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- Yossi Spiegel. The European Commission
is proposing to improve merger regulation and increase controls,
why do you think that is? - these are
important factors that show up in real life cases
and the I guess they realize that
so far they didn't have the tools to deal with these things in a consistent
fashion.
So, as they pointed out (at event) if there is a merger
notification, they look into pre-existing shareholding
and then if they see that something was
potentially anti-competitive they can look into it.
But, if they did not have the merger notification, these
shareholdings would go under the radar
and we wouldn't even know about it. So, I guess they
realize that these are important things, that they may need
to look into and so far they don't have the tools.
- What are the competitive harms you've identified?
- The competitive harm has to do with the fact that once you invest in a rival,
even if this is a passive stake, you
take into account your own behavior,
the effect of your own behavior on the
profit of the rival, and so
if you compete with a rival, you realize that by competing
more aggressively you divert profits from the rival to you,
this is, of course, great for consumers,
but if a firm has a stake in the rival
it may be reluctant to divert profits from the rival to itself
because some of these profits, the firm
has captured anyway, even before the diversion.
So, obviously if he doesn't have a stake in the rival he's more keen to
divert profits from the rival to itself, by, say,
competing more aggressively.
So, having a stake in a rival in can soften competition. Soften competition
means consumers will get
less lucrative offers and this needs to be looked at.
What is interesting is that if you have control
you can affect not only your own strategy, but you can also affect the
rival strategy because you control it.
If you don't control it, you cannot affect the rival strategy directly, but
you can
affect your own behavior and the
effect of your own behavior on competition may be detrimental to
consumers.
- What's been your examination of companies having
arranged direct and indirect stakes and that impact on competition?
- If you have
an industry in which firms are linked to each other via partial
ownership, say A has a stake in B, B has a stake in C, C has a stake in A,
this can lead to a multiplier effect,
meaning that if firm A
raises its stake in B, say by 10 percent,
the effective stake in B that it gets
via this acquisition can be translated to more than 10 percent
due to the fact that you have a loop,
A has a staking in B, B has in C, C has in A, so
A has a stake in B not only directly, but also indirectly via its
stake in C and so on.
Especially if C has a stake in B,
so, a firm can get direct and indirect
ownership stakes which magnify,
potentially magnified, the the stake itself.
So, in particular I showed an example, in with you
you have three firms A, B and C. They are linked via
course ownership agreements and what they showed was that
if A gets a share in B, say 10 percent,
given the existing ownership structure,
that existed even before the acquisition, the actual stake that he buys
indeed can be much more than 10 percent
due to the existing structure. So, directly
it buys 10 percent, but effectively it gets much more than 10 percent,
and so if you look at it, maybe you say, well,
A has just acquired 10 percent stake in B, maybe it's not a big deal.
If you ignore
the existing a ownership structure you can
you can reach the conclusion that it's only 10 percent and therefore it's not
a cause for alarm,
but in fact if you take into account
the course, the existing ownership structure,
you will reach a conclusion that it's much more than 10 percent, and
in particular it might be large and can
harm competition.
When you examine
an acquisition of
passive stakes in a rival, you do not
need to look at this transaction in isolation, but rather you need to take
into account the pre-existing ownership structure,
because the it can magnify the
actual stake which is being acquired. So, there is a difference between formally
how much you buy
versus effectively how much you buy. So, this is one of the things I emphasised.
On top of that, I emphasize that even
a seemingly small stakes in rivals
can translate into a large price increase,
if there is a pre-existing
ownership in the industry. So if
A acquires a stake in B, it can have a large price effect.
Conformers may end up paying a much higher price,
if A has a stake in C, and C has in B and so on.
- What are the potential drawbacks you see in the European Commission's
initiative
one of the things that were pointed out during this discussion was that
if you require firms to report about
acquisitions, there is a cost involved,
both for the Commission, because its workload is going to be enhanced,
and obviously these things are time consuming, and the Commission
has a
lot of work to do anyway, and the
it's obvious that they can handle this
bulk of work, which will come out of that.
It would be very costly for firms because they would have to supply
information,
and they would have to dig up the data, and conduct various analyses.
So, obviously all these initiatives can potentially be very costly.
This cost has to be balanced against the benefits
A benefit could be that some
harmful transactions will be
looked at by the Commission and might be blocked or
the Commission might require
some remedies, that otherwise
they wouldn't even know about. Obviously, one needs to balance the two
things.