On 18 July 2016, the French Competition Authority
("FCA") broke new ground in France by holding that retail
distribution of electronic products through both physical stores
and online channels is a single relevant market.
The background and the FCA's Decision
The FCA's decision concerns Fnac's acquisition of Darty.
The proposed transaction drew a great deal of public attention
because it involves France's two largest click and mortar
retailers. It drew even more attention in March 2016, when the FCA
announced a phase II examination of the potentially negative
effects of the merger. However, in its 18 July 2016 decision, the
FCA reversed course and granted conditional approval for the
transaction after determining the relevant market includes both
online and physical distribution channels.
The breakthrough in the definition of Relevant Distribution
Bruno Lasserre, President of the FCA, said that this change in
defining the relevant market—including both online and
physical channels—represents an innovative approach in France
and for which the FCA tends to be a leader in Europe:
"Competitive pressure exerted by online sale has become
significant enough to be integrated in the concerned market,
whether it comes from pure players (such as Amazon or Cdiscount) or
from stores' own websites which complete in-store physical
sales", the FCA explained in its press release. The FCA
concluded that due to changes in consumers' purchasing habits,
physical stores face competitive pressure from e-commerce
companies, including both pure players and click and mortar
companies. This new market definition, which includes online
competition, meant that the market shares for the physical stores
owned by Fnac and Darty in France were of less importance for
determining market dominance.
The Geographic Markets
With regard to the geographic market, the FCA examined local
catchment areas of the acquired stores even though Fnac has
attempted to focus on the national market for retail distribution
of electronic products. The FCA examined the effects of the
proposed transaction on competition in areas where the new group
would have significant market shares. The FCA's investigation
found that for the entirety of local markets outside Paris, Fnac
Group will still face competitive pressure from other retailers
such as large specialized supermarkets, large food retail
supermarkets with significant space dedicated to electronic
products, and pure players. However, the FCA also identified some
local markets where it had competition concerns because of the
strong position of the two companies and the lack of sufficient
alternatives on the market. To address these concerns, Fnac Group
has committed to divest six physical sale stores located in Paris
and the Parisian region.
The FCA's conditional approval of the Fnac-Darty merger may
be a significant step in Europe for analysis of relevant markets
that include both physical and e-commerce distribution channels.
Companies should factor this into any planned transactions
involving both physical and e-commerce.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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