European Competition Law provides a wide-ranging review of the European rules relating to competition: restrictive agreements, abuse of a dominant position, impact of intellectual property rights, procedure, merger control, State aid.

European Competition Law

According to the guidelines on the assessment of non-horizontal mergers, input foreclosure arises where the new entity would be likely to restrict access to the products or services that it would have otherwise supplied if the merger had not taken place. The risk for competition relates to the effects on prices of increases in input costs for rivals on the downstream market.
Input foreclosure may, …

Input foreclosure

According to the guidelines on the assessment of non-horizontal mergers, input foreclosure arises where the new entity would be likely to restrict access to the products or services that it would have otherwise supplied if the merger had not taken place. The risk for competition relates to the effects on prices of increases in input costs for rivals on the downstream market.

Input foreclosure may, inter alia, consist of :

- supply restrictions , increases in the prices charged to rivals on the downstream market, or the existence of less favorable conditions to access to that downstream market than those prevailing without the concentration ;

- use by the new entity of technologies which are not compatible with rivals' technologies , refusal to grant licenses ;

- the deterioration of the quality of input supplied .

The foreclosure effect may arise only if input is significant for the product concerned on the downstream market  and if the vertically integrated entity has a substantial market power on the upstream market . The capacity to eliminate competitors on the downstream market will depend on the new entity's ability to restrict the general availability of inputs in terms of price or quality .

Incentive to foreclose depends on the level of profitability such strategy. The parties to a vertical merger will have an incentive to implement an input market foreclosure strategy where that transaction allows them to limit their competitors' capacity expansion on the downstream market, to delay the completion of such projects or to prevent entry of potential competitors on the market . To determine whether it is in their interest to engage in such a strategy, the costs and margin that would result from foreclosure must be weighed up . By contrast, they will have no incentive to foreclose an input market where profits resulting from supply to third parties are much higher than the margin from the sale of products incorporating them  or where competitors on the downstream market represent a considerable part of the sales of the upstream division . The structure of ownership of the new entity is likely to influence the incentive to foreclose, as such behavior is less profitable where the input's supplier is subject to joint control with another operator with whom profits will be shared .

Adverse effect on competition is significant where elimination concerns either undertakings which play a major role on the downstream market , or potential competitors faced with barriers to entry . The simple fact that the new entity has the possibility of foreclosing the market may be sufficient to deter potential competitors . By contrast, there is no risk of a supply source disappearing where the parties do not achieve high market shares and their products are not “must-stock” products , the new entity has to face powerful competitors having alternative sources of supply , or the input price only accounts for a very small part of the price of the finished product .

Commission Decision  M.7000 of 10 October 2014, LIberty Global/Ziggo, LawLex201700000676JBJ: a merger which allows the new entity to engage in an input foreclosure strategy in relation to access to a channel, in particular by refusing to provide access to this channel to its retail competitors (complete foreclosure), or by degrading the conditions at which it is offered to them (partial foreclosure), is likely to impede competition.

Commission Decision M.2602 of 11 December 2001, Gerling/NCM, LawLex200500004192JBJ, on the vertical integration of the parties' factoring business, resulting in their factoring competitors being economically dependent on the parties as they will only have one other source of credit insurance; M.3431 of 6 October 2004, Sonoco/Ahlstrom, LawLex200600001255JBJ, for a concentration which eliminates one of the four existing supply possibilities of a product although access to the market for a new entrant is made difficult in the short term by the need to be vertically integrated.

Commission Decision M. 7194 of 24 February 2015, Liberty Global/Corelio/W&W/De Vijver Media, LawLex201700000677JBJ.

Commission Decision M.4300 of 7 November 2006, Philips/Intermagnetics, LawLex200900000157JBJ; M.4389 of 5 December 2006, WLR/BST, LawLex200900000158JBJ; M.4576 of 3 April 2007, Intitulé AVR/Van Gansewinkel, LawLex200900000163JBJ. By contrast, M.3696 of 21 December 2005, E.ON-MOL, LawLex200600002086JBJ, for a vertically integrated undertaking active across all stages of the gas supply and controlling access to gas volume and part of the infrastructure, the strategy which consists in foreclosing access to the resource is profitable where the lost profits upstream will no longer be offset by increased profits in the downstream market, on which margins are much higher, due to limited and incipient competition.

Commission Decision M.3943 of 9 November 2005, Saint-Gobain/BPB, LawLex200900000154JBJ; M.4389 of 5 December 2006, WLR/BST, LawLex200900000158JBJ.

Commission Decision M.4403 of 4 April 2007, Thales/Finmeccanica/Alcatel Alenia Space & Telespazio, LawLex200900000151JBJ.

Commission Decision M.4494 of 20 February 2007, Evraz/Highveld, LawLex200700001712JBJ.

Commission Decision M.3696 of 21 December 2005, E.ON-MOL, LawLex200600002086JBJ; M.4180 of 14 November 2006, Gaz de France/Suez, LawLex200700001354JBJ, for a market where significant barriers to entry make entry to the market unlikely for potential competitors able to take over the role of the existing competitor eliminated by the transaction; M.4576 of 3 April 2007, Intitulé AVR/Van Gansewinkel, LawLex200900000163JBJ, for a transaction that raises barriers to entry for potential competitors in the downstream market.

Commission Decision M.3696 of 21 December 2005, E.ON-MOL, LawLex200600002086JBJ.

Commission Decision M.4242 of 9 November 2006, Thermo Electron/Fisher Scientific, LawLex200700001714JBJ.

Commission Decision M.023 of 28 November 1990, ICI/Tioxide, LawLex200400003176JBJ.

Commission Decision M.2738 of 17 April 2002, GEES/Unison, LawLex200900000164JBJ.

Commission Decision M.1693 of 3 May 2000, Alcoa/Reynolds, LawLex200500004485JBJ; M.3083 of 2 September 2003, GE/Instrumentarium, LawLex200400003302JBJ; M.4403 of 4 April 2007, Thales/Finmeccanica/Alcatel Alenia Space & Telespazio, LawLex200900000151JBJ: in the context of markets where competition is exercised through bids, input foreclosure may take more subtle, and therefore less easily detectable forms than price increases such as delayed reaction to requests for quotations submitted by bidders, excessive delays for deliveries, product offering guaranteeing better performances for the downstream entity.

Commission Decision M.2861 of 30 April 2003, Siemens/Drägerwerk/JV, LawLex200700000250JBJ, for input foreclosure by elimination of the compatibility between complementary products on the upstream and downstream markets; M.3998 of 19 May 2006, Axalto/Gemplus, LawLex200700001756JBJ, risk of elimination of all interoperability between their platforms and SIM cards produced by competitors.

Commission Decision M.5406 of 13 March 2009,  Ipic/Man Ferrostaal AG, LawLex201000000463JBJ, which states that such a strategy is profitable where the loss of profits generated by those licenses is offset by the increase in the price of the product sold on the downstream market.

Commission Decision M.3696 of 21 December 2005, E.ON-MOL, LawLex200600002086JBJ; M.4314 of 11 December 2006, Johnson & Johnson/Pfizer Consumer Healthcare, LawLex200700001849JBJ.

Commission Decision M.3868 of 14 March 2006, Dong/Elsam/Energi E2, LawLex200700001765JBJ, on the elimination of the most important independent source of gas flexibility; M.4094 of 10 August 2006, LawLex200800000520JBJ, for an input which accounts for a significant proportion of the production costs for a product sold on a downstream market; M.4942 of 2 July 2008, Nokia/NAVTEQ, LawLex200900001840JBJ: on the downstream market for navigation software, digital maps are a critical input where they account for up to 70% of the price of the product, and are components without which it cannot function - See also M.2738 of 17 April 2002, GEES/Unison, LawLex200900000164JBJ; Case T-261/18 KPN BV, Judgment of 27 January 2021, LawLex202100003595JBJ, holding that, as the target channel is not a sufficiently important input, any  foreclosure strategy would have limited effects on downstream  competition, including on the market for the provision of retail  television services, insofar as the channel in question has a market  penetration rate of 5 to 10% of the total number of pay TV subscribers  in the Netherlands, only 1.5% of pay TV subscribers would be prepared to switch to another provider if it was no longer available and only only  2.5% of those subscribers would not consider an offer that did not include the channel.

Commission Decision M.1693 of 3 May 2000, Alcoa/Reynolds, LawLex200500004485JBJ; M.4854 of 14 May 2008, TomTom/Tele Atlas, LawLex200900000244JBJ.

Commission Decision M.4494 of 20 February 2007, Evraz/Highveld, LawLex200700001712JBJ, for a vertical concentration which can enable the parties to reduce production and to increase prices in order to eliminate their competitors on a downstream market, in an industry where alternatives are rare.

Commission Decision M.5406 of 13 March 2009,  Ipic/Man Ferrostaal AG, LawLex201000000463JBJ.

European Competition Law

339. Input foreclosure

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

339. Input foreclosure

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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au contenu exclusif Livv – juristes d’entreprise