated effects and enhancing the ability of Commission's prohibition against anti-competitive consolidation. Understanding Coordinated Effects Coordinated effects in antitrust occur when corporations cooperate to restrict competition and hurt consumers rather than compete fiercely. This coordination can take the shape of price-fixing, market sharing, output limits, or other collusions. Unlike unilateral effects from a single merger entity, coordinated impacts occur from market interactions. Coordination effects are essential for assessing a merger's anticompetitive implications in merger control. Mergers can benefit consumers but reduce competition and raise prices by facilitating cooperation between merging firms and their competitors. Thus, competition regulators must carefully assess whether a merger will increase company coordination ability and incentive. The EUMR and its opinions govern collective effects in the EU. The EUMR's Article 2(2) states that a merger is incompatible with the internal market if it restricts competition, especially by creating or strengthening a dominant position. For the European Commission (2004), the Horizontal Merger Guidelines emphasise openness, structures, and likelihood of coordination post-merger in analysing collusive effects.[Jonathan B Baker and Joseph Farrell, “Oligopoly Coordination, Economic Analysis, and the Prophylactic Role of Horizontal Merger Enforcement” [2020] Social Science Research Network 1985 <https://doi.org/10.2139/ssrn.3605713>.] [Iiris Tuohimaa, “Merger Control in the EU: When Is an Impediment to Effective Competition Significant?” (MA Thesis, Lund University 2022). < https://www.konkurrensverket.se/globalassets/dokument/kunskap-och-forskning/uppsatstavling/uppsatser/uppsats_2022_iiris-tuohimaa.pdf>] [ibid.] [Lea Bernhardt and Ralf Dewenter, “The Impact of the More Economic Approach on EU Merger Decisions” [2022] Diskussionspapier 1 <https://www.econstor.eu/bitstream/10419/266504/1/WP195.pdf>.] In United Brands v. Commission (1978), the European Court of Justice (ECJ) adopted coordinated effects as a central concern in merger analysis. A merger may be illegal even if there is no monopoly, provided it strengthens the dominant position of the merged entity or facilitates collusion among competitors. Equally, Airtours v. Commission, 2002 asserted that coordinated effects are relevant to merger control. In areas with few entry barriers and highly concentrated markets, mergers may give rise to anti-competitive coordination. The court stated that competition authorities must comprehensively analyse the prospects and implications of post-merger coordinated behaviour. Market structure and conduct should provide investigators with indirect signs about coordination.[TA Stuart, “Too Little Too Late?” [2021] European Competition Journal 1 <https://doi.org/10.1080/17441056.2021.1909234>.] [ibid.] [Airtours v. Commission [2002] E.C.R. II-2585 < https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:61999TJ0342>] [Frosti Haraldsson, “The Failing Firm Defence: Are the Failing Firm Defence Criteria Formal Conditions or a Tool to Help Assess Overall Effects of a Merger?” (MA Thesis, Lund University 2019). < https://lup.lub.lu.se/luur/download?func=downloadFile&recordOId=8986825&fileOId=8986839>] [Airtours v. Commission [2002] E.C.R. II-2585] Legal Definition of Coordinated Effects Within EU antitrust law, the term coordinated effects implies that a merger may help or intensify tacit coordination among market agents, leading to anti-competitive results. Unrestrained coordination outcomes can weaken competition and consumer welfare, making it an essential issue of merger control. The EUMR and European Commission guidelines govern the coordinated consequences of mergers. EUMR's article 2(2) provides that a merger is incompatible with the internal market if it restricts competition, particularly by creating or strengthening a dominant position. Coordination effects refer to situations where companies collaborate to eliminate competition as applied by dominant undertakings. The European Commission Horizontal Merger Guidelines attempt to provide additional guidance on coordinated effects analysis as they pertain to the same. They state that mergers make business corporations undertake high prices, low outputs, and fewer innovations, thus intensifying coordination.[Tuohimaa, “Merger Control in the EU: When Is an Impediment to Effective Competition Significant?”] [ibid.] [ibid.] [Mario Todino, Geoffroy Van De Walle and Lucia Stoican, “EU Merger Control and Harm to Innovation—A Long Walk to Freedom (from the Chains of Causation)” (2018) 64 The Antitrust Bulletin 11 <https://doi.org/10.1177/0003603x18816549>.] [ibid.] European Court of Justice (ECJ) and General Court case law have defined and used coordinated effects in merger control. Mergers are detrimental to competition because they involve some forms of coordination that may increase dominance. It is necessary to look at the consequences for market structure if the merging firms are allowed to coordinate their behaviour. This legal approach was endorsed in the Airtours v Commission [2002] case by EU merger control vis-à-vis coordinated effects in 2002. It revealed that, without any dominant position, this merger created coordinated outcomes from tacit concertation among participating companies. While defining what constitutes a coordinated effect, the court highlighted such variables as the degree of market power concentration, entry barriers, and reliance on historical evidence of cooperation. Post-merger practices can improve coordination by reducing market uncertainty, creating trust among players, or changing motivations for competing more fiercely.[Tuohimaa, “Merger Control in the EU: When Is an Impediment to Effective Competition Significant?”] [ibid.] [ibid.] [Timur Ergen and Sebastian Kohl, “Varieties of Economization in Competition Policy: Institutional Change in German and American Antitrust, 1960–2000” (2019) 26 Review of International Political Economy 256 <https://doi.org/10.1080/09692290.2018.1563557>.] Airtours Case: History and Decision The Airtours' case in the early 2000s and late 1990s became a milestone in EU merger control concerning coordinated effects influence on competition within the travel industry. British travel company Airtours announced it wanted to take over another large UK tour operator, First Choice Holidays, in 1999. By merging, they sought to control Europe's package holiday market and related services. The European Commission was worried that this deal would reduce competition in package holidays, so they started the investigation immediately after its announcement. The main fear of the Commission was that the merged firm would cooperate with other major tour operators, thereby increasing prices while lowering consumer choice. In 2002, Airtours appealed against the merger prohibition imposed by the Commission at the European Court of First Instance (now the General Court). This case was about coordinated effects and whether or not such a merger seriously impeded competition in a given market. According to Airtours, this was wrong because the Commission miscalculated coordinated effects as intense rivalries in the travel trade rather than conspiracies. Airtours cited hypothetical grounds and the absence of evidence for post-merger anti-competitive practices against concerns raised by Brussels. However, one of these few major players would be eliminated through this combination, thus reducing competition per the Commission's contention. According to the Commission, price transparency and competitor interdependence within the travel industry indicated tacit collusion.[Airtours v. Commission [2002] E.C.R. II-2585] [ibid.] [ibid.] [ibid.] [ibid] A landmark ruling concerning the General Court endorsed what the EU had decided on the Airtours-FirstChoice merger ban. It observed that there could be coordinated impacts within the travel business; hence, competition authorities should recognise unilateral and coordinated effects when analysing mergers. As argued by Airtours, there is no proof from this particular case that there were enough indications of coordination provided by the Commission; however, direct...