The Interaction Between Mergers and Tacit Collusion (and Comparable Concepts) in the Plumbing and Electrical Market

Vibe Dannaar Blum

Student thesis: Master thesis

Abstract

The overall objective of this thesis has been to analyze the interaction between mergers and tacit collusion/collective dominance in the plumbing and electrical market. In order to be able to answer the question of why the concepts of tacit collusion and collective dominance is relevant to merger control the thesis has performed various analyses. The economic analysis has shown that collusion – tacit as well as explicit – is harmful, because it allows firms to exercise market power which they would not be able to otherwise, restrict competition, raise prices and reduce welfare. Many market factors affect collusion: The size and symmetry of market shares, entry barriers and multi-market contact, just to name a few. Some of these hinder collusion, others facilitate it. All these factors impact merger control, since it should make an assessment based on these. An essential part of merger control is assessing whether the Airtours conditions are fulfilled. The conditions say that in order to be able to reach a mutual understanding to restrict competition, the market needs to be sufficiently transparent. Further, transparency helps to ensure that this behavior can be monitored effectively. There must also be a scope for credible punishment mechanism to undermine the well-recognized incentive to cheat. Further, such an exercise has little point if entry barriers are low and other firms could come into the market rapidly if prices were to rise. In the law analysis the concept of collective dominance was dealt with. Since it is a relatively new concept and has been formed in case law in recent years, the concept was not well-defined, but with the three conditions that has to be fulfilled in order for collective dominance/tacit collusion to be sustained the Airtours case remedied this. Initially defining the concepts of tacit collusion, concerted practices and collective dominance was time consuming and concluded that the economic term tacit collusion corresponds best to collective dominance. Case law of the Court of Justice, the General Court, EU Commission and the Danish competition authority showed that the assessment is highly economic and combines law and economics. The plumbing and electrical market has served as a good practical view to the theories with a prohibition as well as an approval of a merger decision.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2016
Number of pages82
SupervisorsJens Fejø