Merger Enforcement Guidelines (Banks) - The Anti-Competitive Threshold

Merger Enforcement Guidelines (Banks) - The Anti-Competitive Threshold

17. Section 92(1) of the Act provides that the Tribunal may make an order in respect of a merger where it finds that the merger "prevents or lessens, or is likely to prevent or lessen, competition substantially". A prevention or lessening of competition can only result from a merger where the parties to the merger are, or would likely be, able to exercise a greater degree of market power, unilaterally or interdependently with others, than if the merger did not proceed.

18. Market power refers to the ability of firms to profitably influence price, quality, variety, service, advertising, innovation or other dimensions of competition. The exercise of market power by a bank or banks could be manifested in numerous ways, including a reduction in interest rates or an increase in the service fees charged on demand deposits, credit cards, RRSPs, brokerage fees or other investment vehicles; an increase in interest rates on loans or mortgages or a tightening of the conditions for obtaining financing; an increase in the fees charged to retail businesses for point-of-sale terminals or for credit card purchases; or an increase in the price of other services. An exercise of market power can also result in a lowering of product quality or service and a loss in the variety of available products. In all cases, the prices used in the analysis are actual transaction prices, rather than posted prices.

Lessening Competition

19. A merger among banks can lessen competition if it enables the merged entity to unilaterally raise price, or if it is likely to bring about a price increase as a result of increased scope for interdependent behaviour in the market. Interdependent behaviour includes an understanding among firms in the market to profitably increase price or to compete less vigorously. Competition can also be lessened if the merger allows firms to profitably lower quality or service, or to reduce product variety.

Preventing Competition

20. Competition can also be prevented by conduct that is either unilateral or interdependent. Competition can be prevented as a result of unilateral behaviour where a merger enables a single firm to maintain higher prices than what would exist in absence of the merger, by hindering or impeding the development of increased competition. For example, the acquisition of an increasingly vigorous competitor in the market or of a potential entrant would likely impede the development of greater competition in the relevant market. Situations where a market leader pre-empts the acquisition of the acquiree by another competitor, or where a potential entrant acquires an existing business instead of establishing new facilities, can yield a similar result. Competition can also be prevented where a merger will inhibit the development of greater rivalry in a market already characterized by interdependent behaviour. This can occur, for example, as a result of the acquisition of a future entrant or of an increasingly vigorous incumbent in a highly stable market.

Substantiality

21. In assessing whether competition is likely to be prevented or lessened substantially, the Bureau generally evaluates the likely magnitude, scope and duration of any price increase or reduction in quality, service or variety that is anticipated to result from the merger. In general, a prevention or lessening of competition will be considered to be "substantial" where the price of the relevant product is likely to be materially greater, in a substantial part of the relevant market than it would be in the absence of the merger, and where this price, quality, service or variety differential would not likely be eliminated within two years by new or increased competition from existing or new competitors. The Bureau is not confined to pricing measures and will consider any impact on quality, service, or variety, to the degree that competition is substantially lessened or prevented.