On December 17, the Competition Bureau released a position statement summarizing
the approach it had taken in analyzing two proposed vertical
mergers (i.e., mergers between firms at
different levels of a supply chain) in the pork industry. Both
proposed mergers involve the acquisition of a large Western
Canadian hog producer by a company that sells finished food
products (pork cuts) to consumers: Olymel L.P. plans to acquire Big
Sky Farms Inc. and Maple Leaf Foods Inc. plans to acquire Puratone
Corporation. The Bureau decided not to challenge either merger.
The key concerns considered by the Bureau, and its conclusions
about each, were:
that Olymel or Maple Leaf may have the ability and incentive to
refuse to supply its hogs to other competing sellers of pork cuts,
and thereby foreclose their access to a necessary input. The Bureau
determined that this ability and incentive would indeed exist, but
concluded that no substantial lessening or prevention of
competition would result because sufficient effective competition
would remain among suppliers of pork cuts (including competition
between Olymel and Maple Leaf); and
that Olymel and/or Maple Leaf may harm other hog producers by
foreclosing their access to a sufficient customer base. In
particular, the Bureau was concerned that both Olymel and Maple
Leaf would control a significant amount of slaughterhouse capacity
in Western Canada, and may be able to harm other hog producers by
refusing to purchase hogs from external suppliers, leaving the
rival hog producers with no local slaughterhouse to which to sell
their hogs. The Bureau concluded that each of Olymel and Maple Leaf
would indeed have this ability, but that the costs of refusing to
purchase hogs from external suppliers would outweigh any associated
benefits, and they therefore lacked an incentive to do so.
The position statement provides insight into how the Bureau
analyzes vertical mergers. Consistent with the guidance provided in
the Merger Enforcement
Guidelines, the position statement suggests that
the Bureau's principal concerns about such mergers will likely
relate to input foreclosure (i.e., a refusal by the merged
entity to supply an input to a downstream competitor) and customer
foreclosure (i.e., a refusal by the merged entity to
purchase inputs from upstream competitors). The statement also
demonstrates that the Bureau will approach these issues carefully:
although it concluded that both input foreclosure and customer
foreclosure were possible in the case of these pork
mergers, it also found that neither was likely to lead to
a substantial lessening or prevention of competition.
John Godfrey Saxe (or, perhaps, Otto von Bismarck) once stated
that "[l]aws, like sausages, cease to inspire respect in
proportion as we know how they are made." With respect to pork
mergers, at least, the opposite appears to be true.
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