¹ Council Regulation (EEC) 4064/89, December 1989 on the control of concentrations between undertakings.

² At the time of writing this article, the decision is subject to appeal to the Court of First Instance in Luxembourg.

³ The relevant theory is described in more detail in the NERA report Merger Appraisal in Oligopolistic Markets, Office of Fair Trading, Research Paper 19, November 1999. In writing this article, we have drawn on the material in that report, and benefited from discussions with colleagues in the competition policy practice at NERA.

⁴ Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines (1992).

⁵ As it turns out, other firms in the market will also often find it profitable to change their pricing, with the general prediction being that they will also raise their prices. This is because the higher prices of the merged firm's products will still cause some customers to switch to products belonging to other firms in the market. This increase in demand for their products will encourage them to raise prices as well.

⁶ For a wider discussion of unilateral effects, see Baker, and Coscelli, , “The Role of Market Shares in Differentiated Product Markets”, 20 European Competition Law Review (1999) 412–419.Google Scholar

⁷ In legal terms, the difference between explicit and implicit collusion is crucial, in part due to the formal prohibition of anti-competitive agreements under Art. 81. In terms of economic analysis, however, the two concepts are regarded as closely interlinked.

⁸ This result is seen in the concept of the “prisoners' dilemma” in game theory models.

⁹ As seen in various EC competition law cases, e.g., Soda Ash (Soda ash/Solvay OJ [1991] L 152/21; Soda ash/ICI, OJ [ 1991] L 152/1) and Wood Pulp, (OJ [1985] L 85/1; on appeal cases C-89/85 etc. Åhlstrom v. EC Commission, [1988] ECR 5194; [1993] ECR I-1307), the line between illegal cartel behaviour and lawful intelligent adaptation to rivals' behaviour is a fine one.

¹⁰ Numerous game theoretic models exist in the economics literature, which explore different scenarios of co-ordination, cheating and enforcement. See, e.g., Green, and Porter, , “Non-Co-operative Collusion under Imperfect Price Information”, 52 Econometrica (1984) 87–100CrossRefGoogle Scholar. The Green and Porter model relies on periodic (damaging) price wars as a means by which cheating from the co-operative price is discouraged.

¹¹ This is in contrast to the theory of unilateral effects, where there is a broad consensus among economists on the framework that should be used for the analysis. This of course does not stop reasonable people disagreeing on the way the facts in any case fit that framework.

¹² The background and some of the cases are discussed further in Ridyard, , “Economic Analysis of Single Firm and Oligopolistic Dominance under the European Merger Regulation”, 15 European Competition Law Review (1994).Google Scholar

¹³ Case no. IV/M.190 (Nestlé/Perrier, Commission decision of 22 July 1992, OJ [1992] L 356/1; [1993] 4 CMLRM17.

¹⁴ Nestlé/Perrier, para. 122.

¹⁵ Case no. IV/M.308 – Kali+Salz/MdK/Treuhand. Commission decision of 14 December 1993, OJ [1994] L 186/38.

¹⁶ Under a failing firm defence, the argument is essentially that acquisition of a competing firm does not reduce competition relative to what would otherwise happen because the alternative to merger would be the disappearance of the target firm from the market.

¹⁷ C-65/94 and 30/95 French Republic v. Commission (Klai and Salz (No. 2), [1998] ECR I-1375.

¹⁸ The emphasis placed by the Commission on structural links was probably an attempt to link the concept of joint dominance to an earlier Court judgment in the Italian Rat Glass Case where the concept of joint dominance for the purposes of Art. 86 [now Art. 82] was established, but only – it appeared – if the firms involved had some structural links.

¹⁹ Judgment, para. 249.

²⁰ This is not to say that equity and other links are ignored in economic theory. On the contrary, there is a large body of literature on the impact of partial equity stakes on firm's incentives to compete. See, e.g., Breshanan, and Salop, , “Quantifying the Competitive Effects of Production Joint Ventures”, 4 International Journal of Industrial Organization (1986) 155–175CrossRefGoogle Scholar. These papers mostly relate to unilateral effects rather than co-ordinated effects concerns.

²¹ Case no. IV/M.619 (Gencor/Lonrho. Commission decision of 24 April 1996, OJ [1997] L 11/30; [1996] 4 CMLR 742). NERA acted as economic experts on behalf of the parties during the Commission investigation of this merger. The comments on the case in this article are based on publicly available information.

²² Implats held all of Gencor's platinum interests while those of Lonrho were held by LPD.

²³ The two post-merger firms would between them have enjoyed control over some 90% of the world's underground reserves of platinum.

²⁴ Note that this is one of the less robust aspects of the Commission's analysis given the very different cost conditions that exist from one mine shaft to another, and the potential for very different costs and incentives at the margin between the competing producers.

²⁵ T-102/96 Gencor/Lonrho, [1999] ECR II-753; [1997] 5 CMLR 290.

²⁶ Case no. IV/M.1524 – Airtours/First Choice, Commission decision of 22 September 1999, OJ [2000] L 93/1.

²⁷ Note that these concentration levels were themselves disputed by the parties who argued that a wider market including popular long-haul holiday destinations such as Florida would be more appropriate. Whilst this wider definition would have diluted the post-merger shares only modestly, it would have added other significant players to the market including the holiday operations of British Airways and Virgin.

²⁸ MMC, , Foreign Package Holidays, December 1997, para. 1.6.Google Scholar

²⁹ Airtours/First Choice, supra n. 26, para. 63. The Commission also refers to a paper submitted by Professor Neven on behalf of Airtours, which claims that the maximum increase in capacity amounts to 10%. See Aittours/First Choice, ibid., para. 62.

³⁰ This is what economists call semi-collusion. See, e.g., Osborne, and Pitchick, , “Cartels, Profits and Excess Capacity”, 28 International Economic Review (1987) 13–28CrossRefGoogle Scholar and Fershtman, and Gandal, , “Disadvantageous Semicollusion”, 12 International Journal of Industrial Organization (1994) 141–154.CrossRefGoogle Scholar

³¹ Airtours/First Choice, supra n. 26, para. 108.

³² Airtours/First Choice, supra n. 26, para. 91. Moreover, para. 56 of the decision reads: “If capacity is constrained, prices and profits will be higher than otherwise, whatever competition takes place during the selling season”.

³³ Airtours/First Choice, supra n. 26, para. 150. A similar point is also made at para. 55.

³⁴ As recognised by the Commission ibid., at para. 152 of the decision, since capacity can be expanded during a season by up to 10%, retaliation may actually take place, to a limited degree, also during the same season in which cheating took place.

³⁵ Airtours/First Choice, supra n. 26, para. 152.