French Competition Law provides a comprehensive review of the French rules relating to competition: restrictive agreements, commercial negotiation, abuses of a dominant position, procedure and merger control.

French Competition Law

The Competition Authority has defined an approach for defining restrictions on competition. To evaluate the potential harm to competition involved in a given operation, the Authority takes into account the market share of the combination of the merging undertakings, but also the market share of other national market participants, and other variables such as the capacity of imports to compete with  …

Assessment method

The Competition Authority has defined an approach for defining restrictions on competition. To evaluate the potential harm to competition involved in a given operation, the Authority takes into account the market share of the combination of the merging undertakings, but also the market share of other national market participants, and other variables such as the capacity of imports to compete with domestic products, potential difficulties in the raw material supply or factors of production, economies of scale, the amount of investment needed to penetrate or remain on a market, and even the existence of patents that cover the production methods of parties to the concentration . Following the abundance of litigation due to heightened merger activity in the mass retailing sector, Article L. 430-6 clarified that restrictions on competition can arise from the creation or reinforcement of a dominant position, but also from buying power that puts suppliers in a situation of economic dependence. 

To assess the effects of a merger on competition, the Competition Authority sometimes compares the conditions of competition resulting from the transaction with those that would have prevailed had the transaction not taken place (counterfactual scenario), taking into account the conditions of competition existing at the time of the merger, as well as anticipated changes in market structure, if these are sufficiently certain .

On rare occasions , the usual method has been set aside in favor of a direct evaluation of what are called “unilateral effects”, i.e. the global loss in well-being (in terms of price increases or production decreases) due to a merger transaction, taking into account the foreseeable reaction of major competitors. In order to assess the likelihood of a risk of unilateral effects, the Competition Authority generally requires that there be a competitive proximity of the parties concerned by the merger and takes into account the unit margins on the variable costs of the undertaking party to the merger towards which a fraction of the demand would switch following a price increase in prices initiated by the other party  . A merger is likely to lead to unilateral effects, even if the parties to the transaction are not the closest competitors on the relevant market, insofar as they are sufficiently close competitors - which is demonstrated by the significant rate of customers switching suppliers in the case of price increases - to constitute an important source of mutual competitive pressure which will be eliminated by the concentration . 

The Authority lists various quantitative tests in its guidelines - “UPP” (upward pricing pressure) , “GUPPI” (gross upward pricing pressure index)  and “IPR” (illustrative price rise)  which enable an initial assessment of the possibility of a unilateral effect resulting from a concentration without it being necessary to define the relevant market . GUPPIs are generally calculated on the basis of an econometric estimation of the diversion ratios but are sometimes evaluated using ratios calculated after surveys: they are described in that case as “behavioral GUPPIs”. According to the Authority, econometric GUPPIs reveal more competition concerns than behavioral GUPPIs . A GUPPI index which is higher than 5% suggests that the new entity has an incentive to increase its prices, as a result of the internalization within the new structure of customer diversions toward the target in the event of a price increase by the purchaser, or toward the purchaser in the event of a price increase by the target .

For the purposes of analyzing the unilateral effects of a merger on a tender market, a large market share will not be considered as a reliable indicator of market power when the call for tenders under consideration operates in a context by which the following cumulative conditions are verified: 1) A single bidder wins the whole of the contract put out to tender; 2) the size of the contract represents a major stake for the bidding undertakings; 3) during the call for tenders, the probability of success is independent of the outcome of past tenders launched for the network under consideration or other networks; 4) there are no barriers to entry on the market considered .

Competition Authority decision. No 23-DCC-165 of 3 August 2023, LawLex202300011600JBJ, finding that, the relevant counterfactual being that in which the 109 catering outlets concerned would be operated by a single operator controlled by ADP, the notified transaction would not result in the transition from an oligopolistic to a monopolistic situation since, in the absence of implementation of the transaction, the catering outlets at Paris-CDG and Paris-Orly airports would, in any event, be operated by a single operator by 2032

Competition Authority decision No 16-DCC-111 of 27 July 2016, LawLex201700000147JBJ; Cons. d'Et., 14 October 2022, LawLex202200008627JBJ, identifying a risk of unilateral effect on the dominant food retailing market comprising only hypermarkets in the greater Troyenne area, when the GUPPI index - calculated on the basis of the diversion ratio between one hypermarket and the hypermarket that will pass under the same store name as a result of the transaction, based on the proportion of sales which, in the event of a price increase in the first store, will be made in the other store, in relation to the total sales lost by the store having raised its prices - is evaluated at 6.1%.

Competition Authority decision No 14-DCC-160 of 30 October 2014, LawLex201400001388JBJ.

Minister of the Economy, letter of 29 August 2002, LawLex200300000576JBJ; 14 October 2002, LawLex200200000579JBJ.

In the event of a price increase, the more substitutable the parties' products, the bigger the share of lost sales the new entity will be able to recover. The Authority can quantify the level of competitive pressure of a product sold by one of the parties to the merger on a product sold by another party, by estimating the diversion ratio of the first product to the second. The higher the diversion ratio, the greater the risk of unilateral effect.

Competition Authority decision No 16-DCC-111 du 27 July 2016, LawLex201700000147JBJ.

Revised guidelines, pts. 649 to 651. The UPP test takes into account the incentive of the new entity to increase prices due to the internalization of the effects of price increases on the products acquired further to the transaction, but also the incentives to reduce its prices which could occur as a result of efficiency gains generated by the merger. The UPP test does not measure the levels of price rise that are possible but is merely limited to indicating whether they are to be feared or not. It takes account of efficiency gains but does not provide a precise estimate of what efficiency gains the transaction is likely to produce.

The GUPPI index measures the extent of the price rise but does not take into consideration the efficiency gains potentially arising from the operaton; see revised guidelines, pts 652 to 653. See also Competition Authority decision No 13-DCC-90 of 11 July 2013, LawLex201300001208JBJ: GUPPI index higher than 6% revealing a significant risk of price rise post merger.

The IPR test gives an initial estimate of expected price increases (in the absence of efficiency gains) using the same data as those used for the UPP test for single-product firms. Adapting the test on a case by case basis enables account to be taken of multi-product firms or efficiency gains leading to a fall in variable costs.

These indicators have the advantage of not requiring a precise definition of the relevant market which is particularly useful where the products are differentiated and where it is not simple to set the limit between products belonging to the same market and others. The Competition Authority has clarified however that “given the methodological limits principally due to the quality of the available data but also the very nature these tests, the quantitative results cannot by themselves [...] lead to a conclusion as to the effects of the transaction and are not used automatically to exclude or to establish the existence of competition concerns” (revised guidelines, pt. 659). In effect, these tests do not take into consideration all the competitive interactions, namely the reactions of competitors, and do not constitute a simulation of the overall effects of a concentration (revised guidelines, pts 648 and 658). Another difficulty lies in the establishment of costs which are not easy to obtain insofar as the tests require access to information on the variable unit costs (i.e. costs that depend on the quantities produced) for each of the products and this is particularly complex in the case of multi-product undertakings due to the necessity of allocating joint costs. 

Competition Authority decision No 16-DCC-111 of 27 July 2016, LawLex201700000147JBJ.

French Competition Law

545. Assessment method

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545. Assessment method

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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