Should the European Commission clear or block the merger? Articulate clearly whythe merger is likely or unlikely to produce harmful or beneficial effects to competition.

Question

Car manufacturers in Europe produce and sell personal cars (PCs) and light commercial vehicles (LCVs) with a gross weight rating of up to 6 tonnes. Whereas PCs are typically purchased by individual consumers, LCVs target professional clients, notably small- and medium-sized enterprises (SMEs). PCs and LCVs have different structures, equipment and features. They are, therefore, produced in different assembly lines. Moreover, PCs and LCVs are also subject to different regulations and safety tests.

LCVs are highly differentiated products as LCV original equipment manufacturers (OEMs) sell a variety of models with different weights, designs, technologies under different brand names. EU businesses use four types of LCVs that differ in their gross vehicle size and weight: small LCVs (up to 3.5 tonnes), medium LCVs (up to 3.5 tonnes), large LCVs (up to 3.5 tonnes) and large LCVs above 3.5 tonnes (between 3.5 and 6 tonnes). Manufacturing of LCVs takes place in a centralised way in production sites from where they are then shipped throughout the European Union. Technical, environmental and qualitative regulations for LCVs are increasingly harmonised across the EU. However, prices, customer preferences and tax regimes for LCVs continue to vary across Member States.

LCV manufacturing relies on highly standardised, automated, and large-scale production processes. In order to enter the LCV market, OEMs need to be able to offer different variations of a model which requires a minimum scale and significant investments. OEMs also need to set up sufficiently extensive dealer and repair networks. The leading OEMs also continuously invest in the development and improvement of emission reduction technologies and electric vehicles. The European market for LCVs is characterised by the presence of a relatively limited number of six leading OEMs that develop, manufacture, and sell small LCVs with a gross weight of up to 3.5 tonnes. Their EU-wide market shares remained relatively stable over the last ten years.

LCV OEM EU-wide Market shares in %
Geupot 25
Remault-Nassin-Mutsibushi (RNM) 20
TIFA 15
Dorf 15
Holzwagen (HW) 15
Dämler 10

On 21st September 2021, representatives of the six major OEMs met at the largest trade fair for LCVs, the IAA Transportation, in Hanover, Germany. During the meeting, they discussed strategies to overcome the current shortage crisis in semi-conductors – a key input for the production of LCVs – that has seriously disrupted and delayed the supply chains and production in the LCV industry.

Two weeks after the meeting, the European Commission carried out a dawn raid at the premises of all six LCV OEMs. The Commission found documentation showing that during the 21st September meeting OEM representatives exchanged aggregate data on their semi-conductor orders, delivery periods, and semi-conductor inventory. All six OEMs also entered an agreement to cross-supply each other with semi-conductors in the event that one of them faced acute semi-conductor shortages. The OEMs committed to limiting the sharing of information and the cross-supply agreement to the period during which the industry undergoes the semi-conductor supply crisis.

You are the case handler in the European Commission’s Directorate General for Competition reviewing this evidence. You are asked to analyse whether the European Commission can and should take action against the LCV OEMs under EU competition law.

On 1st December 2021, Geupot announces a friendly takeover bid for TIFA and notifies the planned transaction to the European Commission. Geupot and TIFA (‘the merging parties’) claim that the merger will create substantial synergies by reducing wasteful duplication in their production and distribution facilities and generating significant economies of scale. The merging parties also affirm that the merger will create synergies on R&D and increase innovation in low-emission LCVs. Various stakeholders, however, petition the Commission to block the merger. SMEUnited, an interest group representing SMEs, warns that the merger would reinforce the price increases for LCVs and harm
many self-employed and small- and medium-sized companies throughout Europe.

Assuming that the transaction meets the turnover thresholds of the EU Merger Regulation No 139/2004 , you are asked to complement your analysis addressing the following questions.

(a) Should the European Commission clear or block the merger? Articulate clearly whythe merger is likely or unlikely to produce harmful or beneficial effects to competition.

(b) Which remedies, if any, could the European Commission require from the parties before clearing the merger?

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