Thomas Rønde, The Danish Competition and Consumer Authority. Merger between JYSK/IDdesign

Transcription

1 Thomas Rønde, The Danish Competition and Consumer Authority Merger between JYSK/IDdesign

2 The transaction»on 3 May 2013 JYSK notified the acquisition of sole control of IDdesignto the DCCA»JYSK: Controlled by Lars Larsen. Mainly known for the two retail chains JYSK and Bolia»IDdesign: Controlled by Axcel. Consists of the two retail chains IDEmøbler and ILVA»Both parties are active within the retail sale of furniture (several relevant markets)

3 Market shares and HHI»Markets:» Garden furniture, beds and mattresses, other furniture»post-merger market shares of pct. in certain markets (beds/mattresses and garden furniture)» Higher concentration:»hhi and HHI at levels where the might be competitive concerns» Relevant to further investigate the risk of unilateral effects

4 Diversion Ratios consumer survey» More than respondents who had bought furniture within the last 12 months» Respondents (asked about their most recent purchase):» Where did you buy your furniture?» Where would you have bought your furniture if this shop (or, firm) was closed?» The survey was used in relation to:» The market definition» Assessment of unilateral effects (likely price effects post-merger and in the counterfactual)

5 Diversion ratios between the parties»15 pct. of JYSK s customers would choose IDEmøblerif they were to buy somewhere else than JYSK.»IDEmøblerand ILVA appeared to put significant competitive pressure on JYSK and Bolia

6 Upward Pricing Pressure and Illustrative Price Rise» Upward Pricing Pressure:»Werden(1996) applied to a 2*2 merger:» Price increases for three of the firms (Bolia, Jysk, IDEmøbler)»Price decrease for one of the firms (Ilva)» Illustrative price rise with linear demand:» Price increases predicted for all merging firms»overall [0-5] pct.»up to [10-20] pct. for JYSK

7 The counterfactual» Without a merger, Ilva and IDEmøbler would fail:»no failing firm defence, assets not likely to leave the market»market investigation: Would entry be likely in case of failure?» Phone calls to many European players» Could not ask the specific liquidation question (a self-fulfilling prophecy )» Limited entry plans sufficient entry in the short run was considered unlikely

8 Market sharesand HHI Retailmarket furniture (excl. beds and garden furniture) Market shares (pct.) and HHI - merger Market shares (pct.) and HHI - liquidation JYSK/Bolia [5-10] [5-10] IDEmøbler/ILVA [10-20] - IKEA [20-30] [20-30] HHI after merger/liquidation [ ] [ ] HHI merger vs. liquidation [ ] Retail market beds and mattresses Market shares (pct.) and HHI - merger Market shares (pct.) and HHI - liquidation JYSK/Bolia [20-30] [20-30] IDEmøbler/ILVA [10-20] - IKEA [10-20] [10-20] HHI after merger/liquidation [ ] [ ] HHI merger vs. liquidation [ ] Retail market garden furniture Market shares (pct.) and HHI - merger Market shares (pct.) and HHI - liquidation JYSK/Bolia [20-30] [20-30] IDEmøbler/ILVA [5-10] - HHI after merger/liquidation [ ] [ ] HHI merger vs. liquidation [ ]

9 UPP/IPR analysis» Two effects of failure of Ilva/IdéMøbler on firm i s demand:» Demand becomes more inelastic» Higher demand at given prices»how can diversion ratios be adjusted in a meaningful way?

10 Diversion Ratios of remaining firms in the Counterfactual Scenario? P i Ilva IDEmøbler

11 Diversion Ratios in the Counterfactual Scenario I»Consumers who would switch from firm ito Ilva/IDEmøblerin case of a price increase perceive firm iand Ilva/IDEmøbleras close substitutes»assumption:if Ilva/IDEmøblerfail, these consumers behave like the consumers of Ilva/IDEmøbler in terms of switching»likely to underestimate the likelihood of staying with firm ias they have a revealed preference for firm i» Consider alternative assumptions

12 Illustrative Price Rise Counterfactual»Illustrative price rise by all remaining firms in the counterfactual» Predicted price rise:»overall [15-20] pct.»up to [30-40] pct. for IKEA

13 Market dynamics»why would liquidation lead to such high price increases?»idemøblerand ILVA are the main competitors to many of the other players on the market»a liquidation would therefore remove a significant competitive pressure from the market Closenessof competition between IDEmøbler, ILVA and the other main players on the market Company ILVA + IDEmøbler IDEmøbler IKEA Sengespecialisten JYSK Bolia Møbelkæden BoConcept Danbo Smag & Behag Byggemarkeder 1-2 Dagligvarebutikker Coop.dk Others ILVA

14 Lessons Learned I»If failure is the counterfactual scenario, price levels must be compared:» UPP is not helpful (unless entry replaces the failing firms)»ipr methodology of Farrell and Shapiro has no close link to utility maximizing consumers:»not possible to remove products from the consumers choice set and recalculate the effect on the equilibrium price

15 Lessons Learned II»More practical approach might be to ask consumers who would switch product in case of a price increase what their 1 st and 2 nd choices are:» Harder to grasp for consumers»here, it would have had to be 1 st, 2 nd, and 3 rd choices

16 Conclusion»Not possible to rule out competition concerns on the basis of market shares and HHI alone (in particular w.r.t. beds and garden furniture)»irps showed price increases as a result of the merger but even larger prices increases in case of liquidation»dynamic effects in the form of sufficient short term entry was not to be expected»conclusion: Approving the merger would be less detrimental to effective competition than liquidation

17 Thank you for your attention