Revised Merger Enforcement Guidelines Issued by the Competition Bureau
Susan M. Hutton and Patricia Martino
On September 21, 2004, the Competition Bureau issued the highly anticipated revised Merger Enforcement Guidelines (MEGs). The revised MEGs replace the Merger Enforcement Guidelines first published in 1991 as a comprehensive explanation of the Competition Bureau's (the Bureau) merger enforcement policy under the Competition Act. The Bureau released a draft version of the revised MEGs for public comment on March 25, 2004, which closely resembled the final document. As noted in the April 2004 edition of The Competitor, the new MEGs reflect a refinement of analytical approach rather than a wholesale change. Notably, the "safe harbour" market share thresholds are unchanged. That said, the new MEGs reveal important refinements of the Bureau's approach to, among other things:
- Definition of a "merger": The MEGs expand the discussion of when a minority interest can constitute a "significant interest" for merger review purposes, and of when a transaction other than an acquisition can also be viewed as a merger.
- Anti-Competitive Threshold:
Substantial lessening or prevention of competition: The new MEGs include an expanded discussion of the circumstances under which a transaction is likely to substantially "prevent" competition.
Substantial lessening or prevention of competition: The Bureau will evaluate whether the merger is likely to provide the merged entity (alone or with others) with the ability to materially influence price in a substantial part of a market, regardless of whether the firm will be dominant, and regardless of the size of the price increase in question, so long as it will be sustainable profitably for two years or more. - Market definition: Product and geographic markets are defined having regard only to demand-side substitution. Supply-side responses are relevant only in determining the participants in, or potential entrants into, a market.
- Coordinated effects: There is a significantly expanded discussion of the issue of coordinated effects (formerly, "interdependence": that is, the exercise of market power that depends upon coordination with rivals for its success). High market concentration and barriers to entry are recognized as two necessary conditions for coordinated anti-competitive effects, but the MEGs list other factors that may, in the Bureau's view, facilitate coordination. The Bureau will analyze the impact of the merger on these factors where the pre-conditions so warrant.
- The Efficiency Defence: In light of the Federal Court rulings in Superior Propane, the MEGs encourage parties relying on the efficiency defence to make submissions as to how the different qualitative and quantitative anti-competitive effects of the transaction (in addition to the dead-weight loss) ought to be balanced against the efficiencies expected to flow from the transaction. Interestingly, the new MEGs contain detailed provisions regarding efficiencies, even as legislative reform is actively being considered.
