The changes in the revised Merger Enforcement Guidelines are unlikely to have much practical significance in the vast majority of cases.
The Canadian Competition Bureau has issued a revised version of its 1991 Merger Enforcement Guidelines (MEGs)1. The principal thrust of the changes is to update the MEGs to reflect developments in mainstream antitrust thinking, enforcement practice and the courts in three main areas:
The MEGs now describe in greater detail the factors considered by the Bureau in assessing whether a merger is likely to facilitate the exercise of market power by the merged entity (a) unilaterally, or (b) in oligopolistic coordination with other firms. This section of the MEGs simply codifies existing practice and largely parallels the 1992 U.S. Horizontal Merger Guidelines.
: A new section has been added to the MEGs which recognizes that customers or suppliers of a merged entity can have sufficient countervailing power to ensure that the merger does not have a substantial anti-competitive effect. For example, they may be powerful enough to prevent price increases.
: During the proceedings brought by the Bureau to challenge Superior Propane's acquisition of ICG Propane, the Commissioner of Competition announced that Part 5 of the 1991 MEGs, which described the Bureau's approach to assessing efficiencies, "no longer applies." The revised MEGs set forth the Bureau's new approach to efficiencies in light of the decisions issued by the Federal Court of Appeal and the Competition Tribunal in that case. This approach will make it much more difficult for merging parties to persuade the Bureau that efficiencies likely to result from a merger will be greater than and offset the anti-competitive effects that are likely to flow from the merger.
In a separate initiative late last month, the Bureau released a consultation paper, Treatment of Efficiencies in the Competition Act, to seek views on the role efficiencies should play in merger review and other sections of the Competition Act. 2
In addition, the revised MEGs:
Do not change the market share "safe harbours" for merging firms
, which stand at 35% for single firm dominance and 65% for coordinated effects - provided that the merged entity has a market share of at least 10%;
Raise the bar for establishing that a merger involving a failing/exiting firm is not likely to prevent or lessen competition substantially
. Now, over and above demonstrating the absence of competitive preferable alternatives to the merger, the Bureau must be satisfied that "imminent failure is probable";
Provide a more detailed discussion of how a merger may substantially "prevent" competition
that likely would have developed in the absence of the merger;
Reflect a more demand-side oriented approach to market definition
. Supply-side substitutes are considered after the Bureau defines the relevant market affected by the merger. This is consistent with the Bureau's 1998 Bank Merger Enforcement Guidelines and the 1992 U.S. guidelines;
Confirm that the Bureau may bundle several different products into the same relevant market
, where buyers prefer to source such products together from a single supplier, rather than separately from different suppliers;
Articulate a more expansive definition of what constitutes a "merger"
for the purpose of exercising jurisdiction under the Act.
Overall, it is not expected that the new and significantly streamlined MEGs will have much impact on the Bureau's review of the vast majority of cases. The refinements generally reflect the enforcement practice that has prevailed for several years. While the changes in the area of the efficiencies defence and the Bureau's policy on failing/exiting firms are potentially more significant, cases that turn on these issues are very rare.
Now that the revised MEGs have been issued, the Bureau is expected to turn its attention to revising the Bank Merger Enforcement Guidelines.
1. Paul Crampton was the principal drafter of the Bureau's 1991 Merger Enforcement Guidelines.
2. Janet Bolton of our Competition and Antitrust Group was the principal drafter of that paper.
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