Competitio

Activity

n Manual
Training for Trainers

Birgit Schwabl-Drobir
Anastasios Xeniadis

Table of Content
A.

Introduction......................................................................................9

B.

Assessment of cartel agreements.......................................................10

1.

Art 5 Competition Act.......................................................................10

2.

An overview - Key elements of the prohibition of anti-competitive

agreements.............................................................................................11
2.1.

General remarks on Art 5 Competition Act........................................11

2.2.

Analytical Framework.....................................................................12

2.3.

Requirements of Article 5 (1) Competition Act...................................13

2.3.1.

Collusive Behaviour: Agreements, Decisions and Concerted Practices 13

2.3.2.

Undertakings or Associations of Undertakings.................................13

2.3.3.

Restriction of Competition (by Object or Effect)..............................13

2.3.4.

Appreciability.............................................................................14

3.

What is an undertaking?...................................................................14

3.1.

The concept of undertaking............................................................14

3.2.

Single enterprise doctrine...............................................................15

3.3.

Parental liability............................................................................16

4.

Definition of Agreement, Concerted Practice, Decision of Association of

Undertaking............................................................................................16
4.1.

Agreements..................................................................................17

4.2.

Concerted practices.......................................................................17

4.3.

Decision of Association of Undertakings............................................17

5.

Restriction of competition by object or effect.......................................18

5.1.

Introductory remarks.....................................................................18

5.2.

Object restrictions.........................................................................19

5.2.1.

General remarks.........................................................................19

5.2.2.

Per se restrictions of competition..................................................19

5.2.3.

Typology of cartel arrangements...................................................20

5.3.
2

Restrictions by effects....................................................................21

5.3.1.

Assessment of restrictive effects...................................................21

5.3.2.

Common types of horizontal agreements.......................................23

C.

Guidelines regarding vertical agreements............................................24

1.

Preamble - General Rules for the Assessment of Vertical Restraints:.......24

2.

Definitions Used in these Guidelines:..................................................26

2.1.

vertical agreement........................................................................26

2.2.

contract goods..............................................................................26

2.3.

agreement on exclusive supply (distribution)....................................27

2.4.

agreement on selective distribution.................................................27

2.5.

non-compete obligation..................................................................27

2.6.

intellectual property rights..............................................................27

2.7.

supplier.......................................................................................27

2.8.

purchaser.....................................................................................27

2.9.

customer of the purchaser/buyer.....................................................28

2.10.

active sale....................................................................................28

2.11.

passive sale..................................................................................28

2.12.

end user......................................................................................28

2.13.

agreement on reciprocal distribution................................................28

2.14.

hard core restrictions of competition................................................28

2.15.

resale price maintenance (RPM)......................................................29

2.16.

parallel import..............................................................................29

2.17.

genuine agent...............................................................................29

3.

Exemption Rule...............................................................................29

4.

Market Share Threshold....................................................................29

5.

Hardcore Restrictions of Competitions.................................................30

5.1.

Hard-core Restrictions in General....................................................30

5.2.

Prohibition....................................................................................31

6.

Non-hardcore Vertical Restrictions......................................................33

6.1.

Assignment of Intellectual Property Rights........................................33

6.2.

Non-compete Obligation.................................................................33

6.2.1.

Non-compete Obligation in General...............................................33

6.2.2.

Prohibition.................................................................................34

6.2.3.

Exemptions from Article 6.2.2......................................................34

7.

Agreements between Competing Undertakings.....................................35

8.

Withdrawal of Exemption..................................................................35

9.

Procedural Issues.............................................................................36

10.

Formal Notification Procedure............................................................36

D.

Guidance paper on verticals...............................................................36

E.

Merger Control...................................................................................39

F.

Undertakings Concerned......................................................................39

1.

Mergers..........................................................................................40

1.1.

Acquisition of sole control...............................................................40

1.1.1.

Acquisition of sole control of the whole company.............................40

1.1.2.

Acquisition of sole control of part of a company..............................40

1.1.3.

Acquisition of sole control after reduction or enlargement of the target

company 41
1.1.4.
1.2.

Acquisition of sole control through a subsidiary of a group...............41

Acquisition of joint control..............................................................42

1.2.1.

Acquisition of joint control of a newly-created company...................42

1.2.2.

Acquisition of joint control of a pre-existing company......................42

1.2.3.

Acquisition of joint control with a view to immediate partition of assets

42

1.3.

Acquisition of control by a joint venture............................................43

1.4.

Change from joint control to sole control..........................................44

1.5.

Change in the shareholding in cases of joint control of an existing joint

venture 44

1.5.1.

Reduction in the number of shareholders leading to a change from joint

to sole control..........................................................................................45
1.5.2.

Reduction in the number of shareholders not leading to a change from

joint to sole control..................................................................................45

1.5.3.

Any other changes in the composition of the shareholding................46

1.6.

Demergers and the break-up of companies.....................................47

1.7.

Exchange of Assets........................................................................47

1.8.

Acquisitions of control by individual persons......................................48

1.9.

Management buy-outs...................................................................48

1.10.

Acquisition of control by a state-owned company...............................49

G.
1.

Market Delineation...........................................................................49
The product market............................................................................50

1.1.

The demand side...........................................................................50

1.2.

The supply side.............................................................................52

2.

The geographic market.....................................................................53

2.1.

The demand side...........................................................................54

2.2.

The supply side.............................................................................54

3.

The competitive versus the current price.............................................55

H.

Calculation of Turnovers....................................................................55

1.

Net turnover.....................................................................................57

2.

Adjustment of turnover calculation rules for the different types of

operations...............................................................................................58
2.1.

The general rule............................................................................58

2.2.

Acquisitions of parts of companies...................................................59

2.3.

Staggered operations.....................................................................59

2.4.

Turnover of groups........................................................................59

2.5.

Turnover of State-owned companies................................................62

3.
3.1.
5

Credit and other financial institutions and insurance undertakings..........63

Calculation of turnover...................................................................64

3.2.

Insurance undertakings..................................................................65

I.

Developing and Assessing a Theory of Harm in Merger Control..................65

J.

Assessment of Possible Merger Remedies...............................................66

1.

Principles of remedies.......................................................................66

1.1.

Effectiveness................................................................................66

1.2.

Potential remedy burdens and costs.................................................67

1.3.

Merger efficiencies or other benefits foregone...................................69

1.4.

Transparency and consistency.........................................................69

2.

General rules...................................................................................70

3.

Basic conditions for acceptable commitments.......................................71

4.

Types of mergers.............................................................................72

5.

Types of remedies............................................................................73

5.1.

Procedure....................................................................................77

5.1.1.

Operating and monitoring trustees................................................78

5.1.2.

Monitoring.................................................................................79

5.1.3.

Divestiture process.....................................................................79

5.1.4.

Proposed purchaser approval.......................................................80

5.1.5.

Obligations of the parties in the interim period...............................82

K.

Dominance......................................................................................84

1.

Assessment of Dominant Position.......................................................84

1.1.

The interface between market definition and dominance assessment....84

1.2.

Market shares and market concentration..........................................86

1.2.1.

Market Shares............................................................................86

1.2.2.

Market concentration..................................................................89

1.3.

Barriers to entry and expansion......................................................91

1.3.1.

Entry barriers............................................................................91

1.3.2.

Barriers to expansion..................................................................95

1.3.3.

Assessment of entry barriers........................................................95

1.4.

Other barriers to entry...................................................................96

1.4.1.

Economies of scale and scope......................................................96

1.4.2.

Network effects..........................................................................98

1.4.3.

Deterrence strategies..................................................................98

1.5.

Buyer Power.................................................................................99

1.6.

Collective dominance...................................................................100

1.7.

Assessing dominance in aftermarkets.............................................101

2.

Abuse of Dominant Position.............................................................103

L.

Investigative methods and tools..........................................................104

1.

Investigation Decision.....................................................................104

1.1.

Introduction................................................................................104

1.2.

Examples of Types of Investigated Behaviour..................................105

1.2.1.

Price fixing...............................................................................105

1.2.2.

Market allocation......................................................................106

1.2.3.

Bid rigging...............................................................................106

1.3.

How a cartel operates..................................................................107

1.4.

Determination of evidence required................................................107

1.5.

Investigative strategy..................................................................108

1.5.1.

Investigation tools and resources................................................109

1.5.4.

Cooperation with foreign anti-cartel enforcement agencies.............110

1.6.

Time constraints..........................................................................110

1.7.

Selecting voluntary and/or compulsory tools...................................111

1.8.

Types and characteristics of the methods of collection of information. .112

2.

Legal aspects of the right of defence in investigation of competition cases

112

2.1.

The right to confidentiality in communication between lawyer and their

client

112

2.2.

The right against self-incrimination................................................117

3.
7

The main principles for operations with electronic evidence..................118

3.1.

Receiving the information stored in electronic format........................118

3.2.

Processing the information stored in electronic format......................119

3.3.

Storage of information received in electronic format.........................120

M.

Leniency program..........................................................................120

1.

Scope of leniency...........................................................................120

2.

Thresholds for immunity..................................................................121

3.

Excluded applicants........................................................................121

4.

Thresholds for the reduction of fines.................................................122

5.

Partial immunity.............................................................................125

6.

Conditions attached to leniency........................................................126

7.

Procedure.....................................................................................128

7.1.

Full application system.................................................................128

7.2.

Hypothetical/Anonymous applications.............................................129

7.3.

Conditional immunity notification...................................................129

7.4.

Notifying the company on whether significant added value has been

provided................................................................................................130
7.5.
8.

Oral applications..........................................................................131
Miscellaneous................................................................................131

8.1.

Leniency for individuals................................................................131

8.2.

Personal scope of the corporate leniency program............................132

N.

Fining...........................................................................................132

1.

General Notions.............................................................................132

2.

Fines in the Context of the General Legal Framework..........................133

3.

Fining Principles in the EU...............................................................134

4.

Fine Calculations in Moldova............................................................135

Literature..............................................................................................137

A. Introduction

10

B.

Assessment of cartel agreements

The purpose of this document is to provide practical guidance on the respective

elements of the substantive provision of the prohibition of anti-competitive
agreements pursuant to Art 5 Competition Act with view to the most serious
infringements of competition law, that is, cartels. In the context of its application
regard must be had to the Art 101 TFEU. To that effect, this document, whenever
necessary and appropriate, refers to the relevant case law of the Court of Justice
of the European Union in order to evaluate the single elements of Art 5
Competition Act. Although this document focuses on horizontal issues, the
considerations in it are also useful for vertical agreements which are covered in a
separate document.

1. Art 5 Competition Act

(1)The following shall be prohibited, no prior decision to the effect being
required:

all

agreements

between

undertakings

or

associations

of

undertakings, decisions by associations of undertakings and concerted

practices (hereinafter agreements) which have as their object or effect the
prevention, restriction or distorting of competition.
(2)The agreements prohibited under the present article shall be automatically
void.
(3)Anticompetitive agreements, without limiting to these, are deemed to be
those which:
a) directly or indirectly fix purchase or selling prices or any other trading
conditions;
a) limit or control production, commercialization, technical development,
or investment;
b) share markets or sources of supply;
c) bids rigging or any other forms of competitive tendering;
d) Eliminate other undertakings from the market, limiting or preventing
access to the market and the free exercise of competition between
other undertakings, as well as agreements not to buy or sell without
reasonable justification.
e) apply dissimilar conditions to equivalent transactions with other trading
11

parties, thereby placing them at a competitive disadvantage;

f) Make the conclusion of contracts subject to acceptance by the other
parties of supplementary obligations which, by their

nature

or

according to commercial practice, have no connection with the subject

of such contracts.
(4)Agreements concluded between undertakings, which are not independent
of each other do not qualify as anticompetitive agreements.
(5)Where it was established that an agreement has competition restriction or
distortion as its object, the Competition Council shall not proved the
existence of anticompetitive effects in order to establish any competition
restriction in the meaning of present law.

2. An overview - Key elements of the prohibition of

anti-competitive agreements
1.1.

General remarks on Art 5 Competition Act

It is submitted that the objective of Art 5 (1) Competition Act is to preserve

effective competition, that is to say, the process of rivalry between independent
economic operators when they strive for the patronage of customers. 1 It is well
recognised that competition between companies is a means of enhancing
consumer welfare and of ensuring an efficient allocation of resources.
The commercial independence and freedom of choice of economic operators are
essential conditions for the existence of effective competition on the market. 2 To
that effect, the terms "prevention, restriction or distortion of competition" may
be used collectively as a comprehensive description of the anti-competitive
effects of an agreement3 on the "normal" conditions of competition on a market.
1 Scherer and Ross, Industrial Market Structure and Economic Performance, (3rd
edn 1990).
2 See French inland waterway charter traffic: EATE levy, OJ 1985 L 219/35, 42,
[1988] 4 CMLR 698.
3 The prohibition rule of Art 5 (1) applies to restrictive agreements, concerted
practices between undertakings, and decisions by associations of undertakings.
In the following, the term agreement is meant to be understood as to also
12

1.2.

Analytical Framework

Art 5 Competition Act contains a prohibition of anticompetitive collusive

behaviour (hereinafter collectively referred to as agreements). 4 The first step is
thus to assess whether the conduct under scrutiny fulfills the conditions under
Art 5 (1) Competition Act as detailed below, in particular whether it has an
anticompetitive object or effect.
Unless the agreements at issue do not constitute horizontal hardcore cartels
within the meaning of Art 7 Competition Act, the second step is to assess
whether there the conditions for an exemption under Art 6 Competition Act are
satisfied, by balancing anti-competitive and pro-competitive effects.
In practice, in order to determine whether an agreement prevents, restricts or
distorts competition two main considerations are of essence: First, it is inherent
in the concept of undistorted competition that the economic operators on a given
market independently determine the policy they intend to adopt on the market.
This does not prevent them from adapting themselves intelligently to the existing
and anticipated conduct of their competitors. However, it strictly precludes any
direct or indirect contacts between them, the effect or object of which is either to
influence the conduct on the market of an actual or potential competitor or to
disclose to such a competitor the course of conduct which is contemplated. 5
Secondly, it is necessary to consider the competition that would have taken place
in the absence of the agreement. As regards hardcore cartels pursuant to Art 7
Competition Act, it must be stressed that they are per se restrictions of
competition and do not require an detailed analysis of the anticompetitive
effects.

include "concerted practices" and "decisions by associations of undertakings".

4 Generally, the prohibition rule of Art 5 (1) Competition Act applies to both horizontal
and vertical restrictions of competition. However, it is to be stressed that the guidelines
deals primarily with horizontal issues. Horizontal agreements are deemed to be worse
from a competition viewpoint than vertical agreemens.

5 See joined Cases 40-48, 50, 54-56, 111 and 113-114/73, Suiker Unie and
Others v Commission [1975] ECR 1663, paras 173 and 174.
13

Whereas the NAPC is required to proof that all conditions of the prohibition rule
in Art 5 (1) Competition Act are met, the burden of proof as regards the
conditions for an exemption under Art 6 (1) Competition Act is with the
undertakings or association of undertakings concerned.

1.3.

Requirements of Article 5 (1) Competition Act

1.3.1. Collusive Behaviour: Agreements, Decisions and Concerted Practices

There are three categories of collusive conduct falling within the scope of the
prohibition: Agreements concerted practice - decisions of associations of
undertakings. All of these notions are defined in Art 4 Competition Act and are
elaborated further in chapter 4 of the guidelines. The dividing line between these
types of collusive behaviour is difficult to draw and overlaps may occur. Taken
together, this notions however draw a critical dividing line between illegal
collusive practices and lawful independent (albeit) parallel behaviour. The terms
are to be interpreted broadly with the aim to have all forms of co-ordination and
collusion between independent undertakings embraced by the prohibition rule. 6

1.3.2. Undertakings or Associations of Undertakings

The collusive behaviour has to involve two or more independent undertakings.

Behaviour within a single economic entity (e.g. parent company and subsidiary,
where the latter may not autonomously determine its market conduct; principle
and agent) is excluded.
Both categories of actors to which the prohibition rule applies, undertaking and
association of undertaking, are defined in Article 4 Competition Act and
elaborated further in chapter 3.

6 Compare ECJ Case C-49/92 P, Commission v Anic Partecipazioni [1999] ECR I4125, para 112.
14

1.3.3. Restriction of Competition (by Object or Effect)

An agreement is only prohibited by Art 5 (1)

Competition Act if its object or

effect is to restrict competition. Art 5 (1) Competition Act distinguishes between

agreements that have a restriction of competition as their object and those
agreements that have a restriction of competition by their effect. Restrictions by
object are those that by their very nature have the potential of restricting
competition (in detail see below chapter 5.2), whereas in all other cases the
actual or potential anticompetitive effects of the agreement need to be examined
(compare chapter 5.3).
Consequently, the distinction between restriction by object and effect is very
important for the NAPCs assessment of a case: Once it has been established that
an agreement has as its object the restriction of competition, the NAPC is not
required to prove concrete anti-competitive effects. This is explicitly stated in Art
5 (5) Competition Act.
The qualification as restrictions by object furthermore has important implications
on the applicability of the exemption rule in Art 6 Competition Act and the
prohibition of agreements of minor importance as laid down in Art 9 Competition
Act.
It is also submitted that Art 5 (1) Competition Act applies not only to restrictions
of actual competition but also to potential competition.

1.3.4. Appreciability
In order to be caught by the prohibition as set out by Art 5 Competition Act, an
agreement needs to have an appreciable impact on competition. Art 8
Competition

Act

determines

this

requirement

by

explicitly

excluding

anticompetitive agreements of minor importance on the basis of market shares

and exempting these from the application of Art 5 Competition Act (except the
kind of agreements referred to in Art 9 Competition Act).

15

3. What is an undertaking?
1.4.

The concept of undertaking

A legal definition of the term undertaking is provided in Art 4 Competition Act:

"Undertaking- any private legal person, including individual entrepreneurs and
their associations involved in economic activity consisting in offering/purchasing
products on a market, regardless of its legal status and the way of financing,
including persons who practice free professional activity and their associations."
It is submitted that the term undertaking applies to every form of activity of an
economic or commercial nature, quite irrespective of whether its purpose is to
make a profit or not. The specific legal form under which the undertaking is run
is immaterial. What is important, however, is that some form of economic or
commercial

activity

is

involved.

Limited

companies,

partnerships,

sole

proprietorships, non profit-making organisations and associations of undertakings

(e.g. trade association) are all to be understood as undertakings. Activities in the
public sector may potentially fall into this category.
In this context, regard should be had to the interpretation of the European Court
of Justice (hereafter referred to as ECJ) which provides further guidance on what
can be regarded as an undertaking. According to the CJFU, every entity
engaged in an economic activity, regardless of the legal status of the entity and
the way in which it is financed may be regarded as an undertaking.
Against this background, it is submitted that the economic entity, in order to be
regarded an "undertaking", must offer goods or services on a given market und
does not have a purely social goal. Yet, no specific intention to earn profits is
required. The focus is on the entitys economic activity, rather than on the entity
as such. One entity may constitute an undertaking in respect of certain activities,
but not in respect to others. Also, undertakings may either be legal persons or
natural persons.

16

1.5.

Single enterprise doctrine

Art 5 Competition Act does not apply to agreements between entities which
belong to the same single economic unit (i.e., group of undertakings). To that
effect, agreements between a parent and its subsidiary company, or between two
companies which are under the control of a third, will not be an agreement
between undertakings, if the subsidiary has no real freedom to determine its
course of action on the market and, although having a separate legal personality,
enjoys no economic independence.7

1.6.

Parental liability

The Competition Act applies to "undertakings". Also, in accordance with

Competition Act it is the undertaking that is held accountable for a violation of
Art 5 Competition Act.
It is submitted that the notion of undertaking is an economic concept rather than
a formal legal one and an undertaking may be composed of several legal entities.
Thus, the general scheme for attributing liability in a decision with fines can be
stated as follows: first, it is necessary to determine the economic unit, i.e.,
undertaking, which took part in the infringement; secondly, it is necessary to
consider which legal entities within that undertaking can be held liable for the
infringement.
There are the following principle grounds for liability to attribute liability to a
legal entity:

The primary basis for liability is what may be called direct involvement in
the cartel conduct.

Other entities forming part of the same undertaking, i.e., the parent
company, may be held liable for the infringement for the actual exercise of
decisive influence, i.e, the subsidiary did not act autonomously in the market
and, thus, could not determine the its course of conduct on the market
independently (e.g., Case T-9/99 HFB and other vs Commission [2002] ECR II1487).
7 Case 22/71 Beguein Import v GL Import Export [1971] ECR 949 [1972] CMLR
81.
17

4. Definition of Agreement, Concerted Practice,

Decision of Association of Undertaking
A legal definition of the term agreement and horizontal agreement is
provided in Art 4 Competition Act:
Agreement any form (verbal or written) of manifestation of common will,
regarding the conduct on the market expressed by two or more independent
undertakings;
Horizontal agreements agreement or concerted practice between two or
more undertakings which function at the same level/levels on the market

1.7.

Agreements

In the light of the definition stated in Art 4 Competition Act it is submitted that
an agreement can be said to exist when the parties adhere to a common plan
which limits or is likely to limit their individual commercial conduct by
determining the lines of their mutual action or abstention from action in the
market. While it involves joint decision-making and commitment to a common
scheme, it does not have to be made in writing; no formalities are necessary,
and no contractual sanctions or enforcement measures are required.
Also, there do not have to be physical meetings of the parties for an agreement
to be reached. Indeed, an exchange of letters or telephone calls may already
suffice.

1.8.

Concerted practices

Art 5 of Competition Act also applies to concerted practices. The boundary

between the two concepts is imprecise. The key difference is that the term
concerted practice applies to less formal arrangements. That is, a concerted
practice does not however require the participants to have reached an actual
agreement express or implied regarding the terms of their mutual action or
18

abstention from action. Indeed, the ECJ confirmed in Suiker Unie that the
concept in no way requires the working out of an actual plan.

1.9.

Decision of Association of Undertakings

Art 5 of Competition Act provides that collusive behaviour can also be expressed
by decisions of associations of undertakings. In this regard, it should be
mentioned

that

undertakings

may

act

jointly

in

the

context

of

more

institutionalised frameworks, in particular, through the intermediary of an

association. In this respect, the ECJ has construed the concept of association of
undertakings extensively, that is, any body which represents the interest of its
members is eligible for the qualification as an association of undertakings.
In practice, it covers not only trade associations but also a myriad of bodies with
statutory, disciplinary, regulatory and executive duties. e.g. General Council of
the Dutch Bar; Belgian Architects professional order; agricultural cooperatives.

5. Restriction of competition by object or effect

1.10. Introductory remarks
Generally, the prohibition rule of Art 5 (1) Competition Act distinguishes between
restrictions of competition by object and restrictions by effect. The distinction
between restrictions by object and restrictions by effect is important insofar as
there is no need to take account of the concrete effects of an agreement once it
has been established that it has as its object the restriction of competition. That
is, where an agreement has as its object the restriction of competition, it is
unnecessary to prove that the agreement would have an anti-competitive effect
in order to find an infringement of Art 5 (1) Competition Act.
A restriction of competition does not fall under the scope of Art 5 (1) Competition
Act unless it has an appreciable impact on competition in the relevant market.
Pursuant to Art 8 (1) Competition Act agreements that do not significantly
restrict competition are deemed of minor importance and, thus, will fall outside
the scope of the prohibition rule of Art 5 (1) Competition Act.
19

Art 9 (1) Competition Act stipulates an important exception to the de minimis

rule according to which for certain restrictions enumerated in Art 5 Competition
Act there are no "safe harbours" for restrictions pursuant to Art 5 Competition
Act.

1.11. Object restrictions

1.11.1.

General remarks

Generally, in order to be able to determine whether an agreement restricts

competition by its object, it also needs to be assessed in its economic and legal
context. However, certain types of agreements blatantly go against what the
prohibition rule aims at protecting, i.e. the process of rivalry, so that, according
to the Community Courts, a detailed analysis of the facts underlying the
agreement and the specific circumstances in which it operates is not required.
Types of agreements that would typically be qualified as restrictive by object are:
(i) price fixing; (ii) market sharing; (iii) group boycotts (collective exclusive
dealing); (iv) the exchange of commercially sensitive (i.e. price) information; (v)
limiting output; or (vi) limiting sales. These types of restrictions, given their
negative impact on the most important parameters of competition, by their very
nature have the potential of restricting competition so that it is, according to the
Community Courts, unnecessary to carry out a detailed market analysis and
show the agreement had actual effects on the market.

1.11.2.

Per se restrictions of competition

Art 7 Competition Act stipulates that certain horizontal agreements are to be

regarded as hardcore cartels and are presumed to per se restrict competition.
The reference to per se implies that all restrictions of competition are, by law,
automatically considered object restrictions irrespective of the effects on the
market and, thus, do not require an in-depth analysis of the facts underlying the

20

agreement and the specific circumstances in which it operates. 8 However, regard

must be had that Art 7 Competition Act only gives rise to a presumption which is
rebuttable by the parties of an agreement.
Furthermore, Art 9 (1) Competition Act precludes that such restrictions are
weighed against any claimed efficiencies/pro-competitive effects in the context of
Art 6 Competition Act as hardcore cartels do not benefit of the exemption of Art
6 Competition Act.

1.11.3.

Typology of cartel arrangements

Generally, hardcore cartels typically involve collusion on prices, other commercial

terms applied to transactions, output levels, allocation of market shares, or
customers or geographic areas. According to this broad classification of collusive
arrangements the following restrictive practices can be distinguished within each
category:
(i) Price fixing
Price fixing schemes may have different facets but it is submitted that
competitors commonly agree on either the level of prices or the timing of
price increases (horizontal price restraint). Furthermore, it is also not allowed
that the producer and the reseller agree on end consumer prices (vertical
price restraint).
As regards the level of prices, competitors may not agree on common selling
prices or a common price calculation formula. Similarly, common systems to
calculate costs in order to determine the final sales prices allow competitors
to more easily compare their respective prices and, thus, to coordinate their
action on the market.9 Also, competitors may not fix prices by agreeing on
minimum selling prices despite leaving companies the possibility to charge
customers above the agreed minimum level.10
8 It is submitted, though, that the exact meaning of the term per se is not
defined in the Competition Act.
9 Glass containers, [1974] OJ L 160/1, para 46.
10 Case 8/72 Vereeniging van Cementhandelaren v Commission [1972] ECR
977, para. 21.
21

(ii) Limitation or control of production or markets

Given that the price is a function of output and demand, any restriction in
output by manufactures has the potential to affect prices. To that effect,
arrangements to limit the production are often corollary to agreements on
prices.
A means to restrict output is to allocate production or sales quotas among the
cartel participants which frequently occurs along the lines of the market
shares of the respective competitors. Other ways to limit production is to
agree to scale back on marketing, distribution or investment efforts.
(iii) Sharing markets and customers
Market or customer sharing agreements may exist separately but may also be
concluded

together

with

other

price

fixing

arrangements

since

such

agreements ultimately also aim at increasing prices.

Market sharing practices may take different forms, such as the allocation of
certain sales regions or distribution channels. As regards the allocation of
customers, this usually takes place by agreeing to respect each others
traditional customers, i.e. to keep the own customers and not to expand sales
and marketing efforts to the other competitors customers.
(iv) Co-ordinated boycotts and concerted refusal to deal
Competitors are not allowed to agree on measures to keep other competitors
away from their markets with a view to protect their cartelised markets
which, as a consequence, contributes not only to reduce customers choice
but also to maintain price levels above of which that would have prevailed if
another competitor would have entered the market. This can be achieved by
blocking imports or agreeing with other competitors to share out their
resources of supply.

22

1.12. Restrictions by effects

1.12.1.

Assessment of restrictive effects

If a agreement does not restrict competition by object (see chapter 5.2), it must
be assessed whether it has restrictive actual or potential effects on competition,
i.e. (appreciable) adverse effects on at least one of the parameters of
competition, such as in particular price, output, product quality, product variety
or innovation. Potential effects are given, if it is likely that the agreement
produces anti-competitive effects.
To this end, a comprehensive analysis of the effects of the agreement in its
market context is required. This analysis is done by way of comparison of the
actual legal and economic context which would occur in the absence of the
agreement. In other words, a counter-factual11 needs to be established by
determining which actual or potential competition would have existed in the
absence of the agreement. This comparison, however, does not include an
analysis of (potential) efficiency gains, these are to be assessed in the framework
of Art 6 Competition Act.
Possible anticompetitive effects (i.e., theories of harm) are the following: the loss
of competition between the undertakings involved, the enhanced risk of
coordination through the access to strategic business information of the parties
to the agreement on the one hand or a communality of costs (e.g. production
agreements) on the other hand, and potential foreclosure (e.g. production
agreements, standardisation agreements).
Relevant factors when carrying out the analysis are:
The nature and content of the agreement: An agreement may concern very
different

stages

of

the

undertakings

activities

(e.g.

R&D,

commercialisation).

11 That is the situation on the market in absence of the agreement.

23

production,

Market power: The market power12 is another crucial factor when analysing the
effects of an agreement. Therefore the analysis requires a definition of the
relevant market(s) and a determination of market shares of the parties. The
applicability of Art 5 (1) Competition Act is explicitly excluded when the market
shares do not meet the thresholds of Art 8

Competition Act regarding

agreements of minor importance. In all other cases, the degree of market power
causing competitive concerns depend on a number of factors, such as the type of
agreement and the market situation (e.g. distribution of market shares, stability
of market shares, barriers of entry).

1.12.2.

Common types of horizontal agreements

(i) Research and Development Agreements:

Generally, R&D agreements have positive effects, such as the development of
new products or cost savings which may result in lower prices. Therefore,
restrictive effects will only occur in particular cases, for instance where the
undertakings possibilities to engage in other R&D activities are unreasonably
restricted.13
(ii) Production Agreements
Joint production may result in cheaper prices because of cost savings through
better production technologies and/or economies of scale. Nevertheless, anticompetitive effects are possible, such as a collusive outcome because of a
significant communality of costs or foreclosure, if the product concerned is an
important imput and the parties are capable to raise rivals costs.
(iii) Purchasing Agreements
Joint procurement may lead to cheaper prices because of enhanced
bargaining power vis--vis suppliers, which may also result in lower retail
prices (if there is functioning competition at the selling market). Nevertheless,
there are a number of possible theories of harm, namely the risk of collusion

12 It shall be noted that the degree of market power required in this context is
less than the one required for a finding of dominance held individually and jointly
by the parties.
13 It shall be stressed that theses restrictions would constitute infringements by
object.
24

(through communality of costs or information exchange) or effects resulting

from enhanced buying power.
(iv) Commercialisation Agreements
Commercialisation agreements may vary significantly in scope, i.e. they may
cover the whole process of commercialisation (including price setting) or only
single

elements

(e.g.

advertising,

after-sales-services).

The

potential

restrictive effects vary according to the extent of integration of functions, but

joint price setting will certainly give rise to competitive concerns. 14

C. Guidelines regarding vertical agreements

Purpose Implementation of the Regulation envisaged in Art. 6 (3) of
the Draft Law on Competition of Moldova regarding exemption from a
prohibition of certain vertical agreements
Guidelines Regarding the Assessment and the Exemption of Certain
Vertical Agreements from the Prohibition of the Agreement Specified in
Article 5 of the draft Competition Law of Moldova
These guidelines govern the criteria according to which certain vertical
agreements between market participants are assessed pursuant to Article 5 of
the Competition Law (in the following CL). In this context exemptions to the
cartel prohibition are set out.

1 Preamble - General Rules for the Assessment of

Vertical Restraints:
The Authority applies the following general rules when assessing vertical
restraints. In the case of an individual examination by the Authority, the
Authority will bear the burden of proof that the agreement in question infringes
Article Article 5 of CL. The undertakings claiming the benefit of Article 6 of CL
bear the burden of proving that the necessary conditions are fulfilled. The
14 See FN above.
25

Authority asks parties to submit such evidence early in the investigation process
to avoid unnecessary efforts and costs for the Authority and the parties.

The assessment of whether a vertical agreement has the effect of restricting

competition will be made by taking regard to the actual or likely future situation
in the relevant market with the vertical restraints in place as opposed to what
would have been the situation in the absence of such vertical restraints.
Appreciable anticompetitive effects are likely to occur when at least one of the
parties has or obtains some degree of market power and the agreement
contributes to the creation, maintenance or strengthening of that market power
or allows the parties to exploit such market power.

The negative effects on the market that may result from vertical restraints which
the Competition law aims at preventing are the following: (i) anticompetitive
foreclosure of other suppliers or other buyers; (ii) hindrance of competition and
facilitation of collusion between the supplier and its competitors; (iii) hindrance
of

competition

between

and

facilitation

of

collusion

the

buyer

and

its

competitors; (iv) the creation of obstacles to market integration.

On a market where individual distributors distribute the brand(s) of only one

supplier, a reduction of competition between the distributors of the same brand
will lead to a reduction of intra-brand competition. However, if inter-brand
competition is fierce, it is unlikely that a reduction of intra-brand competition
trough restrictions which do not contain hardcore restrictions of competition will
have negative effects for consumers.

Exclusive arrangements are generally worse for competition than non-exclusive

arrangements.

For

instance,

under

non-compete

obligation

the

buyer

purchases only one brand. A minimum purchase requirement, on the other hand,

26

may leave the buyer scope to purchase competing goods and the degree of
foreclosure may therefore be (much) less.

Vertical restraints agreed for non-branded products are in general less harmful
than restraints affecting the distribution of branded products. The distinction
between non-branded and branded products will often coincide with the
distinction between intermediate products and final products.

Vertical restraints may have positive effects by, in particular, promoting non-price
competition and improved quality of services. The case of efficiencies is in
general strongest for vertical restraints of a limited duration which help the
introduction of new complex products, which protect relationship-specific
investments or which facilitate the transfer of know-how.

In general, Article 5 of CL will not apply to any agreement between a supplier

and its genuine agent, i.e. such agreements may include fixed prices, territorial
restrictions as well as customer restrictions. However, Article 5 of CL may apply
where an agency agreement goes beyond genuine agency and includes
provisions according to which an agent accepts commercial and financial risks (of
the kind normally accepted by a distributor) in selling the suppliers contract
products.

Article 5 of CL does not apply to agreements between companies that form part
of a single economic entity. In determining whether one company is part of the
same economic entity as another, focus is to be put on the concept of
autonomy. Where companies do not enjoy real autonomy in determining their
course of action on the market, but instead carry out the instructions issued to
them by their parent company, they will be seen as part of the same economic
entity as the parent company. A 50/50-owned joint venture, for example, does
not constitute a single economic entity with its parents, so that Article 5 of CL, in
27

general, applies to vertical restraints concluded between the parent companies

and the joint venture.

Under Article 5 of CL, restrictions of competition infringing Article 5 of CL and not

qualifying for exemption under Article 6 of CL are rendered null and void. There
are two main alternative consequences either the entire agreement is void and
unenforceable or the prohibited restriction alone is void and unenforceable.

6. Definitions Used in these Guidelines:

1.13. vertical agreement
agreement or concerted practice entered into between two or more
undertakings each of which operates, for the purposes of the agreement or the
concerted practice, at a different level of the production or distribution chain, and
relating to the conditions under which the parties may purchase, sell or resell
certain goods or services;

1.14. contract goods

goods or services, which are the subject of a vertical agreement;

1.15. agreement on exclusive supply (distribution)

vertical agreement, according to which a supplier directly or indirectly
undertakes to sell contract goods to only one purchaser in the particular territory
for specific use or resale;

1.16. agreement on selective distribution

vertical agreement, according to which a supplier directly or indirectly
undertakes to only sell contract goods to distributors selected according to
28

specific criteria and these distributors undertake not to sell the contract goods to
unauthorised distributors.

1.17. non-compete obligation

within the meaning of these Guidelines vertical agreement, according to
which a purchaser directly or indirectly undertakes not to produce, purchase or
sell goods competing with the contract goods, or directly or indirectly undertakes
to purchase more than 80 per cent of the total purchase amount of contract
goods or competing goods thereof in the particular market from the supplier or
from a market participant indicated by the supplier during the preceding calendar
year;

1.18. intellectual property rights

within the meaning of these Guidelines industrial property rights, copyright
and neighbouring rights;

1.19. supplier
within the meaning of these Guidelines a producer or another market
participant who sells contract goods to a purchaser;

1.20. purchaser
a market participant who purchases goods for a specific use or resale thereof;

1.21. customer of the purchaser/buyer

- means an undertaking not party to the agreement which purchases the contract
goods or services from a buyer which is party to the agreement.

29

1.22. active sale

active actions of a distributor of goods, the purpose of which is to sell goods to
clients in the exclusive territory allocated to an another distributor or to an
exclusive client group, for example, using direct mail and visits, arranging trade
sites or with the aid of other active measures;

1.23. passive sale

selling goods to individual clients upon their request (including delivery of
goods to such clients), without performing measures directed towards the
creation or increase of demand for goods in exclusive client groups or among the
clients of an exclusive territory;

1.24. end user

within the meaning of these Guidelines a natural or legal person who
purchases contract goods for personal use, not resale;

1.25. agreement on reciprocal distribution

within the meaning of these Guidelines an agreement between competitors,
including producers and service providers, according to which participants of the
agreement mutually undertake to distribute the goods produced or supplied by
the other participant of the agreement;

1.26. hard core restrictions of competition

- hard-core vertical restraints are: the fixing of minimum resale prices; certain
types of restriction regarding the customers to whom or the territory into which a
buyer can sell the contract goods; restrictions on members of a selective
distribution system supplying each other or end users; and restrictions on
component suppliers selling components as spare parts to the buyers finished
product;
30

1.27. resale price maintenance (RPM)

- the practice whereby a supplier / reseller and its distributors agree that the
latter

will

sell

maintenance),

the
at

former's
or

above

product
a

price

at

certain

floor

prices

(minimum

(resale

price

resale

price

maintenance) or at or below a price ceiling (maximum resale price

maintenance). Recommended retail price (RRP) of a product is the price
which a supplier / reseller recommends to the retailer for the sale of the product;

1.28. parallel import

- a genuine product, bearing an authorized trademark, intended for sale in one
country, but which is instead sold without the authorization of the trademark
owner in a second country with higher market prices. In other words, the goods
acquired from authorized dealers responsible for distribution in a "cheap" country
are imported into an "expensive" country and compete with the goods distributed
by authorized dealers in the "expensive" country. As a result, intra-brand
competition in the import market will increase and, most probably, prices will
decrease;

1.29. genuine agent

- bears no substantial financial risk in respect of the transactions in which it acts
as agent.

7. Exemption Rule
Pursuant to Article 6 of CL and subject to the provisions of these guidelines, it is
hereby declared that the cartel prohibition contained in Article 5 of CL shall not
apply to vertical agreements. This exemption shall apply to the extent that such
agreements contain vertical restraints.

31

8. Market Share Threshold

The exemption provided for in Article 3 shall apply on condition that the market
share held by the supplier does not exceed 30 % of the relevant market on which
it sells the contract goods or services and the market share held by the buyer
does not exceed 30 % of the relevant market on which it purchases the contract
goods or services.

9. Hardcore Restrictions of Competitions

1.30. Hard-core Restrictions in General
In the case of contractual provisions or concerted practices that directly establish
the resale price, the restriction is obvious. However indirect resale price
maintenance may occur, for example, by fixing the distribution margin, fixing the
maximum level of discount the distributor can grant from a prescribed price
level, making the grant of rebates or reimbursement of promotional costs by the
supplier subject to the observance of a given price level, linking the prescribed
resale price to the resale prices of competitors, threats, intimidation, warnings,
penalties, delay or suspension of deliveries or contract terminations in relation to
observance of a given price level 15. Recommended sales prices, on the other
hand, are generally seen to be in compliance with Article 5 of CL.
As territorial restrictions can lead to market partitioning, the Authority will
consider such restraints as hard-core restraints that will almost always fall within
Article 5 of CL and will hardly ever qualify for exemption under Article 6 of CL.
Where a supplier sets up a network of exclusive distributorships and prevents
each buyer from actively selling into a territory granted exclusively to another
buyer (or reserved to the supplier itself), the Authority accepts that this may
lead to an increase in inter-brand competition, provided the restrictions relate
15For other examples, as the list of indirect resale price maintenance cases is not
exhaustive, see Commission Notice, Guidelines on Vertical Restraints,
( SEC/2010/0411 final) Art.48
32

only to active sales (ie, they do not cover passive or unsolicited sales) into
territories granted on an exclusive basis to another buyer or to the supplier itself
and the market share on the relevant markets does not exceed 30%. Where
restrictions on active sales into territories reserved exclusively to another buyer,
or the supplier itself, are imposed by supplier having market shares in excess of
30 per cent, such arrangements may qualify for individual exemption under
Article 6 of CL in special situations.
Customer restrictions give rise to issues similar to those arising in the case of
territorial restrictions and are viewed by the Authority as hard-core restrictions.
As such, limitations on a buyers sales to particular classes of customer will
almost always fall within Article 5 of CL and will hardly ever qualify for exemption
under Article 6 of CL. The assessment is similar to the aforementioned
assessment of territorial restrictions.
A policy of restricting parallel imports through which the seller is restricting
the distributors right to conduct active or passive sales into a different country is
generally prohibited. It is only allowed to restrict active sales into a territory
which has been exclusively allocated to another distributor.
Selective distribution systems will fall outside Article 5 of CL where distributors
are selected on objective criteria of a purely qualitative nature. In order to satisfy
this doctrine: (i) the contract products must be of a kind necessitating selective
distribution (eg, technically complex products where after-sales service is of
paramount importance and products where brand image is of particular
importance); (ii) the criteria by which buyers are selected must be objective; and
(iii) the restrictions imposed must not go beyond that which is necessary to
protect the quality and image of the product in question.

1.31. Prohibition.
The vertical agreement shall be subjected to the prohibition of agreement if the
purpose of the agreement directly or indirectly, in isolation or in combination with
other factors under the control of the parties, have as their object:

33

5.2.1. to restrict the opportunity of a purchaser to determine the sales

price. A supplier is entitled to determine the maximum or recommended
sales price provided that the participants of the agreement do not thus
covertly introduce a specific or minimum sales price with their actual action;
5.2.2. the restriction of the territory into which, or of the customers to whom,
a buyer party to the agreement, without prejudice to a restriction on its place
of establishment, may sell the contract goods or services, except:
a) the restriction of active sales into the exclusive territory or to an exclusive
customer group reserved to the supplier or allocated by the supplier to
another buyer, where such a restriction does not limit sales by the customers
of the buyer. This means that such protection of exclusively allocated
territories or customer groups must, however, permit passive sales to such
territories or customer groups.16
b) the restriction of sales to end users by a buyer operating at the wholesale
level of trade;
c) a prohibition to participants of the selective distribution network to sell
contract goods to unauthorised distributors;
d) the restriction of sales by the members of a selective distribution system to
unauthorised distributors within the territory reserved by the supplier to
operate that system, and
d) the restriction of the buyer's ability to sell components, supplied for the
purposes of incorporation, to customers who would use them to manufacture
the same type of goods as those produced by the supplier;
5.2.3. a prohibition to participants of the selective distribution network who
perform economic activities at the retail trade level to perform active or
passive selling to end users unless such activities are not performed from an
unauthorised trade site;
5.2.4. a prohibition to participants of the selective distribution network (also
participants who perform economic activities at different levels of trade) to
perform cross-supplies;
5.2.5 the restriction, agreed between a supplier of components and a buyer
who incorporates those components, of the suppliers ability to sell the
16 For examples of hardcore restrictions of passive selling see for example
Verical guidelines, Art. 52.
34

components as spare parts to end-users or to repairers or other service

providers not entrusted by the buyer with the repair or servicing of its goods.

10.

Non-hardcore Vertical Restrictions

1.32. Assignment of Intellectual Property Rights

The exemption provided for in Article 3 shall apply to vertical agreements
containing provisions which relate to the assignment to the buyer or use by the
buyer of intellectual property rights, provided that those provisions do not
constitute the primary object of such agreements and are directly related to the
use, sale or resale of goods or services by the buyer or its customers. The
exemption applies on condition that, in relation to the contract goods or services,
those provisions do not contain restrictions of competition having the same
object as vertical restraints which are not exempted under these guidelines.

1.33. Non-compete Obligation

1.33.1.

Non-compete Obligation in General

The Authority recognises that such clauses can be precompetitive because, for
example, they provide a guarantee of ensured sales to the supplier and a
guarantee of continuous supply to the buyer. As such, providing non-compete
clauses do not have a duration exceeding five years, they are deemed legal if the
market

share

on

the

relevant

markets

does

not

exceed

30%.

If

the

aforementioned criteria are not met, non-compete clauses may nevertheless fall
outside the scope of Article 5 of CL or, alternatively, may satisfy the conditions
for exemption under Article 6 of CL, depending on the market positions of the
parties, the extent and duration of the clause, barriers to entry and the level of
countervailing buyer power.
A requirement pursuant to which the buyer is obliged to purchase from the
supplier a certain amount or minimum percentage of its requirements of the
contract is considered akin to noncompete clauses, effectively restricting the
35

ability of the buyer to stock products competing with the contract products. They
are therefore subject to a similar antitrust assessment. In particular the following
clauses are equivalent to a non-compete clause: obligations on the buyer to
purchase 80 per cent or more of its requirements of the products in question
from the supplier and obligations to purchase minimum volumes amounting to
substantially all of the buyers requirements (quantity forcing).

1.33.2.

Prohibition

The exemption provided for in Article 3 of these Guidelines shall not apply to the
following obligations contained in vertical agreements:
(a) any direct or indirect non-compete obligation, the duration of which is
indefinite or exceeds five years. A non-compete obligation which is tacitly
renewable beyond a period of five years shall be deemed to have been concluded
for an indefinite duration;
(b) any direct or indirect obligation causing the buyer, after termination of the
agreement, not to manufacture, purchase, sell or resell goods or services;
(c) any direct or indirect obligation causing the members of a selective
distribution system not to sell the brands of particular competing suppliers.

1.33.3.

Exemptions from Article 6.2.2.

6.2.3.1. By way of derogation from paragraph 6.2.2.(a), the time limitation of

five years shall not apply where the contract goods or services are sold by the
buyer from premises and land owned by the supplier or leased by the supplier
from third parties not connected with the buyer, provided that the duration of
the non-compete obligation does not exceed the period of occupancy of the
premises and land by the buyer.
6.2.3.2. By way of derogation from paragraph 6.2.2. (b), the exemption
provided for in Article 3 shall apply to any direct or indirect obligation causing
the buyer, after termination of the agreement, not to manufacture, purchase,
sell or resell goods or services where the following conditions are fulfilled:
(a) the obligation relates to goods or services which compete with the
contract goods or services;
(b) the obligation is limited to the premises and land from which the buyer
has operated during the contract period;

36

(c) the obligation is indispensable to protect know-how transferred by the

supplier to the buyer;
(d) the duration of the obligation is limited to a period of one year after
termination of the agreement.
Paragraph 6.2.2. (b) is without prejudice to the possibility of imposing a
restriction which is unlimited in time on the use and disclosure of know-how
which has not entered the public domain.

11.

Agreements between Competing Undertakings

The exemption provided for in paragraph 3 shall not apply to vertical agreements
entered into between competing undertakings. However, it shall apply where
competing undertakings enter into a non-reciprocal vertical agreement and:
(a) the supplier is a manufacturer and a distributor of goods, while the buyer is a
distributor and not a competing undertaking at the manufacturing level; or
(b) the supplier is a provider of services at several levels of trade, while the
buyer provides its goods or services at the retail level and is not a competing
undertaking at the level of trade where it purchases the contract services.

12.

Withdrawal of Exemption

8.1. A change in the market position of one of the parties, or both, may result
in an agreement that was originally permissible under Article 5 of CL
becoming prohibited. Article 4 of these Guidelines states that an agreement
may benefit from a safe harbour where the supplier has a market share
below 30 per cent (the same case with the buyer) at the time of agreeing the
restraint in question but will lose such benefit where the suppliers / buyers
market share subsequently exceeds 30 per cent by 2% for two years in a row.
8.2. The Authority will normally take into account the cumulative impact of
suppliers agreements when assessing the impact of vertical restraints on
competition in a given market. In addition, the assessment of a given vertical
restraint can vary depending on the vertical restraints concluded by that
suppliers competitors. If the vertical restraints imposed by the supplier and
37

its competitors have the cumulative effect of foreclosing market access, then
any vertical restraints that contribute significantly to that foreclosure may be
found to infringe Article 5 of CL. In such a case, the Authority may consider
withdrawing the benefit of the safe harbour. Such a withdrawal of the safe
harbour is effected by decision addressed to the relevant parties and has
only prospective effect.

13.

Procedural Issues

Private parties showing a legitimate interest (those actually or potentially

suffering damage as a result of the conduct in question) can file a complaint with
the Authority either formally or informally (including orally or anonymously). The
submission of a formal complaint ties the Authority to respond within a given
time (in principle, {time period to be discussed} months)

14.

Formal Notification Procedure

In case of novel questions of law, the Authority will provide for legal guidance.
Apart from this procedure applying to requests for guidance relating to novel
questions, there is no formal notification procedure.

D.Guidance paper on verticals

In a Nutshell: How to Assess Vertical Cases Pursuant to EU Law
Article 101 TFEU may apply to vertical restraints provided they are NOT:

38

carrying out non-economic activities;

genuine agency arrangements; or,
concluded among related companies (e.g. between a parent and its
100% subsidiary).

If none of the above criteria is met, then an agreement containing a vertical

restraint may require review under Article 101 TFEU.
The Commissions Vertical Guidelines set out a number of factors that will be
taken into account in assessing whether vertical agreements fall within Article
101 (1) TFEU, namely: supplier market position; competitors market positions;
buyer market position; barriers to entry; market maturity; the level of trade
affected by the agreement; and the product nature.
There are a series of steps to be taken in determining whether and how Article
101 TFEU may apply to a vertical restraint. First, does the vertical agreement
contain a hard-core restraint? If the agreement contains a hard-core restraint,
it:

will not benefit from the safe harbour created by the Commissions De
Minimis notice;
will not benefit from the Vertical Block Exemptions safe harbour; and
is highly unlikely to satisfy the conditions of Article 101 (3) TFEU.

Hard-core vertical restraints are: the fixing of minimum resale prices; certain
types of restriction on the customers to whom or the territory into which a buyer
can sell the contract goods; restrictions on members of a selective distribution
system supplying each other or end users; and restrictions on component
suppliers selling components as spare parts to the buyers finished product.
Second, if the agreement contains no hard-core vertical restraints, are the
parties positions on the relevant markets sufficiently minor such that the
Commissions De Minimis notice may apply. If the criteria of the De Minimis
notice are met (most importantly, a market share of no more than 15% on the
relevant markets), then the Commission will not consider that the agreement
falls within Article 101 (1) TFEU as it does not appreciably restrict competition.
Third, does the agreement fall within the Vertical Block Exemption? If the
agreement falls within the scope of the Vertical Block Exemption, it will benefit
from a safe harbour. This safe harbour will apply in relation to decisions taken
not only by the Commission but also by member state competition authorities
and courts in their application of Article 101 TFEU.
39

Fourth, where the vertical agreement does not fall within the terms of the
Commissions De Minimis notice or the Commissions Vertical Block Exemption, it
is necessary to conduct an individual assessment of the agreement in order
to determine whether it falls within Article 101 (1) TFEU and, if so, whether the
conditions for an exemption under Article 101 (3) TFEU are satisfied.
The second step, which becomes relevant only when an agreement is found to be
restrictive of competition, is to determine the pro-competitive benefits produced
by that agreement and to assess whether these pro-competitive effects outweigh
the

anti-competitive

effects.

The balancing

of

anti-competitive

and pro-

competitive effects is conducted exclusively within the framework laid down by

Article 101(3) TFEU. The present guidelines examine the four conditions of Article
101(3) TFEU:

efficiency gains;
fair share for consumers;
indispensability of the restrictions;
no elimination of competition.

Given that these four conditions are cumulative and have to be proven by
the party using the restriction, it is unnecessary to examine any remaining
conditions once it is found that one of them is not fulfilled. In individual cases it
may therefore be appropriate to consider the four conditions in a different order.
For the purposes of these guidelines, it is considered appropriate to invert the
order of the second and the third condition and thus deal with the issue of
indispensability before the issue of pass-on to consumers. The analysis of passon requires a balancing of the negative and positive effects of an agreement on
consumers. It should not include the effects of any restrictions that already fail
the indispensability test and are, for that reason, prohibited by Article 101 TFEU.

40

E. Merger Control

Horizontal merger
Non-horizontal merger

F. Undertakings Concerned
Undertakings concerned are the direct participants in a merger or acquisition of
control. In this respect, Article 20(2) provides that:
A concentration operation shall be deemed to arise when the modification of
control results from:
a) the merger of two or more previously independent undertakings or parts of
undertakings;
b) the acquisition, by one or more persons already controlling at least one
undertaking, or by one or more undertakings, whether by purchase of securities
(shares in the social capital) or assets, by contract or by any other means, of
direct or indirect control of the whole or parts of one or more other undertakings.
c) Joint establishment of a commercial society which fulfils the functions of an
autonomous entity.
In the case of a merger, the undertakings concerned will be the undertakings
that are merging. In the remaining cases, it is the concept of acquiring control
that will determine which are the undertakings concerned. On the acquiring side,
there can be one or more companies acquiring sole or joint control. On the
acquired side, there can be one or more companies as a whole or parts thereof,
when only one of their subsidiaries or some of their assets are the subject of the
transaction. As a general rule, each of these companies will be an undertaking
concerned within the meaning of the competition act. However, the particular

41

features of specific transactions require some refinement of this principle, as will

be seen below when analyzing different possible scenarios.
In concentrations other than mergers or the setting-up of new joint ventures, i.
e. in cases of sole or joint acquisition of pre-existing companies or parts of them,
there is an important party to the agreement who is to be ignored when
identifying the undertakings concerned: the seller. Although it is clear that the
operation cannot proceed without his consent, his role ends when the transaction
is completed since, by definition, from the moment the seller has relinquished all
control over the company, his links with it disappear. Where the seller retains
joint control with the acquiring, it will be considered to be one of the
undertakings concerned.
Once the undertakings concerned have been identified in a given transaction,
their turnover for the purposes of determining jurisdiction should be calculated
according to the rules set out in Article 24 of the competition act.
For clarification the next chapters deal with the identification of undertakings
concerned in different types of operations.

1 Mergers
In a merger, several previously independent companies come together to create
a new company or, while remaining separate legal entities, to create a single
economic unit. As mentioned earlier, the undertakings concerned are each of the
merging entities.

1.34. Acquisition of sole control

1.1.1. Acquisition of sole control of the whole company
Acquisition of sole control of the whole company is the most straightforward case
of acquisition of control; the undertakings concerned will be the acquiring
company and the acquired or target company.

42

1.1.2. Acquisition of sole control of part of a company

When the operation concerns the acquisition of parts of one or more
undertakings, only those parts which are the subject of the transaction shall be
taken into account with regard to the seller. The concept of parts is to be
understood as one or more separate legal entities (such as subsidiaries), internal
subdivisions within the seller (such as a division or unit), or specific assets which
in themselves could constitute a business (e. g. in certain cases brands or
licenses) to which a market turnover can be clearly attributed. In this case, the
undertakings concerned will be the acquirer and the acquired part(s) of the
target company.

1.1.3. Acquisition of sole control after reduction or enlargement of the

target company
The undertakings concerned are the acquiring company and the target company
or companies, in their configuration at the date of the operation. The ANPC bases
itself on the configuration of the undertakings concerned at the date of the event
triggering the obligation to notify under Article 22, namely the conclusion of the
agreement, the announcement of the public bid or the acquisition of a controlling
interest. If the target company has divested an entity or closed a business prior
to the date of the event triggering notification or where such a divestment or
closure is a pre-condition for the operation, then sales of the divested entity or
closed business are not to be included when calculating turnovers. Conversely, if
the target company has acquired an entity prior to the date of the event
triggering notification, the sales of the latter are to be added.

1.1.4. Acquisition of sole control through a subsidiary of a group

Where the target company is acquired by a group through one of its subsidiaries,
the undertakings concerned for the purpose of calculating turnover are the target
company and the acquiring subsidiary. However, regarding the actual notification,
this can be made by the subsidiary concerned or by its parent company. All the
companies within a group (parent companies, subsidiaries, etc.) constitute a
single economic entity, and therefore can only be one undertaking concerned
within the one group - i. e. the subsidiary and the parent company cannot each

43

be considered as separate undertakings concerned, either for the purposes of

ensuring that the threshold requirements are fulfilled.

1.2.

Acquisition of joint control

1.2.1. Acquisition of joint control of a newly-created company

In the case of acquisition of joint control of a newly-created company, the
undertakings concerned are each of the companies acquiring control of the newly
set-up joint venture (which, as it does not yet exist, cannot be considered to be
an undertaking concerned and moreover, as yet, has no turnover of its own).

1.2.2. Acquisition of joint control of a pre-existing company

In the case of acquisition of joint control of a pre-existing company or business,
the undertakings concerned are each of the companies acquiring joint control on
the one hand, and the pre-existing acquired company or business on the other.
However, where the pre-existing company was under the sole control of one
company and one or several new shareholders acquire joint control while the
initial parent company remains, the undertakings concerned are each of the
jointly-controlling companies (including this initial shareholder). The target
company in this case is not an undertaking concerned, and its turnover is part of
the turnover of the initial parent company.

1.2.3. Acquisition of joint control with a view to immediate partition of

assets
Where several undertakings come together solely for the purpose of acquiring
another company and agree to divide up the acquired assets according to a preexisting plan immediately upon completion of the transaction, there is no
effective concentration of economic power between the acquirers and the target
company since the assets acquired are jointly held and controlled for only a legal
instant. This type of acquisition with a view to immediate partition of assets will
in fact be considered to be several operations, whereby each of the acquiring
companies acquires its relevant part of the target company. For each of these
operations, the undertakings concerned will therefore be the acquiring company
44

and that part of the target which it is acquiring (just as if there was an
acquisition of sole control of part of a company).

1.3.

Acquisition of control by a joint venture

In transactions where a joint venture acquires control of another company, the

question arises whether or not, from the point of view of the acquiring party, the
joint venture should be regarded as a single undertaking concerned (the turnover
of which would include the turnover of its parent companies), or whether each of
its parent companies should individually be regarded as undertakings concerned.
In other words, the issue is whether or not to lift the corporate veil of the
intermediate undertaking (the vehicle). In principle, the undertaking concerned is
the direct participant in the acquisition of control. However, there may be
circumstances where companies set up shell companies, which have little or no
turnover of their own, or use an existing joint venture which is operating on a
different market from that of the target company in order to carry out
acquisitions on behalf of the parent companies. Where the acquired or target
company has a turnover of less than 10,000,000 MDL, the question of
determining the undertakings concerned may be decisive for jurisdictional
purposes. In this type of situation, the ANPC will look at the economic reality of
the operation to determine which are the undertakings concerned.
Where the acquisition is carried out by a full-function joint venture, i. e. a joint
venture which has sufficient financial and other resources to operate a business
activity on a lasting basis and is already operating on a market, ANPC will
normally consider the joint venture itself and the target company to be the
undertakings

concerned

(and

not

the

jointventures

parent

companies).

Conversely, where the joint venture can be regarded as a vehicle for an

acquisition by the parent companies, ANPC will consider each of the parent
companies themselves to be the undertakings concerned, rather than the joint
venture, together with the target company. This is the case in particular where
the joint venture is set up especially for the purpose of acquiring the target
company, where the joint venture has not yet started to operate, where an
existing joint venture has no legal personality or full-function character as
referred to above or where the joint venture is an association of undertakings.
The same applies where there are elements which demonstrate that the parent
45

companies are in fact the real players behind the operation. These elements may
include a significant involvement by the parent companies themselves in the
initiation, organization and financing of the operation. Moreover, where the
acquisition leads to a substantial diversification in the nature of the joint
ventures activities, this may also indicate that the parent companies are the real
players in the operation. This will normally be the case when the joint venture
acquires a target company operating on a different product market. In those
cases, the parent companies are regarded as undertakings concerned.

1.4.

Change from joint control to sole control

In the case of a change from joint control to sole control, one shareholder
acquires the stake previously held by the other shareholder(s). In the case of
two shareholders, each of them has joint control over the entire joint venture,
and not sole control over 50 % of it; hence the sale of all of his shares by one
shareholder to the other does not lead the sole remaining shareholder to move
from sole control over 50 % to sole control over 100 % of the joint venture, but
rather to move from joint control to sole control of the entire company (which,
subsequent to the operation, ceases to be a joint venture). In this situation, the
undertakings concerned are the remaining (acquiring) shareholder and the joint
venture. As is the case for any other seller, the exiting shareholder is not an
undertaking concerned.

1.5.

Change in the shareholding in cases of joint control of an existing

joint venture

The decisive element in assessing changes in the shareholding of a company is

whether the operation leads to a change in the quality of control. The ANPC
assesses each operation on a case-by-case basis, but under certain hypotheses,
there will be a presumption that the given operation leads, or does not lead, to
such a change in the quality of control, and thus constitutes, or does not
constitute, a notifiable concentration. A distinction must be made according to
the circumstances of the change in the shareholding; firstly, one or more existing
shareholders can exit; secondly, one or more new additional shareholders can
enter; and thirdly, one or more existing shareholders can be replaced by one or
more new shareholders.
46

1.5.1. Reduction in the number of shareholders leading to a change from

joint to sole control
It is not the reduction in the number of shareholders per se which is important,
but rather the fact that if some shareholders sell their stakes in a given joint
venture, these stakes are then acquired by other (new or existing) shareholders,
and thus the acquisition of these stakes or additional contractual rights may lead
to the acquisition of control or may strengthen an already existing position of
control (e.g. additional voting rights or veto rights, additional board members,
etc.). Where the number of shareholders is reduced, there may be a change from
joint control to sole control, in which case the remaining shareholder acquires
sole control of the company. The undertakings concerned will be the remaining
(acquiring) shareholder and the acquired company (previously the joint venture).
In addition to the shareholder with sole control of the company, there may be
other shareholders, for example with minority stakes, but who do not have a
controlling interest in the company; these shareholders are not undertakings
concerned as they do not exercise control.

1.5.2. Reduction in the number of shareholders not leading to a change

from joint to sole control
Where the operation involves a reduction in the number of shareholders having
joint control, without leading to a change from joint to sole control and without
any new entry or substitution of shareholders acquiring control, the proposed
transaction will normally be presumed not to lead to a change in the quality of
control and will therefore not be a notifiable concentration. This would be the
case where, for example, five shareholders initially have equal stakes of 20 %
each and where, after the operation, one shareholder exits and the remaining
four shareholders each have equal stakes of 25 %. However, this situation would
be different where there is a significant change in the quality of control, notably
where the reduction in the number of shareholders gives the remaining
shareholders additional veto rights or additional board members, resulting in a
new acquisition of control by at least one of the shareholders, through the
application of either the existing or a new shareholders agreement. In this case,

47

the undertakings concerned will be each of the remaining shareholders which

exercise joint control and the joint venture.

1.5.3. Any other changes in the composition of the shareholding

Finally, in the case where, following changes in the shareholding, one or more
shareholders acquire control, the operation will constitute a notifiable operation
as there is a presumption that it will normally lead to a change in the quality of
control. Irrespective of whether the number of shareholders decreases, increases
or remains the same subsequent to the operation, this acquisition of control can
take any of the following forms:

entry of one or more new shareholders (change from sole to joint control,

or situation of joint control both before and after the operation),

acquisition of a controlling interest by one or more minority shareholders
(change from sole to joint control, or situation of joint control both before

and after the operation),

substitution of one or more shareholders (situation of joint control both
before and after the operation).

The question is whether the undertakings concerned are the joint venture and
the new shareholder(s) who would together acquire control of a pre-existing
company, or whether all of the shareholders (existing and new) are to be
regarded as undertakings concerned acquiring control of a new joint venture.
This question is particularly relevant when there is no express agreement
between one (or more) of the existing shareholders and the new shareholder(s),
who might only have had an agreement with the exiting shareholder(s), i.e. the
seller(s).
A change in the shareholding through the entry or substitution of shareholders is
considered to lead to a change in the quality of control. This is because the entry
of a new parent company, or the substitution of one parent company for another,
is not comparable to the simple acquisition of part of a business as it implies a
change in the nature and quality of control of the whole joint venture, even
when, both before and after the operation, joint control is exercised by a given
number of shareholders. ANPC therefore considers that the undertakings
concerned in cases where there are changes in the shareholding are the
48

shareholders (both existing and new) who exercise joint control and the joint
venture itself. As mentioned earlier, non-controlling shareholders are not
undertakings concerned.

1.6.

Demergers and the break-up of companies

When two undertakings merge or set up a joint venture, then subsequently

demerge or break up their joint venture, and in particular the assets are split
between the demerging parties, particularly in a configuration different from the
original, there will normally be more than one acquisition of control. For example,
undertakings A and B merge and then subsequently demerge with a new asset
configuration. There will be the acquisition by undertaking A of various assets
(assets which may previously have been owned by itself or by undertaking B and
assets jointly acquired by the entity resulting from the merger), with similar
acquisitions by undertaking B. Similarly, a break-up of a joint venture can be
deemed to involve a change from joint control over the joint ventures entire
assets to sole control over the divided assets. A break-up of a company in this
way is asymmetrical. For such a demerger, the undertakings concerned (for
each break-up operation) will be, on the one hand, the original parties to the
merger and, on the other, the assets that each original party is acquiring. For the
break-up of a joint venture, the undertakings concerned (for each break-up
operation) will be, on the one hand, the original parties to the joint venture, each
as acquirer, and, on the other, that part of the joint venture that each original
party is acquiring.

1.7.

Exchange of Assets

In those transactions where two (or more) companies exchange assets,

regardless of whether these constitute legal entities or not, each acquisition of
control constitutes an independent concentration. Although it is true that both
transfers of assets in a swap are usually considered by the parties to be
interdependent, that they are often agreed in a single document and that they
may even take place simultaneously, the purpose of the competition act is to
assess the impact of the operation resulting from the acquisition of control by
each of the companies. The legal or even economic link between those
operations is not sufficient for them to qualify as a single concentration.
49

Hence the undertakings concerned will be, for each property transfer, the
acquiring companies and the acquired companies or assets.

1.8.

Acquisitions of control by individual persons

Article 20 of the competition act specifically provides that a concentration is

deemed to arise:
a) the merger of two or more previously independent undertakings or parts of
undertakings;
b) the acquisition, by one or more persons already controlling at least one
undertaking, or by one or more undertakings, whether by purchase of securities
(shares in the social capital) or assets, by contract or by any other means, of
direct or indirect control of the whole or parts of one or more other undertakings.
c) Joint establishment of a commercial society which fulfills the functions of an
autonomous entity.
The ANPC considers that the undertakings concerned are the target company and
the individual acquirer (with the turnover of the undertaking(s) controlled by that
individual being included in the calculation of the individuals turnover).

1.9.

Management buy-outs

An acquisition of control of a company by its own managers is also an acquisition

by individuals, and what has been said above is therefore also applicable here.
However, the management of the company may pool its interests through a
vehicle company, so that it acts with a single voice and also to facilitate
decision-making. Such a vehicle company may be, but is not necessarily, an
undertaking concerned. The general rule on acquisitions of control by a joint
venture applies here. With or without a vehicle company, the management may
also look for investors in order to finance the operation. Very often, the rights
granted to these investors according to their shareholding may be such that
control within the meaning of Article 20 will be conferred on them and not on the
management itself, which may simply enjoy minority rights.

50

1.10. Acquisition of control by a state-owned company

In those situations where a State-owned company merges with or acquires
control of another company controlled by the same State, the question arises as
to whether these transactions really constitute concentrations within the meaning
of Article 20 of the competition act or rather internal restructuring operations of
the public sector group of companies. A merger or acquisition of control arising
between

two

companies

owned

by

the

same

State

may

constitute

concentration and, if so, both of them will qualify as undertakings concerned,

since the mere fact that two companies are both owned by the same State does
not necessarily mean that they belong to the same group. Indeed, the decisive
issue will be whether or not these companies are both part of the same industrial
holding and are subject to a coordinated strategy.

G. Market Delineation
Market definition is a key step to apply competition law since market shares can
only be calculated after the market has been defined. Usually in the assessment
of market power the market definition is the first step. Also in the purpose of a
new market entry, it is necessary to identify the market that might be entered.
Additionally, an appropriately defined relevant market may provide information
that allows an investigation to be closed at an early stage.

The hypothetical monopolist test

The process of defining a market typically begins by establishing the
closest substitutes to the product (or group of products) that is the focus
of the investigation. These substitute products are the most immediate
competitive constraints on the behaviour of the undertaking supplying the
product in question. In order to establish which products are 'close
enough' substitutes to be in the relevant market, a conceptual framework
known as the hypothetical monopolist test (HM-test) is usually employed.
The test seeks to establish the smallest product group (and geographical
area) such that a hypothetical monopolist controlling that product group
(in that area) could profitably increase prices above competitive prices.
This test is also known as SSNIP-test, where SSNIP means small but

51

significant non-transitory increase in prices. Normally the small but

significant price increase is between 5 and 10%. If the price increase is
profitable, that product (group and area) is usually the relevant market. If
a hypothetical monopolist could not profitably increase competitive prices
up to 5-10% than the candidate product (group) is too narrow to be a
relevant market. This is typically because a sufficiently large number of
customers would switch some of their purchases to other substitute
products (or areas). Thus, one has to add the substitute products (or
areas) to the relevant market and repeat the process (iterative process)
until the market is defined properly, i.e. until the price increase is
profitable.
If, on the other hand, a hypothetical monopolist could profitably increase
prices just in the first process round, then the relevant market would
usually be narrower than the candidate product (group).
A market definition should normally contain two dimensions: A product and
geographic area. It is often practical to define the relevant product market first
and then to define the relevant geographic market.

1. The product market

1

The demand side

As described above, the market definition process usually starts by looking at a

relatively narrow potential definition and further asks whether a hypothetical
monopolist of the candidate product could profitably increase prices by a small
but significant amount above competitive levels. Following the price rise,
customers may switch some of their purchases from the candidate product to
other substitute products (demand side substitution). It is not necessary for all
customers, or even the majority, to switch. The important factor is whether the
volume of purchases likely to be switched is large enough to prevent a
hypothetical monopolist profitably sustaining prices 5-10% above competitive
levels. Substitute products or their prices do not have to be identical to be
included in the same market.

52

However, defining a market in strict accordance with the test's assumptions is

rarely possible. Evidence on substitution from a number of different sources may
be considered. Although the information used will vary from case to case the
following evidence and issues are often likely to be important:

Evidence from the undertakings active in the market and their commercial
strategies may be useful. For example, company documents may indicate
which products the undertakings under investigation believe to be the
closest substitute to their own products. Company documents such as
internal

communications,

public

statements,

studies

on

consumer

preferences or business plans may provide other useful evidence.

Customers and competitors will often be interviewed. In particular,

customers can sometimes be asked directly how they would react to a
hypothetical price rise, although because of the hypothetical nature of the
question, answers may need to be treated with a degree of caution.
Survey evidence might also provide information on customer preferences
that would help to assess substitutability: For example, evidence on how
customers rank particular products, whether and to what extent brand
loyalty exists, and which characteristics of products are the most
important to their decision to purchase.

A significant factor in determining whether substitution takes place is whether

customers would incur costs in substituting products. High switching costs
relative to the value of the product will make substitution less likely. Substitution
will also be less likely if there is high brand loyalty, even though the product
characteristics are similar. Conversely, products with very different physical
characteristics may be close substitutes if, from a customer's point of view, they
have a very similar use.
Patterns in price changes can be informative. For example, two products showing
the same pattern of price changes, for reasons not connected to costs or general
price inflation, would be consistent with (although not proof of) these two
products being close substitutes. Customer reactions to price changes in the past
may also be relevant. Evidence that a relatively large proportion of customers
had switched to a rival product in response to a relatively small price rise in the
53

focal product would provide evidence that these two goods are close substitutes.
Equally price divergence over time, without significant levels of substitution,
would be consistent with the two products being in separate markets.
Evidence on own or cross price elasticities of demand may also be examined if it
is available. The own price elasticity of demand measures the rate at which
demand for a product (e.g. the candidate product) changes when its price goes
up or down. The cross price elasticity of demand measures the rate at which
demand for a product (e.g. a rival product) changes when the price of another
product (e.g. the focal product) goes up or down. One drawback of calculating
elasticities of demand is that a very good and mostly not available - database
is needed.
Critical loss or price-concentration analysis might be also very useful in defined
the relevant product market. In this context however one has to be aware of
price discrimination - In some cases the hypothetical monopolist may be able to
charge some customers a higher price than others, where the price difference is
not related to higher costs of serving those customers. This is called price
discrimination. Where a hypothetical monopolist would (or would be likely to)
price discriminate significantly between groups of customers, each of these
groups may form a separate market. If so, a relevant market might be defined as
sales of the relevant product in the relevant geographic area to a particular
customer group. By contrast, where an undertaking is unable to price
discriminate, this may lead to the relevant market being wider than the
candidate product or candidate area.

The supply side

If prices rise, undertakings that do not currently supply a product might be able
to supply it at short notice and without incurring substantial sunk costs. This may
prevent a hypothetical monopolist profitably increase competitive prices up to 510%. This form of substitution is carried out by suppliers and hence is known as
supply side substitution.
Supply side substitution can be thought of as a special case of entry entry that
occurs quickly (e.g. less than one year), effectively (e.g. on a scale large enough
54

to affect prices), and without the need for substantial sunk investments. Supply
side substitution addresses the questions of whether, to what extent, and how
quickly, undertakings would start supplying a market in response to a
hypothetical monopolist raising prices by 5-10%.
When assessing the scope for supply side substitution, the evidence from some
or all of the following sources may be relevant:

Potential suppliers might be asked whether substitution was technically

possible, about the costs of switching production between products,
and the time it would take to switch production. The key question is
whether it would be profitable to switch production, given a small (e.g.
5-10%) but non-transitory price increase by a hypothetical monopolist.

Potential suppliers might be asked whether they had spare capacity or

were free or willing to switch production. Undertakings may be
prevented from switching production because all their existing capacity
was tied up, e.g. they may be committed to long term contracts. There
might also be difficulties obtaining necessary inputs or finding
distribution outlets. Undertakings may be unwilling to switch production
from an existing product to a new one, if producing the former product
is more profitable than the latter.

2 The geographic market

Geographic markets are defined using the same process as that used to define
product markets. The geographic market may be national (i.e. the Republic of
Moldova), smaller than the Republic of Moldova (e.g. local or regional), wider
than the Republic of Moldova (e.g. the Republic of Moldova and neighboring
countries), or even worldwide.

The demand side

As with the product market, the objective is to identify substitutes which are
sufficiently close that they would prevent a hypothetical monopolist of the
55

candidate product in one area from profitably increasing prices by 5-10%. The
process starts by looking at a relatively narrow area the candidate area. The
hypothetical monopolist test is applied to this area, and repeated over wider
geographic areas as appropriate until the hypothetical monopolist would find it
profitable to raise competitive prices by 5-10% in the area(s) in question.
The principles applied in defining the geographic market are the same as those
for the product market. The value of a product in relation to costs of search and
transport is often an important factor in defining geographic markets. The higher
the relative value, the more likely customers are to travel further in search of
cheaper supplies. The mobility of customers may also be a relevant factor.

The supply side

If focusing the supply side the question is if there is potential for undertakings in
other (e.g. neighboring) territories to supply the candidate area. When defining
the geographic market, supply side substitution is analyzed using the same
conceptual approach set out for the product market. Where the price of a product
is low relative to its transport costs, this might indicate a relatively narrow
geographic market.
When considering whether the geographic market should be defined more widely
than a national market, data on imports may be informative. Significant imports
of the product may indicate that the market is wider than a national market.
However, the presence of imports in a territory will not always mean that the
market is international (e.g. imports may come only from international
operations of domestic suppliers, international suppliers may require substantial
investments in establishing distribution networks or branding their products in
the destination country). Conversely a lack of imports does not necessarily mean
that the market cannot be international. The potential for imports may still be an
important source of substitution should prices rise.

56

3 The competitive versus the current price

The test has been applied in terms of a hypothetical monopolist profitably
sustaining prices above competitive levels. However, where an undertaking has
market power, it may operate in a market where the current price is substantially
different from the competitive price. An undertaking with market power may well
have already raised prices above competitive levels to its profit maximizing level.
If so, the undertaking would not profitably sustain prices above current levels. If
it tried to sustain higher prices, consumers would switch to purchasing other
products. However, it would be wrong to argue that these products prevented the
undertaking from exercising market power and so it would usually be
inappropriate to include them in the relevant market. This problem is sometimes
known as the cellophane fallacy after a US case involving cellophane products.
The HM-test might be also distorted if prices are sustained below competitive
levels, as, for example, may occur in an investigation of predatory pricing.

H.Calculation of Turnovers
The competition act has a twofold test for the Moldovan jurisdiction. One test is
that the transaction must be a concentration within the meaning of Article 20.
The second comprises the turnover thresholds contained in Article 22 and
designed to identify those transactions which have an impact upon the Republic
of Moldova. Turnover is used as a proxy for the economic resources being
combined in a concentration, and is allocated geographically in order to reflect
the geographic distribution of those resources.
Two sets of thresholds are set out in Article 22: Firstly, the thresholds which must
first be checked in order to establish whether the transaction has to be notified.
In this respect, the turnover threshold is intended to measure the overall
dimension of the undertakings concerned; the turnover threshold seek to
determine whether the concentration involves a minimum level of activities.
Article 22 must only be applied in the event that the thresholds of more than
25,000,000 MDL by the undertakings concerned are met and each of at least two

57

undertakings concerned achieved a turnover more than 10,000,000 MDL for the
year prior to the operation.
The thresholds as such are designed to establish jurisdiction and not to assess
the market position of the parties to the concentration nor the impact of the
operation. In so doing they include turnover derived from, and thus the
resources devoted to, all areas of activity of the parties, and not just those
directly involved in the concentration.
The fact that the thresholds of Article 22 of the competition act are purely
quantitative, since they are only based on turnover calculation instead of market
share or other criteria, shows that their aim is to provide a simple and objective
mechanism that can be easily handled by the companies involved in a merger in
order to determine if their transaction has an economic dimension for the
Republic of Moldova and is therefore notifiable.
In this context, it is clear that turnover should reflect as accurately as possible
the economic strength of the undertakings involved in a transaction. This is the
purpose of the set of rules contained in Article 24 of the competition act which
are designed to ensure that the resulting figures are a true representation of
economic reality.
The concept of turnover as used in Article 22 of the competition act refers to the
amounts derived from the sale of products and the provision of services. Sale, as
a reflection of the undertakings activity, is thus the essential criterion for
calculating turnover, whether for products or the provision of services. In the
case of products, turnover can be determined without difficulty, namely by
identifying each commercial act involving a transfer of ownership. In the case of
services, the factors to be taken into account in calculating turnover are much
more complex. Generally speaking, the method of calculating turnover in the
case of services does not differ from that used in the case of products: The ANPC
takes into consideration the total amount of sales. Where the service provided is
sold directly by the provider to the customer, the turnover of the undertaking
concerned consists of the total amount of sales for the provision of services in
the last financial year. Because of the complexity of the service sector, this
58

general principle may have to be adapted to the specific conditions of the service
provided. Thus, in certain sectors of activity (such as tourism and advertising),
the service may be sold through the intermediary of other suppliers. Because of
the diversity of such sectors, many different situations may arise. For example,
the turnover of a service undertaking which acts as an intermediary may consist
solely of the amount of commissions which it receives.
With regard to aid granted to undertakings by public bodies, any aid relating to
one of the ordinary activities of an undertaking concerned is liable to be included
in the calculation of turnover if the undertaking is itself the recipient of the aid
and if the aid is directly linked to the sale of products and the provision of
services by the undertaking and is therefore reflected in the price. For example,
aid towards the consumption of a product allows the manufacturer to sell at a
higher price than that actually paid by consumers.

2 Net turnover
The turnover to be taken into account is net turnover, after deduction of a
number of components specified in Article 24 of the competition act. The ANPC`s
aim is to adjust turnover in such a way as to enable it to decide on the real
economic weight of the undertaking. Thus, the competition act provides for the
deduction of sales rebates and of value added tax and other taxes directly
related to turnover. Sales rebates should be taken to mean all rebates or
discounts which are granted by the undertakings during their business
negotiations with their customers and which have a direct influence on the
amounts of sales. Furthermore, the fifth subparagraph of Article 24 states that
"the aggregate turnover of undertakings involved does not include the sales of
products intervened among any of the undertakings mentioned in par. (4)." The
aim is to exclude the proceeds of business dealings within a group so as to take
account of the real economic weight of each entity. Thus, the amounts taken
into account by the competition act reflect only the transactions which take place
between the group of undertakings on the one hand and third parties on the
other.

59

Regarding the geographical allocation of turnovers it can only be said that the
turnover shall comprise all products sold and services provided to undertakings
or consumers worldwide.

1 Adjustment of turnover calculation rules for the

different types of operations
2.1.

The general rule

According to Article 24 of the competition act, aggregate turnover comprises the

amounts derived by the undertakings concerned in the preceding financial year
from the sale of products and the provision of services. The basic principle is thus
that for each undertaking concerned the turnover to be taken into account is the
turnover of the closest financial year to the date of the transaction. This provision
shows that since there are usually no audited accounts of the year ending the
day before the transaction, the closest representation of a whole year of activity
of the company in question is the one given by the turnover figures of the most
recent financial year.
Notwithstanding paragraph 22ff, an adjustment must always be made to account
for acquisitions or divestments subsequent to the date of the audited accounts.
This is necessary if the true resources being concentrated are to be identified.
Thus if a company disposes of part of its business at any time before the
signature of the final agreement or the announcement of the public bid or the
acquisition of a controlling interest bringing about a concentration, or where such
a divestment or closure is a pre-condition for the operation the part of the
turnover to be attributed to that part of the business must be subtracted from
the turnover of the notifying party as shown in its last audited accounts.
Conversely, the turnover to be attributed to assets of which control has been
acquired subsequent to the preparation of the most recent audited accounts
must be added to a companys turnover for notification purposes.
Other factors that may affect turnover on a temporary basis such as a decrease
in orders for the product or a slow-down in the production process within the
period prior to the transaction will be ignored for the purposes of calculating
60

turnover. No adjustment to the definitive accounts will be made to incorporate

them.

2.2.

Acquisitions of parts of companies

Where the concentration consists in the acquisition of parts, whether or not

constituted as legal entities, of one or more undertakings, only the turnover
relating to the parts which are the subject of the transaction shall be taken into
account with regard to the seller or sellers. This provision states that when the
acquirer does not purchase an entire group, but only one, or part, of its
businesses, whether or not constituted as a subsidiary, only the turnover of the
part acquired should be included in the turnover calculation. In fact, although in
legal terms the seller as a whole (with all its subsidiaries) is an essential party to
the transaction, since the sale-purchase agreement cannot be concluded without
him, he plays no role once the agreement has been implemented. The possible
impact of the transaction on the market will depend only on the combination of
the economic and financial resources that are the subject of a property transfer
with those of the acquirer and not on the remaining business of the seller who
remains independent.

2.3.

Staggered operations

Sometimes certain successive transactions are only individual steps within a

wider strategy between the same parties. Considering each transaction alone,
even if only for determining jurisdiction, would imply ignoring economic reality.
At the same time, whereas some of these staggered operations may be designed
in this fashion because they will better meet the needs of the parties, others
could be structured like this in order to circumvent the application of the
competition act. For those reasons, these transactions shall be treated as one.

2.4.

Turnover of groups

When an undertaking concerned in a concentration within the meaning of

Article 20 of the competition act belongs to a group, the turnover of the group as
a whole is to be taken into account in order to determine whether the thresholds
are met. The aim is again to capture the total volume of the economic resources
61

that are being combined through the operation. The competition act does not
define the concept of group in abstract terms but focuses on whether the
companies have the right to manage the undertakings affairs as the yardstick to
determine which of the companies that have some direct or indirect links with an
undertaking concerned should be regarded as part of its group.
Article 24 of the competition act provides the following: The aggregate turnover
of undertakings concerned shall be calculated by adding together the turnovers
of:
(a) the undertakings concerned;
(b) those undertakings in which the undertaking concerned directly or indirectly:
owns more than half the capital, or
has the power to exercise more than half the voting rights, or
has the power to appoint more than half the members of the
supervisory

board,

the

administrative

board

or

bodies

legally

representing the undertakings, or

has the right to manage the undertakings affairs;
(c) those undertakings which have in an undertaking concerned the rights or
competences listed in (b);
(d) those undertakings in which an undertaking as referred to in par (c) has the
rights or competences listed in (b);
(e) those undertakings in which two or more undertakings as referred to in
par (a) to (d) jointly have the rights or powers listed in (b).
This means that the turnover of the company directly involved in the transaction
(par (a)) should include its subsidiaries (par (b)), its parent companies (par (c)),
the other subsidiaries of its parent companies (par (d)) and any other
undertaking jointly controlled by two or more of the companies belonging to the
group (par (e)).
Several remarks can be made:

62

1. As long as the test of control of par (b) is fulfilled, the whole turnover of the
subsidiary in question will be taken into account regardless of the actual
shareholding of the controlling company.
2. When any of the companies identified as belonging to the group also controls
others, these should also be incorporated into the calculation.
3. When two or more companies jointly control the undertaking concerned (a) in
the sense that the agreement of each and all of them is needed in order to
manage the undertaking affairs, the turnover of all of them should be included.
If there are two parent companies (c) of the undertaking concerned (a), the
turnovers would be taken into account as well as their own parent companies.
4. Any intra-group sale should be subtracted from the turnover of the group (see
Article 24 par 5).
The competition act also deals with the specific scenario that arises when two or
more undertakings concerned in a transaction exercise joint control of another
company or vice versa. Pursuant to par 6 of Article 24, the turnover resulting
from the sale of products or the provision of services between the joint venture
and each of the undertakings concerned or any other company connected with
any one of them in the sense of Article 24 should be excluded. The purpose of
such a rule is to avoid double counting. With regard to the turnover of the joint
venture generated from activities with third parties, par 6 of Article 24 provides
that it should be apportioned equally amongst the undertakings concerned, to
reflect the joint control.
Following the principle of par 6 of Article 24 by analogy, in the case of joint
ventures between undertakings concerned and third parties, the ANPCs practice
has been to allocate to each of the undertakings concerned the turnover shared
equally by all the controlling companies in the joint venture. In all these cases,
however, joint control has to be demonstrated. The practice shows that it is
impossible to cover in the present guideline the whole range of scenarios which
could arise in respect of turnover calculation of joint venture companies or joint
control cases. Whenever ambiguities arise, an assessment should always give
63

priority to the general principles of avoiding double counting and of reflecting as

accurately as possible the economic strength of the undertakings involved in the
transaction.
It should be noted that Article 24 refers only to the groups that already exist at
the time of the transaction, i.e. the group of each of the undertakings concerned
in an operation, and not to the new structures created as a result of the
concentration. For example, if companies A and B, together with their respective
subsidiaries, are going to merge, it is A and B, and not the new entity, that
qualify as undertakings concerned, which implies that the turnover of each of the
two groups should be calculated independently.
Since the aim of this provision is simply to identify the companies belonging to
the existing groups for the purposes of turnover calculation, the test of having
the right to manage the undertakings affairs in Article 24 is somewhat different
from the test of control set out in Article 20, which refers to the acquisition of
control carried out by means of the transaction subject to examination. Whereas
the former is simpler and easier to prove on the basis of factual evidence, the
latter is more demanding because in the absence of an acquisition of control no
concentration arises.

2.5.

Turnover of State-owned companies

In order to avoid discrimination between the public and private sector, account
should be taken of undertakings which form an economic unit with independent
power of decision, independent of the way in which their capital is held or of the
rules of administrative supervision exercisable to them.
Thus the mere fact that two companies are both State-owned should not
automatically lead to the conclusion that they are part of a group for the
purposes of Article 24. Rather, it should be considered whether there are grounds
to consider that each company constitutes an independent economic unit. Thus
where a State-owned company is not part of an overall industrial holding
company and is not subject to any coordination with other State-controlled
holdings, it should be treated as an independent group for the purposes of Article
24, and the turnover of other companies owned by that State should not be
taken into account. Where, however, interests are grouped together in holding
64

companies, or are managed together, or where for other reasons it is clear that
State-owned companies form part of an economic unit with an independent
power of decision, then the turnover of those businesses should be considered
part of the group of the undertaking concerned for the purposes of Article 24.

15.

Credit and other financial institutions and

insurance undertakings
Credit institution means an undertaking whose business is to receive deposits or
other repayable funds from the public and to grant credits for its own account.
Financial institution shall mean an undertaking other than a credit institution,
the principal activity of which is to acquire holdings or to carry one or more of
the activities listed below.
From the definition of financial institution given above, it is clear that on the one
hand holding companies must be regarded as financial institutions and, on the
other hand, that undertakings which perform on a regular basis as a principal
activity one or more activities expressly mentioned below:
lending (inter alia, consumer credit, mortgage credit, factoring, etc.),
financial leasing,
money transmission services,
issuing and managing instruments of payment (credit cards, travellers
cheques and bankers drafts),
guarantees and commitments,
trading on own account or on account of customers in money market
instruments, foreign exchange, financial futures and options, exchange and
interest rate instruments, and transferable securities,
participation in share issues and the provision of services related to such
issues,
advice to undertakings on capital structure, industrial strategy and related
questions and advice and services relating to mergers and the purchase of
undertakings,
money broking,
portfolio management and advice,
65

 safekeeping and administration of securities.

2.6.

Calculation of turnover

For credit institutions and other financial institutions, the sum of the following
income items after deduction of value added tax and other taxes directly related
to those items, shall be used in place of turnover:
(a)
(b)

interest income and similar income;

income from securities:
income from shares and other variable yield securities,
income from participating interests,
income from shares in affiliated undertakings;

(c)
(d)
(e)

commissions receivable;
net profit on financial operations;
other operating income.

There are normally no particular difficulties in applying the banking income

criterion for the definition of the worldwide turnover to credit institutions and
other kinds of financial institutions (other than financial holding companies).
A financial holding company is a financial institution and therefore the calculation
of its turnover should follow the criteria for the calculation of turnover for credit
and other financial institutions. However, since the main purpose of a financial
holding is to acquire and manage participation in other undertakings, those
participations allowing the financial holding company to exercise a decisive
influence on the business conduct of the undertakings in question. Thus, the
turnover of a financial holding is basically to be calculated as stated above, but it
may be necessary to add turnover of undertakings (Article 24 - companies)
falling within the categories set out in Article 24 of the competition act. In
practice, the turnover of the financial holding company must first be taken into
account. Then the turnover of the Article 24 - companies must be added, whilst
taking care to deduct dividends and other income distributed by those companies
to the financial holdings.

66

2.7.

Insurance undertakings

Regarding insurance undertakings one revert to gross premiums written. Gross

premiums written are the sum of received premiums (which may include
received reinsurance premiums if the undertaking concerned has activities in the
field of reinsurance). Outgoing or outward reinsurance premiums, i.e. all
amounts paid and payable by the undertaking concerned to get reinsurance
cover, are already included in the gross premiums written. Wherever the word
premiums

is

used

(gross

premiums,

net

(earned)

premiums,

outgoing

reinsurance premiums, etc.), these premiums are related not only to new
insurance contracts made during the accounting year being considered but also
to all premiums related to contracts made in previous years which remain in
force during the period taken into consideration.
In order to constitute appropriate reserves allowing for the payment of claims,
insurance undertakings, which are also considered as institutional investors,
usually hold a huge portfolio of investments in shares, interest-bearing securities,
land and property and other assets which provide an annual revenue which is not
considered as turnover for insurance undertakings. With regard to the application
of the competition act, a major distinction should be made between pure
financial investments, in which the insurance undertaking is not involved in the
management of the undertakings where the investments have been made, and
those investments leading to the acquisition of an interest giving control in a
given undertaking thus allowing the insurance undertaking to exert a decisive
influence on the business conduct of the subsidiary or affiliated company
concerned. In such cases Article 22ff of the competition act would apply, and the
turnover of the subsidiary or affiliated company should be added to the turnover
of the insurance undertaking for the determination of the thresholds laid down in
the competition act.

I. Developing and Assessing a Theory of Harm in

Merger Control

67

J. Assessment of Possible Merger Remedies

This

chapter

should

provide

guidance

for

effective

application

of

Article 25 (1) b) and (2) c) of the competition act in respect of commitments

proposed by the parties involved in the concentration as well as the conditions
and obligations set by the Competition Council in decision in a view of
implementing the compatibility of the concentration with the competition
environment.

1. Principles of remedies
Concentrations mostly differ and as a consequence, effective concentrations
remedies also come in a wide variety.

Regardless the form a particular

concentration remedy takes there are certain basic principles that apply to all
effective concentration remedies.

1.1.

Effectiveness

Assessing the effectiveness of a remedy, or package of remedies, will involve

several distinct dimensions:

Impact. The remedy should seek to deal with all the competitive
detriments expected from the merger.

Restoring the process of rivalry

through remedies means re-establishing the structure of the market

expected in the absence of the merger. Structural remedies are considered
68

to be more preferable as behavioral remedies such as price caps, supply

commitments or restrictions on use of long term contracts as these are
unlikely to deal with incompatibility of the concentration with the
competition environment as comprehensively as structural remedies and
may result in distortions compared with a competitive market outcome. Of
course another aspect is that it is a lot easier to monitor structural than
behavioral remedies.

Acceptable Risk. The eventual impact of any remedy may not be precisely
presumed and is uncertain.

In evaluating the effectiveness of remedies,

the Competition Council will seek remedies that have a high degree of
certainty of achieving their intended effect. The Competition Council will
seek to implement remedies with a low level of risk of not adequately
addressing competitive detriments.

Practicality.

An

effective

remedy

should

be

capable

of

practical

implementation, monitoring and enforcement within the jurisdiction of the

relevant competition authority. This will also imply that the implementation
and operation of the remedy should be clearly expressed. Remedies
regulating

on-going

behaviour

are

thus

generally

subject

to

the

disadvantage of requiring on-going monitoring and compliance activity.

Appropriate Duration and Timing. It is desirable for remedies to address

the competitive detriments effectively over their expected duration.
Remedies that act quickly in addressing competitive concerns are
preferable to remedies that are expected to have an effect only in the
longer term or where the timing of the effect is uncertain. The effect of a
remedy should also be sustained for the duration of competitive
detriments.

1.2.

Potential remedy burdens and costs

Having considered the effectiveness of remedy options, the Competition Council

will then consider the costs of those remedies it expects to be effective in
addressing the competition problems and resulting adverse effects. In order to
69

be reasonable and proportionate the Competition Council will seek to select the
least costly remedy, or package of remedies, that it considers to be effective. If
the Competition Council is choosing between two remedies which it considers will
be equally effective, it will select the remedy that imposes the least cost or that
is least restrictive.
The costs of a remedy may be incurred by a variety of parties including the
merger parties, third parties and monitoring agencies. As the merger parties
have the choice of whether or not to proceed with the merger, the Competition
Council will generally attribute less significance to the costs of a remedy that will
be incurred by the merger parties than costs that will be imposed by a remedy
on third parties, and monitoring agencies. In particular, for completed mergers,
the Competition Council will not normally take account of costs or losses that will
be incurred by the merger parties as a result of a divestiture remedy as it is open
to the parties to make merger proposals conditional on Competition Council
approval. It is for the parties concerned to assess whether there is a risk that a
completed merger would be subject to a significant lessening of competition
finding and the Competition Council would expect this risk to be reflected in the
agreed acquisition price. Since the cost of divestiture is, in essence, avoidable,
the Competition Council will not, in the absence of exceptional circumstances,
accept that the cost of divestiture should be considered in selecting remedies.
Costs may arise in a variety of areas:

Remedy impact costs. Remedies may result in distortions or inefficiencies

in market outcomes. This is more likely to be the case in instances where
behavioral

remedies

are

used

which

outcomes, especially over a long period.

intervene

directly

in

market

For example, price caps may

discourage market entry by creating doubt concerning the ability to recoup

investment or to maintain profitability. Similarly, non-price restraints may
adversely affect investment decisions.

Remedy operating costs. For those authorities that impose or directly seek
remedies, these comprise the directly attributable costs of implementing

70

and, if necessary, monitoring and enforcing remedies e.g. employing

trustees, collecting monitoring information etc 17.

1.3.

Merger efficiencies or other benefits foregone

A frequent advantage of remedies is that they enable the realization of at least

some efficiencies or other benefits expected from a merger that would otherwise
be lost through prohibition.

Particular benefits expected from a merger may

include lower prices, higher quality, a greater choice of products or a greater rate
of innovation. Jurisdictions differ significantly in how merger efficiencies and
other benefits are defined and assessed. However, for those that will consider
efficiencies claim, these benefits are only generally considered relevant to the
extent that they arise from the merger and would not have occurred otherwise.
In addition, many require that any expected efficiencies to be gained by the
merging parties are only likely to be considered relevant if they are expected to
result in significant benefits to customers. Moreover, the merging parties will
normally bear the burden of demonstrating that relevant merger benefits are
likely. A competition authority will generally seek to modify the choice or design
of a remedy to minimize the impact on these efficiencies or other relevant
benefits. But the competition authority will still wish to ensure that the remedy
is effective in addressing the competitive detriments.

1.4.
In

Transparency and consistency

choosing,

designing

and

implementing

remedies,

transparency

and

consistency are desirable principles in their own right in producing just decisions
and conferring legitimacy on the outcomes. However, these principles are also
important in optimizing the effectiveness of remedies.
Transparency implies that the principles and major issues in determining
remedies in individual cases are visible and intelligible to the merging firms, and,
where deemed appropriate, their competitors and customers. The specific
application of these principles to an individual case should be clearly explained
during the merger review process.

As appropriate, Competition Council will

17 Merger Remedies: Competition Commission Guidelines, November 2008,

www.competition-commission.org.uk
71

consult third parties and customers on the effectiveness of the remedy.

Transparency should not imply disclosure of confidential information.
Consistency of remedy practice is desirable to provide a reliable basis for
corporate decisions and expectations. However, consistency will normally be
tempered by the need to deal with each case on its merits.

2. General rules
a. Under

the

competition

act,

the

Competition

Council

assesses

the

compatibility of a notified concentration with the market on the basis of its

effect on the competitive environment.
b. Where

concentration

raise

significant

barriers

for

the

effective

competition on the market or on a substantial part of it, in particular as a

result of the creation or enhancement of a dominant position the parties
and the Competition Council may seek to modify the concentration in
order to resolve the competition concerns and thereby gain clearance of
their

merger.

The

parties

and

the

Competition

Council

submit

commitments with a view to rendering the concentration which raise

doubts about the compatibility with the competition environment.
c. Under the structure of the competition act, it is the responsibility of the
Competition Council to show that a concentration would significantly
impede competition. The Competition Council communicates via writing its
competition concerns to the parties and presents its proposals to resolve
the situation. At the same time the Competition Council can offer their own
conditions the necessary provisions. This allows the parties to respond
and formulate appropriate and corresponding remedy proposals.
d. If, however, the parties do not validly propose remedies adequate and
does not accept the conditions offered by the Competition Council, the
Competition Council will adopt a prohibition decision or the Competition
Council issues a conditioned decision of conditioning authorization by
which sets up the obligations or/and the conditions to ensure the
72

compliance with the commitments undertaken by the parties concerned for

the purpose of compatibility of the concentration with the competition
environment.

3. Basic conditions for acceptable commitments

It is crucial, that the commitments offered are full and effective and satisfies the
Competition Council and that the remedies are sufficient to restore the conditions
of effective competition on a permanent basis. The legal basis for the acceptance
of such commitments or remedies is set out in the competition act
Article 25 (2) (c);
a. Under the competition act the Competition Council only has power to
accept commitments that are deemed capable in view of implementing the
compatibility of the concentration with the competition environment. Such
commitments should be proportionate to the competition problem and
entirely eliminate it;
b. The Competition Council may attach to its decision conditions and
obligations in order to ensure that the undertakings concerned comply
with their commitments in a timely and effective manner so as to render
the concentration compatible with the common market;
c. In order for the commitments to comply with these principles (contained in
chapter

5.1.

implementation

of

this

and

document),

ability

to

there

monitor

has

the

to

be

an

effective

commitments.

Whereas

divestitures once implemented, do not require any further monitoring

measures, other types of commitments require effective monitoring
mechanisms in order to ensure that their effect is not reduced or even
eliminated by the parties. Otherwise such commitments would have to be
considered as mere declarations of intention by the parties and would not
amount to binding obligations, as, due to the lack of effective monitoring
mechanisms, any breach of them could not result in the revocation of the
decision;
d. Where, however, the parties submit remedy proposals that are so
extensive and complex that it is not possible for the Competition Council to
73

determine with the necessary degree of certainty at the time of its

decision, that they will be fully implemented and that they are likely to
maintain effective competition in the market, an authorization decision
cannot be granted. The Competition Council may reject such remedies in
particular on the grounds that the implementation of the remedies cannot
be effectively monitored and that the lack of effective monitoring
diminishes, or even eliminates, the effect of the commitments proposed.

4. Types of mergers
Horizontal mergers, vertical mergers, and mergers with both horizontal and
vertical dimensions typically present different competitive issues and as a result
different remedial challenges. In cases in which neither behavioral nor structural
remedial actions, nor a combination of the two would effectively preserve
competition, the Competition Council will seek to block the transaction.

Horizontal Mergers
Horizontal mergers involve firms that are actual or potential competitors.
Horizontal mergers can enhance market power by eliminating actual or
potential competition between the merging parties, by increasing the risk
of coordination among rivals, or both. In the case of horizontal mergers,
enhanced market power is the result of combining similar sets of assets
that otherwise would be used to compete. Consequently, if a competitive
problem exists with a horizontal merger, the typical remedy is to prevent
common control over some or all of the assets, thereby effectively
preserving competition. Thus, the Competition Council will pursue a
divestiture remedy in the vast majority of cases involving horizontal
mergers.

Divestiture of overlapping assets, usually an existing business

entity, can effectively preserve competition that the merger otherwise

would eliminate.

Vertical Mergers
Vertical mergers involve firms that do not operate in the same markets,
and may not result in an overlap between the assets of the purchaser and
the acquired entity. A purely vertical merger does not itself change the

74

number of firms competing to produce a particular product or service.

Nevertheless, vertical mergers can create changed incentives and enhance
the ability of the merged firm to impair the competitive process. In such
situations, a remedy that counteracts these changed incentives or
eliminates the merged firms ability to act on them may be appropriate.
Accordingly, in appropriate vertical merger matters the Competition
Council will consider tailored conduct remedies designed to prevent
conduct that might harm consumers while still allowing the efficiencies
that may come from the merger to be realized. The Competition Council
also will consider structural remedies in vertical merger matters they
may be particularly effective when the vertical integration is a small part of
a larger deal.
Mergers with horizontal and vertical dimensions
Mergers sometimes have both, horizontal and vertical dimensions. These
types of mergers can present combinations of the challenges mentioned
above. Effective remedies in these situations may require a combination of
structural and conduct provisions affecting multiple markets.

5. Types of remedies
Remedies are classified as either structural or behavioral. Structural remedies are
generally one-off measures that seek to restore or maintain the competitive
structure of the market. Behavioral remedies are normally ongoing measures
that are designed to regulate or constrain the behavior of merger parties. Some
remedies, such as those relating to access to intellectual property rights, may
have features of structural or behavioral remedies depending on their particular
formulation.

75

Merger remedies

Structural remedies

Facilitating
Intelectual
Divestiture
property based
and partial
remedies
prohibition
horizontal rivalry

Behavioural remedies

Controlling
outcomes

Restricting effects of Changing

vertical relationships
buyers
Modifying
behaviour
relationship with end-customers

Figure: Overview of the merger remedies universe

Effective merger remedies typically include structural or behavior remedial
actions. Each can be used to preserve competition in the appropriate factual
circumstances. In some cases an effective remedy may call for a combination of
different types of remedies. In other cases, an effective remedy may be
unavailable. In that circumstance, the Competition Council will seek to block the
merger.
Structural remedies
Structural remedies generally will involve the sale of physical assets by the
merging firms or requiring that the merged firm create new competitors
through the sale or licensing of intellectual property rights. Structural
remedies in many cases can be simple, relatively easy to administer, and
sure to preserve competition. A structure remedy ordinarily requires
divestiture of the activities of an existing viable business that can operate
on a stand-alone-basis. Alternatively, a commitment by the parties to
terminate exclusive agreements which would otherwise have foreclosure
effects, post-merger, or remedies to facilitate market entry through the
grant to competitors of access to infrastructure, platforms, technology,
production or R&D facilities, or through the licensing of intellectual
property rights might have a sufficient effect on the market to restore
76

effective competition. The key requirements of structural remedies are that

the commitments should ensure the effective competitive structure of the
market and for member states that they are capable of rendering the
notified transaction compatible with the common market.

Divestiture. The most effective means of restoring effective

competition is through divestiture of a subsidiary or production
facilities and the creation of a new competitive entity or the
strengthening of existing competitors. The divesture gives a new or
existing competitor the possibility of gaining access to the market.
In such cases the Competition Council will wish to ensure that the
activities, consisting of a viable business which can operate on a
stand-alone-basis and compete effectively with the merger entity
on a lasting basis, are divested to a suitable purchaser within a
specified time period. Sometimes the authority may require the
parties to find a buyer prior to completion of the notified operation.
The sale of the entity may itself amount to a modifiable
concentration.

In

practice, a

structural

solution,

such

as

commitment to sell a subsidiary may be preferable, since the

commitment may prevent the impediment to effective competition
arising and it does not require medium or long-term monitoring
measures. Further, behavioural remedies may be difficult to control
and enforce. It could also be that structure remedy will be the only
possible means of solving the structural problem caused by the
creation

of

market

power, which

results

in

the

significant

impediment of the effective competition.

By designing divestiture the following risks should be taken into
account:

Composition risks the scope of the divestiture package

may not be appropriately configured to attract a suitable
purchaser

or

allow

suitable

purchaser

to

operate

effectively.
Purchaser risks a suitable purchaser may not be available
or the merging firms may wish to dispose to a weak or
otherwise inappropriate purchaser.

77

Asset risks the competitive capability of a divestiture

package may deteriorate significantly prior to completion of a
divestment, for example through loss of customers or key
members of staff.

Behavioural remedies
A behavioral remedy can preserve a mergers potential efficiencies, and, at
the same time, remedy the competitive harm that otherwise would result
from the merger. Behavioral remedies can be a particularly effective option
when

structural

remedy

would

eliminate

the

mergers potential

efficiencies, but, absent a remedy, the merger would harm competition. A

general distinction can be made between divestitures, other structural
remedies such as granting access to key infrastructure or inputs on nondiscriminatory terms, and other commitments relating to the future
behaviour of the merged entity. Commitments relating to the future
behaviour of the merged entity may be acceptable only exceptionally in
very specific circumstances. In particular, commitments in the form of
undertakings not to raise prices, to reduce product ranges or to remove
brands, etc., will generally not eliminate competition concerns resulting
from horizontal overlaps. In any case, those types of remedies can only
exceptionally be accepted if their workability is fully ensured by effective
implementation and monitoring. Therefore, the Competition Council may
examine behavioural promises only exceptionally in specific circumstances,
such as in respect of competition concerns arising in conglomerate
structures.
It will be necessary to consider the appropriate duration for any
behavioural remedies.

A package of remedies can remain in place for a

given number of years, specified at the outset, after which they fall away.
Alternatively, they can be subject to review after a specified number of
years, with the option that, on the basis of the review, they may be kept,
removed or adjusted in some way. In general, it is not desirable to put a
particular package of behavioural remedies in place indefinitely.

This is

because as time elapses there is an increasing risk that the behavioural

78

remedy will not be appropriate to the conditions of the market and will
create undesirable side-effects.

5.1.

Procedure

The Competition Council may accept commitments in either phase of the

procedure of Article 25 (1) b) or (2) c) of the competition act. However, given the
fact that an in-depth market investigation is only carried out in the phase
prescribed by Article 25 (2) c) of the competition act, commitments submitted to
the Competition Council in this phase must be sufficient to clearly rule out
serious doubts about the compatibility with the competition environment. The
time periods for both submitting the remedies and for the Competition Council to
make its decision are tight, which means that the possibility of offering
commitments should be considered very early in the procedure, generally with
the

notification.

Parties

can

submit

proposals

for

commitments

to

the

Competition Council on an informal basis even before notification.

Commitments in phase I (within 30 working days) can only be accepted where
the competition problem is readily identifiable and can easily be remedied. The
competition problem therefore needs to be so straightforward and the remedies
so clear-cut that it is not necessary to enter into an in-depth investigation and
that the commitments are sufficient to clearly rule out serious doubts.
In Phase II cases, the Competition Council has to make its decision within 90
working days from the date of investigation initiation. The parties are encouraged
to submit draft proposals dealing with both substantive and implementation
aspects which are necessary to ensure that the commitments are fully workable
well in advance of the end of the 90 day period.
In order to form the basis of a decision the parties have to meet the following
requirements:
a. they shall fully specify the substantive and implementing commitments
entered into by the parties or rather have to accept the commitments
proposed by the Competition Council;
b. they shall be signed by a person duly authorised to do so;
c. they shall be accompanied by a non-confidential version

of

the

commitments for the purposes of market testing them with third parties.
79

The non-confidential version of the commitments must allow third parties

to fully assess the workability and the effectiveness of the proposed
remedies to remove the competition concerns.
If the parties do not accept the conditions/obligations offered by the Competition
Council, than:
a. the Competition Council is obliged to prohibit concentration or
b. the Competition Council is entitled to allow the concentration by imposing
commitments proposed by the Competition Council. In this case it is up to
parties to realize on enforcement of concentration with commitments
proposed by the Competition Council.
The Competition Council will ensure the enforceability of commitments by making
the authorization of the merger subject to compliance with the commitments.
Where the undertakings concerned commit a breach of an obligation, the
Competition Council may revoke clearance decisions issued according to
Article 25 (1) b) or (2) c) of the competition act, operating as it is set out by
Article 26 of the competition act.

5.1.1. Operating and monitoring trustees

The Competition Council may appoint or approve the appointment of a trustee to
assist in various aspects of the implementation such as monitoring or handle a
possible divestment. A trustee or monitoring agent may also be appointed to
facilitate the ongoing monitoring of behavioural commitments such as rights of
competitive access. Trustees should be independent of the merging firms, have
appropriate qualifications for the task and should not be subject to conflicts of
interest. The trustee will generally be remunerated by the merging firms. The
trustees remuneration contract should not compromise its independence and
should be subject to approval by the Competition Council.
The Competition Council will consider appointing an operating trustee if it
believes that the defendant has the ability and incentive to mismanage the
assets during the typical divestiture period and thereby reduce the likelihood that
the divestiture will effectively preserve competition. Appointment of an operating
trustee might be warranted, for example, when intangible property, such as
80

computer software, has been ordered divested, and under-investment in the

development and improvement of the software in a rapidly changing business
environment may irreparably impair the value of the assets. The Competition
Council also may opt to appoint a monitoring trustee to review a defendants
compliance with its decree obligations to sell the assets to an acceptable
purchaser as a viable enterprise and to abide by injunctive provisions to hold
separate certain assets from a defendants other business operations. The
Competition Council also will consider appointing a monitoring trustee to oversee
compliance with a behavioural remedy involving ongoing obligations, especially
when effective oversight requires technical expertise or industry specific
knowledge. A monitoring trustee with industry experience can reduce the burden
on the Competition Council and the parties while ensuring that the parties adhere
to the decree. The monitoring trustee should provide frequent updates to the
Competition Council.

5.1.2. Monitoring
Effective monitoring is critical to the effectiveness of a remedy a firms
incentive to comply with a remedy decreases the less effective it perceives the
monitoring of its compliance to be. It is necessary to ensure effective monitoring
throughout the lifetime of the remedy.

In certain cases, market participants

may have an interest in ensuring compliance with a remedy and where

appropriate they should be involved.

It is easier to involve market participants,

such as customers and competitors, in monitoring where they are relatively well
informed and well resourced, or are intended beneficiaries of a remedy. Reliance
on market participants, however, may complicate the process and cause other
problems because they may seek to advance their individual interests.
Nonetheless, if their assistance is to be encouraged, these third parties must be
given clear information as to the nature of the remedy and what the firm must
do to comply. They must also know how and to whom they should complain.

5.1.3. Divestiture process

The divestiture has to be completed within a fixed time period agreed between
the parties and the Competition Council. The total time period is divided into a
period for entering into a final agreement and a further period for the closing, the
81

transfer of legal title, of the transaction. The period for entering into a binding
agreement is further normally divided into a first period in which the parties can
look for a suitable purchaser (the first divestiture period) and, if the parties do
not succeed to divest the business, a second period in which a divestiture trustee
obtains the mandate to divest the business at no minimum price (the trustee
divestiture period). Preference will be given to short divestiture periods as,
otherwise, the business to be divested will be exposed to an extended period of
uncertainty. The time periods should therefore be as short as feasible. The
Competition Council will normally consider a period of around six months for the
first divestiture period and an additional period of three months for the trustee
divestiture period as appropriate. A period of further three months is normally
foreseen for closing the transaction. These periods may be modified on a caseby-case basis. In particular, they may have to be shortened if there is a high risk
of degradation of the business' viability in the interim period.

5.1.4. Proposed purchaser approval

The Competition Council must approve any proposed purchaser. Its approval will
be conditioned on three fundamental tests.

First, divestiture of the assets to the proposed purchaser must not

itself cause competitive harm. For example, if the concern is that
the

merger

will

enhance

an

already

dominant

firms ability

unilaterally to exercise market power, divestiture to another large

competitor in the market is not likely to be acceptable, although
divestiture to a fringe incumbent might. If the concern is one of
coordinated effects among a small set of post-merger competitors,
divestiture to any firm in that set would itself raise competitive
issues.

In that situation, the Competition Council likely would

approve divestiture only to a firm outside that set.

Second, the Competition Council must be certain that the purchaser

has the incentive to use the divestiture assets to compete in the
relevant market.

The seller has an incentive not to sell to a

purchaser that will compete effectively. A seller may wish to sacrifice

a higher price for the assets in return for selling to a rival that will
82

not be especially competitive in the future. This is in contrast to a

situation in which the firm selling the assets is itself exiting the
market. The incentive of the latter firm is simply to identify and
accept the highest offer. Because the purpose of divestiture is to
preserve competition in the relevant market, the Competition
Council will not approve a divestiture if the assets will be redeployed
elsewhere. Thus, there should be evidence of the purchasers
intention to compete in the relevant market. Such evidence might
include business plans, prior efforts to enter the market, or a status
as a significant producer of a complementary product.

Third, the Competition Council will perform a fitness test to ensure

that the purchaser has sufficient acumen, experience, and financial
capability to compete effectively in the market over the long term.
As part of this process, the Competition Council will examine the
purchasers financing to ensure that the purchaser can fund the
acquisition, satisfy any immediate capital needs, and operate the
entity over the long term. Divestiture decrees state that it must be
demonstrated to plaintiffs sole satisfaction that the purchaser has
the managerial, operational, technical and financial capability to
compete effectively with the divestiture assets.

The requirement for an approval by the Competition Council does usually not
only extend to the identity of the purchaser, but also to the sale and purchase
agreement and any other agreement entered into between the parties and the
proposed purchaser, including transitory agreements. The Competition Council
will verify whether the divestiture according to the agreements is in line with the
commitments. The Competition Council will communicate its view as to the
suitability of the proposed purchaser to the parties. If the Competition Council
concludes

that

the

proposed

purchaser

does

not

meet

the

purchaser

requirements, it will adopt a decision that the proposed purchaser is not a

purchaser under the commitments. If the Competition Council concludes that the
sale and purchase agreement (or any ancillary agreements) does not foresee a
divestiture

in

line

with

the

commitments,

the

Competition

Council

will

communicate this to the parties without necessarily rejecting the purchaser as

such. If the Competition Council concludes that the purchaser is suitable under
83

the commitments and that the contracts agree a divestiture in line with the
commitments, the Competition Council will approve the divestiture to the
proposed purchaser. The Competition Council will issue the necessary approvals
as expeditiously as possible.

5.1.5. Obligations of the parties in the interim period

It is the parties' responsibility to reduce to a minimum any possible risk of loss of
competitive potential of the business to be divested resulting from the
uncertainties inherent in the transfer of a business. Up to the transfer of the
business to the purchaser, the Competition Council will require the parties to
offer

commitments

to

maintain

the

independence,

economic

viability,

marketability and competitiveness of the business. Only such commitments will

allow the Competition Council to conclude with the requisite degree of certainty
that the divestiture of the business will be implemented in the way as proposed
by the parties in the commitments.
The parties will be required to ensure that all assets of the business are
maintained, pursuant to good business practice and in the ordinary course of
business, and that no acts which might have a significant adverse impact on the
business are carried out. This relates in particular to the maintenance of fixed
assets, know-how or commercial information of a confidential or proprietary
nature, the customer base and the technical and commercial competence of the
employees. Furthermore, the parties must maintain the business in the same
conditions as before the concentration, in particular provide sufficient resources,
such as capital or a line of credit, on the basis and continuation of existing
business plans, the same administrative and management functions, or other
factors

relevant

for

maintaining

competition

in

the

specific

sector. The

commitments also have to foresee that the parties should take all reasonable
steps, including appropriate incentive schemes, to encourage all key personnel to
remain with the business, and that the parties may not solicit or move any
personnel to their remaining businesses.
The parties should further hold the business separate from its retained business
and ensure that the key personnel of the business to be divested do not have
any involvement into the retained businesses and vice versa. Any documents or
84

information confidential to the business obtained by the parties before adoption

of the decision have to be returned to the business or destroyed. The parties
may further be required to appoint a hold-separate manager with the necessary
expertise, who will be responsible for the management of the business and the
implementation of the hold-separate and ring-fencing obligations. The holdseparate manager should act under the supervision of the monitoring trustee
who may issue instructions to the hold-separate manager. The commitments
have to provide that the appointment should take place immediately after the
adoption of the decision and even before the parties may close the notified
concentration. Whereas the parties can appoint the hold-separate manager on
their own, the commitments have to foresee that the monitoring trustee is able
to remove the hold-separate manager if s/he does not act in line with the
commitments or endangers their timely and proper implementation. A new
appointment of a hold separate manager afterwards will be subject to the
approval of the monitoring trustee.

85

K. Dominance
Dominance is defined as the position of economic power which an undertaking
benefits of, and which allows it to prevent the maintenance of an effective competition
on a relevant market, giving the possibility to a considerable extent, to behave
independently of its competitors, clients, and finally of its consumers (article 4,
competition act). The NAPC is well aware of the fact that economic independence
cannot be understood mechanically: Even the perfect monopoly is not able to act
independently of the slope of its demand curve (i.e. the preferences of its
consumers).

1. Assessment of Dominant Position

The purpose of these guidelines is to provide guidance how the NAPC will assess
the dominant position of one (or several) undertakings in a specific market. In

assessing dominance the NAPC will try to get a full picture and will evaluate the
whole range of factors which may be of relevance for the specific case. In pursuing
this task
a. it will especially look at the coherence of facts,
b. it will integrate the individual facts into a round-about analysis,
c. it will not assume an a priori fixed hierarchy of facts irrespective of the merits
of the individual case.

In its dominance assessment the NAPC will not restrain itself to a merely static point
of view. As far as possible it will take into account the often more important dynamic
elements of competition. It will do so i.a. by
a. carefully investigating the development of the market concerned and
b. by looking into potential competition stemming from outside developments

1.1.

The interface between market definition and dominance assessment

The dominance assessment exercise of the NAPC will take as its basis the
outcome of the establishment of the relevant market which has to be pursued in
accordance with article 28 to 31 of the competition act. As the main goal of
86

defining the market is to identify the competition constraints that the relevant
undertakings are systematically facing (par. (4) of article 28, competition act),
the market definition exercise has to be able to provide a broad variety of
evidence, at least the relevant information concerning
a. demand side substitutability as well as
b. supply side substitutability.
Using the outcome of the analysis of establishing the relevant market the NAPC
is aware of the problem that depending on the nature of the competition issue
the size of the relevant market may differ from case to case (par. (3) of article
28, competition act). The NAPC will carefully take into account especially two
sets of problems:
a. Possible errors stemming from the cellophane fallacy (see chapter 2.3.).
b. Differences in the competitive constraints the market in general may be
facing relative to the competitive restraints the individual undertaking
being allegedly dominant is facing.
Different from merger inquiries the dominance assessment does an ex-post
analysis. It is concerned with the current (or past) competiveness of the
markets, not with the future one.
As cellophane fallacy the NAPC identifies the following analytical problem: The
profit-maximising enterprise will always set the prices at a level at which a
further price increase would be unprofitable. The degree of substitution between
two products depends to a large part on the current relative prices of the
products concerned. As a consequence the allegedly dominant enterprise will
only face demand substitutes at existing prices because it has already elevated
its prices to that point that even those products become substitutes which in
more competitive would not considered exchangeable with the product of the
company concerned. Thus the empiric elasticity may indicate an inflated degree
of substitutability. This extended range of substitute products may lead to an
underestimation of the market power of the allegedly dominant undertaking and
to an overestimation of the competitive restraints deriving from its competitors.
In other words: The market is defined overly broad.

87

To overcome these obstacles the NAPC does not intend abandoning demand side
substitutability as an important tool for analysis, rather it will try to enrich its
analysis by investigating other factors not tainted by the cellophane fallacy,
e.g. by looking at
a. other comparable geographic markets,
b. consumer research revealing preferences not that much disturbed by
currently prevailing price relations.
In markets with a high degree of product differentiation the competitive
constraints vis--vis a certain undertaking may well differ from the competitive
constraints vis--vis the whole market. The investigator has to deal with
imperfect substitution within a yet defined market. If the market definition
exercise has been done properly its outcomes should provide reliable information
on the issue of product differentiation and on inhomogeneity within the market.
The NAPC will therefore also look into the issue if substitutes have to be
considered as closer or more distant even - within the market defined according
to articles 28 to 31 of the competition act.
a. Generally a high degree of product differentiation goes hand in hand with a
higher degree of market power. Thus market shares could underestimate
the size of market power exercised effectively.
b. On the other hand: A strong position in their respective market segments
may enable smaller competitors to compete more fiercely than we would
expect from their mere size (market share).

1.2.

Market shares and market concentration

1.2.1. Market Shares

The analysis of market shares may well provide a valuable first insight into the
issue if dominance is prevailing in a certain market. Consequently the NAPC will
use market share analysis as a first empiric indication of market power in the
cases where appropriate.
The calculation of market shares will be pursued along the lines laid out in article
31 of the competition act.

88

If appropriate data is available the NAPC will choose to calculate market shares
on a value basis (sales, turnover in monetary terms) as it provides a clearer
picture of the purchasing power an individual firm is able to command on the
market. Market shares calculated in volume terms are not able to reveal the
price setting power of an undertaking. To the contrary, they tend to camouflage
it. This is especially detrimental in the case of differentiated products.
Nevertheless the comparison of market shares in monetary and in volume terms,
be it in comparing data between different segments of the market (e.g. big
versus small customers; imports versus domestic supply etc.) or over a time
span may help to expose structural distortions as well as the underlying
dynamics of the market. This said, the NAPC is fully conscious about possible
flaws of this approach: Changes in (or differences between) monetary and
volume market shares may originate also from other factors (e.g. different
compositions of the underlying product samples) providing no indication for
market power.
If available the NAPC will calculate market shares at the prices charged to the
enterprises direct customers as providing the more informative measure of
market power. E.g.: If the products are sold to retailers the market share at this
distribution level should enter into the analysis rather than the market share
calculated at the level of the final consumers.
a. Following a similar analytic reasoning the NAPC will normally exclude
captive production (i.e. the supply which is destined to internal needs of
an undertaking) from calculating the market share, except that the
undertaking has been diverting these capacities repeatedly to the open
market.
b. Private label sales (i.e. sales of branded companies to retailers under the
retailers own brand name) are usually excluded from turnover, except for
issues where the availability of capacity is in the focus and not brand
strength.

The NAPC will take market shares as an indication for market power, to some
extent similar to a gliding scale going from no or small market power to
monopoly power. In general, market power is more likely to exist if an enterprise
89

enjoys a persistently high market share and less likely, if its market share is
persistently low.

With a market share exceeding 50 % the undertaking(s) face the legal

presumption of being dominant (par. 4 of article 10 of the competition act). This
fact confirmed the NAPC will stop assessing market dominance any further. If
according to the arguments submitted by the parties the legal presumption gets
rebutted by sound empiric and economic reasoning the NAPC will continue
assessing dominance along the lines laid out in this document.

Nevertheless the NAPC is fully aware of the fact that market share and market
power may deviate considerably in a substantial number of instances. The NAPC
will take into account especially the following features:
a. High market shares could parallel low market power if the barriers to entry
(see chapters below) are low. This could be the case in particular if entry is
imminent within a limited time span or a strong and credible threat from
potential competitors imposes a solid restraint on the enterprise holding
the high market share.
b. In markets characterized by a high level of product differentiation the
aggregate market share might not be a reliable indicator for market power.
Market power would depend very much on the fact how close (or how
distant) the next substitutes are located. In case the issue of product
differentiation within a market could be decisive, the NACP will also look
into the separate segments of the market.
c. In cases of pronounced product differentiation or (regional or other)
market segmentation the comparison of market shares between different
product specifications and different customer groups may allow additional
insights into strengths and weaknesses of the undertaking allegedly
dominant.
d. Subjective or objective switching costs of customers may be different
between enterprises. An undertaking the customer base of which has
higher switching costs could exert more market power than indicated by
its market share.

90

In markets characterized by bidding processes (i.e. public procurement auctions

or tenders issued by private business) high market shares at one point of time
might provide an insufficient or even misguiding indicator for market power. To
the contrary, competition might be intense, especially where
a. tenders are large and infrequent,
b. products are relatively homogeneous and
c. free capacity is available.

If appropriate time series are available the NAPC will look into the development
of market shares because the history of market shares could reveal the dynamic
nature of the market:
a. Swift and considerable changes in market shares could derive from the
lack of persistent market power. They might also indicate the importance
of innovations in this market.
b. Growing market shares of smaller companies could provide a hint that
barriers to entry and expansion are low; the evidence is that stronger the
more recent entry was observed.
c. Loosing market shares could give some indication that the allegedly
dominant undertaking has been lessening its grip on the market.
The general remark that the analysis of market shares may well provide a
valuable first insight into the issue if dominance applies even the more: The
development of market shares does rarely produce sufficient evidence in itself
but rather may contribute valuable indications pointing at the direction of further
investigations.

1.2.2. Market concentration

The market share of an individual undertaking may provide a stronger indication
of market power if it is set into relation with the overall structure of the market
and/or the market shares of its competitors.
A big difference between the market share of the allegedly dominant undertaking
and its next competitors can with due caution be applied as an additional
indication for market power. As some very rough rule of thumb a difference

91

of more than 20%-points in market shares could be considered as exposing a

greater likelihood of dominance.
To explain the importance of relative market shares by an example: A market
share of 51% may allow for a strong indication of single dominance if the rest of
the market is distributed between a number of small competitors. Quite the
contrary would be the case if the residual share of 49% is occupied by only one
player. In this case single dominance would be highly unlikely.
To take the overall market structure into account several concentration ratios
(CR) can be applied. The easiest approach is by calculating CR3, CR4 by simply
adding up the market shares of the 3, 4 biggest companies. The disadvantage
of this type of measures can be seen in the fact that - in summing up - each
enterprise is attributed the same weight although it seems to be obvious, that
grosso modo bigger/lower market shares may often exert a disproportionately
higher/lower competitive pressure.
The Herfindahl-Hirschman Index (HHI) meets this problem by summing up the
squares of the market shares of the individual undertakings, using the formula
n

HHI =

s2i

si

being the market share of enterprise i. The HHI puts a

i=1

premium on the inequality of market shares, i.e. the asymmetry of the market
structure.
Theoretically the market shares of all undertakings should be integrated into the
calculation of the HHI. Nevertheless for the sake of economising investigative
costs the NAPC may well leave smaller enterprises aside as their market shares
are not capable of influencing the HHI decisively.
As in the case of simple market shares there is no linear or even unambiguous
relationship between market power and the level of the HHI. As a rough rule of
thumb in many jurisdictions it is assumed that
a. a low HHI level (under 1000 according to the European merger notice,
< 1500 according to the US merger guidelines) is extremely unlikely to go
along with dominance,
92

b. a medium HHI level (EU between 1000 and 2000, US between 1500 and
2500) indicates a moderately concentrated market and
c. competition concerns may only arise with an HHI above levels of 2000 /
2500 except for special circumstances.

1.3.

Barriers to entry and expansion

Entry barriers prevent or hinder companies from entering a relevant market. To

assess dominance of an undertaking in the relevant market, entry barriers have
to be taken into account in addition to finding market share of an undertaking in
that market.
Entry barriers are specific features of the market, which give incumbent undertakings advantages over potential competitors. If entry barriers in the relevant
market are low and entry is easy, then incumbents even with a high market
share will not be able to behave in an anticompetitive way as described in artticle
11 par (2) of the competition act.
Conversely, if entry barriers are high, potential or existing competitors will be
prevented from easily entering the market or expanding their share in it.
Therefore incumbents in such situation will tend to exert their dominance.
Entry barriers comprise a multiplicity of factors and are particular to each
relevant market. Specific circumstances of a case will determine the degree to
which certain barriers will contribute towards establishing dominance more likely
than others. Therefore assessment of dominance can take into account any
number or combination of entry barriers. For example, article 10 par (5) of the
competition act already stipulates specific entry barriers, the presence of which
establishes statutory dominance.
As entry barriers are case specific, the list of them elaborated in the present
chapter is indicative and not exhaustive.

93

1.3.1. Entry barriers

Entry barriers are elaborated according to the order provided in the article 10
par. (3) of the competition act.
Legal barriers tend to limit the number of undertakings active on the relevant
market and prevent entry by new competitors. Legal barriers will most likely be
constituted by legislation and other state measures, authorisation, licensing
requirements or intellectual property rights. The list is not exhaustive.
Legal barriers which are created by granting exclusive rights or which grant the
performance of the services of general economic interest are addressed by
article 10 par. (5) of the competition act.
Legislation and other states measures, authorization or licensing requirements
can also constitute an absolute or significant barrier to entry.
a. Planning laws, licensing laws or authorization procedures may impose
quotas on the number of undertakings, which are allowed to operate on
the relevant market, and thus safeguard incumbents from a potential
entry.
b. Legal barriers should be distinguished from legislation which sets objective
standards. Where standards apply equally to all undertakings, such as
health or safety regulation, they might not affect the cost for potential
competitors any more than they affect the cost for incumbents. However,
regulation might lead to entry barriers when it does not apply equally to all
undertakings. Undertakings already present on the relevant market might
benefit from standards that are relatively easy for them to meet, but
harder for a new entrant to achieve.
Trade barriers whether tariff or non-tariff can have effect of weakening
competitive strength of a potential competition from abroad. If the trade barriers
are high, an incumbent is more likely to exert market power. However, if trade
barriers are low or non-existent, then an incumbent even with a high market
share in the relevant national market will be unlikely to hold a dominant position
as is faced with a potential international competition.

94

Intellectual property rights (IPR) may also prevent entry and expansion, or make
it more difficult. The impact of IPR on entry and expansion depends on the
nature and actual strength of the IPR held by the allegedly dominant
undertaking.
a. To assess strength of IPR, it is necessary to look to what extent IPR
prevent other undertakings from competing with the IPR holder in the
relevant market. Assessment has to take into account that protection of
IPR is essential to provide sufficient incentives for investment and
innovation. Although protection of IPR may reduce competition in the short
term, in the long term a potential competitor may be able to overcome it
by its own innovation. Thus short term profits, which IPR can provide, are
an incentive to innovate and thus stimulate competition and innovation. In
markets, where high rate of innovation occurs or is expected, innovation
may overcome product market barriers to entry relatively quickly.
b. According to the nature of IPR, patents and copyright are more likely to
confer dominance on their holder in the relevant market as they usually
provide input for provision of products and services. Trademarks, in
themselves, are less likely to confer dominance, but might be an important
factor contributing to a conclusion that dominance exists, particularly if
they concern well-established brands enjoying strong consumer loyalty.
Besides legal barriers article 10 par. (3) of the competition act refers also to
factual (economic) barriers to entry. These may include sunk costs of entry,
privileged access to input and distribution, essential facilities, economies of scale,
network effect etc.
Sunk costs of entry are those costs, which must be incurred to compete in the
market, but which cannot be recovered if entry fails.
a. It is useful to consider the extent to which sunk costs give the incumbent
an advantage over potential new entrants and to what extent such costs
create barrier to entry.
b. The mere existence of sunk costs in any particular industry does not
automatically mean that entry barriers are high or that competition in the
relevant market is excluded or significantly impaired.

95

c. Different types of sunk costs have to be incurred in order to enter a new

market. They may differ according to the undertakings field of activity
(production, research and development, distribution or marketing).
Privileged access to supply or distribution channels can constitute a barrier for
potential competition. An incumbent may be vertically integrated or may have
established sufficient control or influence over the supply of inputs, e.g., through
long term exclusive contractual obligations. An incumbent might have its own
dense distribution network, established distribution logistics or wide geographical
coverage that would be difficult to replicate for the rivals. Assessment has to take
into account overall competition in the relevant downstream or upstream market.
The incumbent might also own or have privileged access to an essential facility.
Although competitors might have no access to this facility, it must be carefully
considered, that a facility will only be viewed as essential and determinative for
finding dominance, where it can be demonstrated that access to it is
indispensable in order to compete in the downstream market and where
duplication of the facility is impossible or extremely difficult owing to physical,
geographical or legal constrains.
If the incumbent has an established position on the relevant market, it may be
difficult to enter an industry, where experience or reputation is necessary to
compete effectively, both of which may be difficult to obtain as an entrant. Such
incumbent generally will enjoy high consumer loyalty, relevant market will be
characterized by the closeness of relationships between suppliers and customers,
importance of promotion and advertising as well as other reputation advantages.
Advertising and other investments in reputation are often sunk costs which
cannot be recovered in the case of exit, therefore making entry more risky.
Switching costs for the customers may also be a factor preventing new entry. An
entry barrier will exist if a customer on the relevant market has to bear high
costs in order to switch to the new entrant. For example, if the customer has to
invest in new facilities in order to be supplied by the competitor or when it has to
train its workforce to use the new entrants product. Usually the new entrant will

96

have to support part of these switching costs in order to enter the market, while
the incumbent undertaking will not.

1.3.2. Barriers to expansion

In comparison to barriers to entry, barriers to expansion prevent undertakings
already present in the relevant market from expanding their market share. Many
factors which make it harder for a potential competitor to enter into a relevant
market, might also make it harder for an undertaking already operating on the
market to expand its market share and therefore its competitive impact.
Barriers to expansion will tend to be high in sectors where increase in capacity
requires large investments (building production plants, finding new sources of
supply, expanding distribution networks), but are low in those sectors where,
once a large entry investment has been made, the marginal cost of supplying a
new product unit is very low.
Having the same effect of on the competitive impact of the potential or existing
competitors, barriers to expansion will be assessed in a similar way as barriers to
entry are.

1.3.3. Assessment of entry barriers

Assessing the effects of entry barriers and the advantages they give to
incumbents can be complex and will depend on the specific circumstances of the
case. NAPC can ask incumbents and potential competitors to provide information
on sunk costs associated with an entry, relative ease of obtaining the necessary
inputs, how regulation affects the prospect of entry, the cost of operating at the
minimum viable scale and any other factor that may impede entry or expansion
in the relevant market.
NAPC will look carefully at the history of the industry when assessing barriers to
entry and expansion. It is unlikely that the barriers to entry or expansion could
be found in an industry, which experienced frequent and successful examples of
entry. Conversely, if the previous attempts to expand in or enter into the relevant
market have been unsuccessful, perhaps due to deterring behavior by an
97

incumbent, then expansion and entry would seem less likely to have competitive
constrains on the market power of incumbents.
Expected development of the market can impact possibility of entry. Due to
prospects of increased profits, entry into a market, which is expected to
experience high growth in the future, is more likely than in a market which is
mature or expected to decline. Entry is particularly likely if suppliers in other or
related markets already possess production facilities that could be used to enter
the relevant market, thus reducing sunk costs of entry. Relevant time period for
the assessment of market growth dynamics and entry associated with it should
be similar to that of a timely entry discussed next.
Entry has to be sufficiently immediate and sustained to prevent the incumbent
from exercising market power. Possibility of a timely entry of potential
competitors acts as a deterrent force for the incumbent undertaking, e.g. not to
increase prices. The appropriate time period for entry depends on the
characteristics and dynamics of the relevant market and specific capabilities of
potential entrants. The period of time needed for undertakings already on the
market to adjust their capacity can be used as a starting point. According to the
article 4 of the competition act, if entry or expansion in the relevant market is
not successful within three years, it will not be considered as timely thus
providing evidence of the existence of barriers on the relevant market. This time
period sets the upper limit for entry and based on particularities of the market in
question might be less than three years.
Entry or expansion has to be sufficient in scope and magnitude in order to
constitute an effective constraint on the incumbent. Small-scale entry, for
example into a niche market may not be considered as sufficient.

1.4.

Other barriers to entry

1.4.1. Economies of scale and scope

The NAPC defines economies of scale as the situation where in the production of
a product an undertaking enjoys declining average costs as output increases.
This is a very common feature in a broad range of businesses, in particular where
98

high fixed costs are involved. As a consequence larger undertakings may have a
significant advantage over smaller enterprises. In assessing economies of scale
the NAPC is aware of the fact that they are productivity enhancing thus bearing
the potential for welfare increases.
A similar feature is displayed by economies of scope: It is cheaper to produce
two (or more) products jointly than to do it separately.
With respect to economies of scale (and scope) the NAPC is aware of the fact
that they rarely could establish a significant entry barrier if they are not
combined with other factors and if incumbents and possible entrants face a
similar cost curve.
A significant barrier to entry may well arise out of economies of scale (and
scope) if the following combination of factors (or part of it) is given:
a. Economies of scale (and scope) go often hand in hand with a minimum
size required to enter the market as an efficient competitor (so-called
(minimum) viable scale).
b. The allegedly dominant undertaking enjoys a stable consumer base, which
makes it difficult for the entrant to reach the minimum size.
c. The allegedly dominant undertaking could employ strategies deterring
entry (see below section "Deterrence strategies").
The (minimum) viable scale could constitute a prerequisite established either on
the production side (e.g. by the technologies available) or on the distribution side
(e.g. minimum number of outlets required for an efficient distribution channel).
Being large enough the viable scale may increase sunk costs considerably and
thereby raise the risks affiliated with entry.
When assessing the dimension of the viable scale the NAPC will normally look at
actual evidence of entry in its domestic market or into comparable foreign
markets as providing the probably most convincing empirical indication.
Additionally it may take into account background information gathered within the
industry such as business plans and engineering studies (blueprints). If the
underlying complaint comes from within the industry the NAPC will require the
complainant to provide exhaustive information about all sets of information
99

shedding light on the viable size in particular with regard to cost structures or
consumer attitudes (market studies, detailed sales statistics).
Although being (at least potentially) as efficient as the allegedly dominant
undertaking the (potential) entrant may face significant hurdles to achieve the
viable scale. E.g.:
a.
b.
c.
d.

Suppliers could be bound by long term contracts;

distributors could be locked-in to dealings with the incumbent(s);
strong brand loyalty of consumers;
high switching costs of customers.

1.4.2. Network effects

The NAPC defines network effects as the situation where the benefit for the user
of the network increases with the number of users. This is often the case with
communication industries; it is obvious that the utility of a communication device
is the higher the more users can be interconnected.
The concern with respect to an entry barrier is quite similar to the issues raised
above in connection with economies of scale:
a. Potentially welfare enhancing (in the extreme the monopoly might be the
most efficient structure);
b. minimum viable scale necessary;
c. has to be assessed in combination with other factors.

1.4.3. Deterrence strategies

As deterrence strategies the NAPC terms strategies which are employed by the
allegedly dominant undertaking with the aim to deter possible entrants (or to
hamper the growth potential of rivals significantly). Most of these strategies have
to be dealt with under the topic abuse of a dominant position (article 11 of the
competition act).
Nevertheless there exist some strategies which rarely could be assessed as
abusive on its own but which may well have the potential to carry deterrence as
a (possibly welcome) side effect. E.g.:

100

a. Building up of excess capacities (in comparison with the normal course of

business); this strategy might be useful for meeting demand peaks as well
as for deterring entrants and/or rivals.
b. Increasing consumer loyalty by non-abusive measures (e.g. advertising).
c. Repositioning of products (with respect to brand, quality etc.
characteristics); this could help to cover a broader range of consumer
preferences thus enlarging sales; on the other hand the room of
maneuvers of actual or potential competitors could get reduced.

1.5.

Buyer Power

Competitive pressure on an undertaking might be exercised not only by

competitors, but also in the presence of strong buyers. The strength of buyers
and the structure of the buyers side of the market may constrain or countervail
the market power of a seller. Even undertakings with very high market shares
may not be in a position to significantly impede effective competition, in
particular by acting to an appreciable extent independently of their customers, if
the latter possess buyer power.
Buyer power characterizes bargaining strength that a buyer has vis--vis a seller
in commercial negotiations due to its size, commercial significance to the seller
and buyers ability to switch between alternative suppliers.
Source of countervailing buyer power would be if a customer could credibly
threaten to resort, within reasonable timeframe, to alternate sources of supply,
should the supplier decide to increase prices or otherwise threaten to deteriorate
conditions of delivery. This would be the case if the buyer could immediately
switch to other suppliers either entirely or by significantly reducing volume of
purchases. Also, buyer might credibly threaten to vertically integrate into the
upstream market or to sponsor upstream expansion or entry, for example, by
persuading a potential entrant to enter by committing to place large orders with
this company. The buyer with power will also be able to intensify competition
among suppliers though establishing a procurement auctions or purchasing
through a competitive tender.

101

1.6.

Collective dominance

A dominant position need not to be held by a single undertaking only. A situation

is termed collective dominance (= holding collectively a dominant position),
where two or more undertakings, which are independent in the sense of the
competition act (article 4) get linked together in such a way that they are able to
adopt a common policy on the market. In other words: Undertakings although
not belonging to the same group (i.e. corporate group, concern) are connected or
interrelated in such a way that they behave as a single collective entity in the
market, irrespective of whether that relationship is characterized by more formal
or more economic links.
The link may be formal or structural in the sense that the two (or more)
undertakings are bound together by a legal contract, a legal obligation or a
common venture. E.g.: In a transport network several transportation companies
could be linked together by an agreement on a common schedule and by a
corresponding agreement on joint tickets. Both agreements have no anticompetitive purpose and might well be deemed as highly beneficial for
customers. Nevertheless, these agreements limit the room for maneuvers of the
individual undertakings considerably: Their times of service are set by the
common schedule and even the prices have to be fixed at least insofar as it is
required by the monetary transfers associated with the joint ticket.
There could be a broad variety of structural links: Besides the example above
licensing agreements, joint operations or joint ventures, cross-shareholding etc.
If necessary the NAPC will investigate these structural links between companies
not only by looking into the contracts (inclusive all side-agreements) but also by
investigating how these contracts are lived. Memos for executives, board minutes
etc. could shed light on this issue and ultimately in the case of doubt the
analysis of its economic effects.
The concept of collective dominance could also be applied to an oligopoly where
parallel behavior (e.g. in prices) can be observed. There need not to be an
explicit agreement on prices, but the deliberate adoption of the same pricing
policy (so-called tacit collusion (or tacit coordination)).

102

Without going into detail - as this issue should be dealt with more in detail in the
context of horizontal coordination the main features of tacit collusion can be
characterized as following:
a. Oligopoly structure of the market:
i.
Homogeneous products in transparent markets;
ii.
Market categorized by small fluctuations and modest innovations;
iii.
Small number of (main) enterprises which would be able to control the
iv.

market;
Asymmetric structure of these enterprises with regard to the features
most relevant on the market concerned (size, cost structure etc)

facilitates collusion.
b. Ability to coordinate the behavior:
i.
Possibility to monitor the compliance of the competitors with the
ii.

collusive strategy;
A credible deterrent mechanism to punish deviators from the common

iii.

policy;
Outsiders (like smaller companies, the so-called fringe) as well as

customers are not able to jeopardize the coordination.

c. Often the existence of facilitating devices can be observed (like same
restrictive sales contracts, information exchange etc.).
In contrast to merger cases, in abuse cases more weight should be attached to
factual evidence regarding the behavior of the market participants. Particular
evidence may be warranted for example with respect to the close alignment of
prices over a longer period and to the consistently elevated level of prices. The
authority should also be able to show that deviation from the common conduct
had been followed by retaliatory measures.
Only in the absence of an alternative reasonable explanation this would give rise
to a presumption of an existing collective dominant position.

1.7.

Assessing dominance in aftermarkets

Aftermarkets comprise complimentary products (secondary product) that are

purchased after the purchase of another product (primary product). Aftermarkets
as a standard will include after sales services and spare parts for durable goods,
as well as consumables such as ink cartridges and toner for printers and
photocopiers.

103

Aftermarkets typically are proprietary (brand specific), that is secondary products

can be used with one brand of primary product and cannot be used with another
brand of primary product, although the primary products themselves are
substitutes. Proprietary rights, such as patents or private information about the
market, usually create high entry barriers, making entry by competitors into the
market of the secondary product difficult. The contention is that the supplier of
the primary product often attempts to reserve the secondary market for itself,
leading to a strong position on the secondary market. However, that position is
usually constrained by the competition in the primary market and on its own may
not be indicative of the actual degree of the market power of the supplier in the
secondary market. Therefore dominance in the aftermarket may not be
established without considering its link to the primary market. Consequently the
NAPC usually will assess the competitive structure of both the primary and the
secondary market.
It is useful to distinguish the effect of a dominant position on the aftermarket on
future and existing customers of the primary product. Competition on the
primary market may allow future customers to avoid negative effects of high
aftermarket prices. Existing customers, however, cannot protect themselves in
the same way, if after the purchase of the primary product the supplier raises its
prices or lowers the quality in the secondary market.
A supplier of a primary product may consider the effect prices and quality of
products and services provided in the aftermarket have on the sales in the
primary market for two reasons. Firstly, customers may base their purchasing
decision on a life cycle cost calculation, which consist of the price paid for the
primary product and secondary products. The amount of information and to what
extent it could enable customers to make accurate life cycle cost calculation is an
important factor in assessing ability of customers to make an informed choice on
the primary market. It is necessary to assess, if sufficient number of customers
engages in life cycle costs calculations to constitute a sufficient constraint on the
suppliers market power in the aftermarket. At the same time it is necessary to
assess in such case the ability of the supplier to respond by a different pricing
strategies to customers who do calculations and customers who do not
(professional buyers and private customers).
104

Secondly, even if the customers do not base their choice of the primary product
on the life cycle cost calculation, the competitors of the supplier in the primary
market could make such calculations and compete hard in the primary market,
compensating it with higher profits in the aftermarket. As a result, the supplier
would not enjoy high overall profits, despite having set high prices in the
aftermarket.

2. Abuse of Dominant Position

105

L. Investigative methods and tools

1. Investigation Decision
1.1.

Introduction

The aim of the guidelines is to introduce the main methods of the collecting the
information in the official investigations and market studies and to give the
recommendations on the election of the relevant methods, on the most efficient
use of them, on the legal aspects of use and on the operations with the electronic
evidences.
The level of information an agency has in the early stages of a investigation will
vary from case to case. Generally, most cartel investigations begin on the basis
of limited information. Establishing a clear methodology and investigative plan
will assist agencies to build upon the cartel allegations and conduct successful
investigations.
There are numerous ways to conduct a competition investigation. The degree of
information that an agency has during the early stages of the investigation is a
critical factor in determining how an investigation will be conducted. The key
concern of agencies in the beginning phase of a full-scale investigation is the
identification of evidence and potential sources of such evidence.
Accordingly, an agency should analyse and assess information and evidence
gathered during the preliminary inquiry before embarking on a full- scale
investigation. In light of this consideration, it can be useful for an agency to
establish an investigative plan to assess the facts and evidence relevant to
determining whether an offence has been committed. The investigative plan is a
living document that should be revised throughout the life of the investigation.
There is no single model for investigative planning. It is a continuous process
driven by the course of the investigation and should serve as a guide for the
investigation. Accordingly, investigative plans should be revised and adjusted to
reflect the developments in and the understanding of the case. Two essential
features are typically reflected in an investigative planthe analysis of the target
106

cartel and investigative environment, and the activities relevant to evidencegathering.

The investigative plan is intended to serve as a guide to assist in developing the
information necessary to prove the infringement, to test theories of the case and
to evaluate the course of the investigation. The investigative strategy is thereby
based on the analysis of the target cartel and the investigative environment
serves as a basis upon which the investigative strategy is set up. Most
importantly, the analysis of the target cartel and the features of the conspiracy
include:

summarising features of the target cartel

analysis of evidence obtained through the preliminary inquiry
forming a hypothesis or case theory
determination of evidence required to establish an infringement/violation
determination of the most effective strategy to obtain required evidence
consideration of the use of special powers to collect required evidence
determination of businesses, persons and locations to be investigated.

In the early stage of a full-scale investigation, agencies usually use information

gathered during the preliminary inquiry to gain an understanding of the key
features of the cartel. The early evidence and information-gathering about the
infringement obtained through a complaint, leniency applications, informants, or
any other method of detecting cartel conduct assumes an important role in
determining the features of the cartel. In the early stages of a full-scale
investigation, agencies may not initially communicate with individuals within the
industry or individuals and corporations that may be implicated in the alleged
violation, with the exception of leniency applicants. If additional information on
the infringement is needed in the early stages (for example, to prepare covert
operations, such as dawn raids or searches), agencies should take care to ensure
that cartel participants are not pre-maturely alerted to the investigation.

1.2.
1.2.1.

Examples of Types of Investigated Behaviour

Price fixing

The evidence section of the investigative plan for a price-fixing cartel should
identify elements that would assist in determining the existence of the
conspiracy. Key elements are likely to include:
107

price lists, or industry wide or association price schedules

price change notices
meetings or telephone conversations among competitors
exchanges of pricing information between competitors
evidence of competitors monitoring or policing their agreement
testimonies from members of the conspiracy
documents, emails, or faxes that provide evidence of price fixing.

1.2.2.

Market allocation

The evidence section of the investigative plan for a cartel involving market
allocation agreements should focus on the allocation scheme implemented by the
cartel members. Key evidence would include conspirator testimonies. Evidence
indicating that a particular customer (or territory, supplier or line of commerce) is
exclusive to a particular company or business may be indicative of market
allocation agreements.

1.2.3.

Bid rigging

Bid-rigging activities often involve an agreement or arrangement among

competitors that pre-determines the successful bidder and price of the successful
bid. Sometimes potential bidders may agree to refrain from bidding on a
particular project. In other situations, competitors may agree to take turns at
being the successful bidder and rotate projects among themselves. When
investigating

bid-rigging

cartel,

the

evidence

section

of

the

agencys

investigative plan should identify elements that could assist in determining the
existence of a bid-rigging conspiracy. Key elements are likely to include:

108

evidence indicating advance non-public knowledge of competitors bids or

pricing
evidence indicating competitors have discussed bids or have reached an
understanding about bids
evidence indicating that a particular customer or contract is exclusive to a
particular company
or business
similar spelling errors or similar handwriting, typeface or stationery in the
proposal or bid forms
submitted by competitors
testimonies from members of the conspiracy
wide spread subcontracting among the bidders
discernable and predictable winning patterns

marked differences in bids and/or bid patterns when a non-regular or

newcomer bids.

1.3.

How a cartel operates

Cartel participants tend to establish mechanisms to monitor each other in an

attempt to prevent cheating. Successful cartels typically develop sophisticated
and flexible systems designed to manage the cartel. Identification of the cartels
monitoring mechanisms can often be a useful way to determine the key
characteristics or elements of the infringement.
Mechanisms of monitoring output and prices:

Trade associations and industry publications that report detailed market

information
payments made between competitors.

Other schemes to share information:

Use of a trust company or a secretarial company or individuals to assist in

data collection.

Internal organisational hierarchy:

Many successful cartels develop a system to implement cartel policies.

Such a system may involve engaging high-level executives to determine
the broad outline of the cartel agreement and working-level groups of
managers responsible for the day-to-day implementation of the cartel.

Communication mechanisms:

109

Cartel members tend to use sophisticated communication mechanisms. In

setting out the investigative plan for gathering evidence, agencies should
consider the various possible mechanisms for communication. For
example:
use of software to allocate markets and customers and to control output
and sales
periodic exchange of pricing information to give effect to the cartel
agreement
seminars or cartel courses for relevant employees
the establishment of steering committees and audit systems
the imposition of punishment on companies that do not comply with the
cartel arrangements
communication through an intermediary (e.g. someone hired to manage
the cartel).

1.4.

Determination of evidence required

The standard of evidence required to prove a cartel differs according to

jurisdiction and will largely depend on whether an agency is undertaking the
investigation as an administrative, civil or criminal matter. The validity or
admission of direct and indirect evidence and the approach to the admissibility of
evidence

obtained

through

surveillance

also

varies

from

jurisdiction

to

jurisdiction.
Investigative planning relating to evidence gathering should focus on:

factual issues relevant to determining and proving guilt

identification of any gaps in the evidence
identification of any evidence needed to address critical issues, including
any relevant
documentary evidence
potential sources of evidence
identification of potential witnesses of fact and whether they should be
interviewed.

The evidence required to prove an infringement will depend on the type of

agreement or arrangement under investigation (see Type of agreement or
arrangement, above), and frequently includes:

110

price lists
price change notices
meetings or telephone conversations between competitors
exchange of competitor pricing or bidding information
testimonies from members of the conspiracy
documents, emails and/or faxes providing evidence of price fixing
industry-wide or association price schedules
evidence indicating advance non-public knowledge of competitors bids or
pricing
evidence indicating that competitors have discussed bids or have reached
an understanding about bids
evidence of competitors monitoring or policing their agreement
evidence indicating that a particular customer or contract is exclusive to a
particular
company or business
similar spelling errors or similar handwriting, typeface or stationery in the
proposal or bid forms
submitted by competing bidders.

1.5.

Investigative strategy

Early analysis of the cartel and investigative environment should enable agencies
to assess (i) the evidence obtained to date, and (ii) any further evidence needed
to prove the case. Having established the scope of the suspected cartel and the
theory of the case, agencies will then determine their investigative strategies for
resource allocation and effective evidence-gathering methods.
An analysis of the evidence required to prove the offence will allow the
investigation team to identify any gaps in the evidence gathered to date and will
focus the investigation on acquiring any further relevant evidence from
appropriate sources. Some agencies draft an outline of the evidence gathered,
setting out an evidence trail. The evidence trail is a useful reference throughout
the course of the investigation to determine whether the evidence obtained
would be admissible in and likely to sustain adjudicative proceedings.

1.5.1.

Investigation tools and resources

When determining the investigative strategy, an agency should consider any

available tools or resources to maximize investigative capacity and knowledge of
the case. Such tools or resources may include leniency programs and cooperation
with other domestic agencies as well as foreign anti-cartel enforcement agencies.
1.5.2.

Leniency application

Leniency applications are considered to be a source of direct evidence. Leniency

applicants are particularly valuable because they can assist in identifying the
target of the investigation and in prioritising the businesses, individuals, and
locations for investigation. They are often able to offer valuable information
throughout all stages of the investigation and are under a duty to cooperate fully
throughout the full investigative proceedings.
1.5.3.
Some

Cooperation with other domestic government bodies

agencies

arrangements

have

with

established

other

law

formal

and/or

enforcement

bodies

informal
for

the

cooperation
detection

or

investigation of cartels. Such arrangements may include basic information

sharingfor example, information on specific conduct such as bid rigging or
111

general market information such as import data. Issues of confidentiality,

procedure and governing laws should be considered when cooperating with other
domestic government bodies. In some cases, expectations for cooperation may
be outlined within the framework of a cooperation agreement. When cooperating
with other domestic government bodies, agencies should be mindful to ensure
that cartel participants are not pre-maturely alerted to.

1.5.4.

Cooperation with foreign anti-cartel enforcement agencies

Cooperation between agencies across the various jurisdictions affected by the

cartel can be an important feature of full-scale investigations involving crossborder elements. Cooperation can involve coordination of simultaneous searches,
raids or inspections; exchange of information; or gathering information and
interviewing witnesses on behalf of another agency. The coordination of surprise
inspections across relevant jurisdictions, particularly in the early stages of a fullscale investigation, has been reported as an effective way to minimise the
potential destruction of evidence. Cooperation also plays an important role even
in cases where parallel investigations are not being conducted in other
jurisdictions.
Other counterpart agencies may provide assistance by sharing information on a
cartel that may be located outside the investigating agencys territorial borders.
Information may also be available in relation to similar cartel behaviour in
related, or even different, industries or country-specific regional or local cartels in
the same industry. In such cases, it can be useful to secure cooperation from an
agency in the jurisdiction in which potentially relevant evidence may be located.
Cooperation between anti-cartel enforcement agencies is often pursued through
formal agreements or arrangements.
An increasing number of agencies have established international agreements,
which

may

include

state-to-state

cooperation

agreements,

inter-agency

cooperation agreements and mutual legal assistance agreements, as well as

competition-related

provisions

in

bilateral

free

trade

investigative plan should consider any timeframe issues.

112

agreements.

The

1.6.

Time constraints

The investigative plan should include a basic schedule that identifies tasks,
assigns responsibilities and sets deadlines and timeframes for completion. Such a
schedule ensures that time constraints (such as statutes of limitations) are taken
into account appropriately. These tools will become more important as staffing
resources grow. Case agenda can take different forms such as a calendar or a to
do list. In some cases, more than one method may be useful; in all cases, the
investigation schedule should cover tasks to be accomplished, prioritising the
most critical items. Agencies may also use software packages that assist with the
creation of case agenda. Effective planning is important to ensure that all aspects
of the investigation are accomplished within the prescribed statutory period.

1.7.

Selecting voluntary and/or compulsory tools

Most agencies with compulsory powers to obtain evidence will generally use them
because of the seriousness of cartel conduct and the efforts exerted by cartelists
to hide or destroy evidence. Some agencies have no compulsory powers to
obtain evidence or information, and therefore rely on the voluntary cooperation
of the parties under investigation and other market participants.
An agency may rely upon informal voluntary requests for informationboth in
the form of interviews and requests for documentsfrom the potential subjects
of the investigation, other companies within the industry, customers, trade
associations, and other sources. Voluntary requests may be useful to keep
communications less formal, avoid the adversarial tone injected by the use of
compulsory processes and expedite the collection of useful information. Reliance
on voluntary requests for information may also be appropriate where the
evidence already obtained is insufficient to justify the use of formal compulsory
powers.
However, voluntary requests for information should be made with caution. Such
requests may not always produce valuable evidence and may alert the cartel
participants to the investigation, enabling them to conceal or destroy evidence
before compulsory requests are issued. Accordingly, to minimise the risk of
113

document destruction, where the agency has compulsory powers, it may wish to
consider pursuing voluntary requests for information only after compulsory
requests have proved problematic. It should also be noted that under criminal
regimes, there may be a need to provide proper warnings in relation to selfincrimination.

1.8.

Types and characteristics of the methods of collection of information

The success of an investigation often largely depends on the choice of

investigative tools. Inappropriate choice of investigative tools may lead to the
investigation being ineffective. The choice of investigative tools should be
reevaluated as facts and evidence come to light during the course of the
investigation. Several factors may influence the choice of investigative tools at
particular stages of an investigation. The investigation will often become public
knowledge once an agency takes formal action on the basis of official decisions,
such as conducting a search, raid or inspection. Searches often prompt leniency
applications or cooperation from cartelists, which may provide a valuable source
of evidence. The element of surprise is often a key factor when conducting
searches to ensure that all relevant evidence is secured.
The methods of collection of information are as follows:

Form
Official written request
Call/invitation for the meeting in order to give explanations
Announced visit
Surprise visit
Dawn raid

2. Legal aspects of the right of defence in investigation

of competition cases
1. The right to confidentiality in communication between the lawyer and the
client
2. The right not to self-incriminate

114

2.1.

The right to confidentiality in communication between lawyer and

their client

The right to confidentiality in communication between lawyer and their client

(Legal professional privilege (LPP)) is the very basis for the rights of defence and
it is the general principle of the law of European Union, to which an undertaking
can allege in the course of investigation of competition infringements.
Laws assign extensive powers to Competition Protection authority (Authority) in
the course of investigation of competition cases. In the process of market study
and investigation of relevant cases, the officials of Authority receive wide range
of information both in paper and electronic form (stored on the computers of
undertaking and on other storage media (device)).
Among the various kinds of undertakings information there can such information
be stored that is prepared or received specially for providing legal advice from
lawyer. This information is subject to special protection. Access to this
information is deemed exceptional and is intended only to identify this
information, as well as for distinguishing the information that is important as
evidence in the case.
Therefore, when using its powers, the Authority must maintain a balance
simultaneously between the undertakings rights of defence and need to prevent
misuse of this right.
The scope of protection of LPP.Communication between the client and lawyer is
subject to protection only if two cumulative criteria occur:
1) The correspondence is done with an independent lawyer;
2) Correspondence is done within the frame of clients rights of defence and
for that purpose.
Regarding the first criterion - the "independent lawyer" - a lawyer is deemed
independent, if he is not employed by the client. Independent lawyer is not
structurally, hierarchically and functionally integrated within the undertaking that
receives the legal advice.

115

Please keep in mind: the communication between the undertaking and the inhouse lawyer and other legal consultants that do not have the status of an
independent lawyer (advocate) is not subject of protection. This is due to the fact
that in-house lawyer of a company is economically dependent from his employer;
therefore he is not independent in making decisions and he acts (also gives legal
advice) in the commercial interests of the undertaking. While the activities of
lawyers and requirements to their qualification (i.e. rules of professional ethics
and discipline) are strictly regulated. The lawyers in their professional activities
are independent and subordinated only to the Law, and consequently they shall
advice the client independent (objective) and in the overriding interests of
justice.
The second criterion, i.e. correspondence within the frame of client's rights of
defence and for that purpose, includes:
1) The communications after the initiation of Competition Law infringement
proceedings (consultations in a particular case);
2) Preliminary correspondence, i.e. consultations prior initiation of the
proceedings that relates to consultation on application of Competition Law
(different kinds of consultations of the employees of undertaking on uncertain
legal issues);
3) Internal records (notes) circulated within the undertaking, which are
confined to reporting the text or the content of communications with
independent lawyers containing legal advice (usually by companys own
legal advisor to other employees);
4) Documents that are prepared for seeking legal advice from an independent
lawyer.
We shall draw your attention to the last type of documents. These documents are
protected if they are prepared exclusively with the purpose of seeking legal
advice from independent lawyer, using the right to defence.

The particular

undertaking alleging the LPP, is obliged to prove that the documents have been
prepared exclusively for seeking legal advice from independent lawyer.
Keep in mind that illegal actions of lawyer in the interests of the client, as well as
facilitating the client in his illegal activities are not covered by the LPP and are
not protected thereby. Therefore the information and documents related to
116

infringement of Competition Law or to contribute to violations are not subject to

protection.
If during the investigative actions (for obtaining information), the undertaking
alleges to the LPP, we recommend following procedure:
1) Invite the company to identify the sensitive information by indicating the
recipient, the author, the purpose and number of pages in a relevant
document (in case if information is in electronic format identify the file
name, creation time, location, size, place of location, addressee of the
information, author and purpose of the document). If necessary, in the
presence of the representative of the company the officials of Authority are
entitled to view the specific page or part thereof, which contains the name of
the document, requisites and information related to the origin of this
document without acquainting themselves with the contents of the document.
It is important to keep in mind that it is duty of the undertaking to provide
useful facts to the representatives of Authority and to prove that the
document complies with the conditions justifying its legal protection without
disclosing the contents of the document. "Useful facts" are, for instance,
information about the author and recipient of the document, purpose and
context in which the document was prepared, type of document classification,
relation to other documents. The company is entitled to refuse the officials of
the Authority to get acquainted with the contents of the document in the
scope, protected by the LPP only if it has presented useful facts to the
Authority.
2) If the officials of the Authority has no doubt that a particular document
conforms to the status of privileged information, this document is not subject
to seizure;
3) If the evidence (of the privileged status of documents) is not presented or
does not prove the privileged nature of the documents the official of the Office
are entitled to:
a) Request to present the documents and to seizure them;
b) Impose fines for refusing to give information and supply evidence.
117

4) If the

evidence supplied

does not sufficiently enough prove the

confidentiality of the documents in question and the Authority has doubts

regarding their privileged nature:
a) The documents shall be seized and placed in sealed envelope, giving the
undertaking the right to submit additional justification for their privileged
nature within a specific time limit;
b) Independent officer performs the conformity check for the documents
compliance to the privileged status.
Independent Officer:
Is not involved in the investigation of the case and in the decision making;
Is obliged not to disclose information to other officials or employees of
Authority, and other third parties;
Other officials and employees of Authority are not entitled to give
instructions on evaluation of the information and on the expected result of the
evaluation.
We recommend to record in the Protocol of proceedings all actions in the
process of identification of the privileged information.
5) If the undertaking has indicated that the privileged information is located
in the computer or on other storage media (i.e. in electronic format), the
information initially shall be processed by selecting the necessary information
for a particular case by keywords;
6) The selected information is stored on a separate CD, DVD, USB memory or
other device so that independent officer could perform its evaluation;
7) Prior evaluation of the information it is required invite the undertaking to
express its opinion on confidential status of information;
8) After clarification of opinions the independent officer makes the decision on
the conformity of the information to the status of privileged information.
Should it be established that the information complies with the privileged
status, it shall be returned to the company, destroyed or its confidentiality
ensured. Should it be established that the information fails to comply with the
118

privileged status, it is transferred to the officer in charge of the case, and

attached to the case materials.
Since it is prohibited to use documents that are protected by the LPP to prove the
infringement of competition law failure to comply with such requirement may
cause following consequences:
a) A decision on establishment of an infringement can be fully or partially
revoked;
b) The undertaking is entitled to demand compensation for the losses.

2.2.

The right against self-incrimination

The general legal principle of European Union states that the right against selfincrimination protects from the official investigation, which focuses on gaining
admission in acts punishable criminally or administratively (if the sanction in
essence is of criminally nature).
On this basis, the right against self-incrimination is one of the rights of defence,
to which an undertaking can allege in the process of investigation of
infringements of competition law.
This right stems from the European Convention for the Protection on Human
Rights and Fundamental Freedoms (Article 6) and the relevant applicable practice
of the European Court of Human Rights. The interaction of the fundamental
rights [of an undertaking] and the application of competition law is a matter of
balancing these rights, i.e. protection of fundamental rights is opposed by
effective application of competition law. For the effective application of
competition law in the process of investigation of infringements, the right against
self-incrimination is limited thereto.
By evaluating whether in a particular situation rights against self-incrimination
exist (and to what extent), the two different situations should be distinguished:
1) A request to answer the questions, and
2) Request for documents.
In the first situation there should be more detailed division. On one hand, the
undertaking is obliged to cooperate actively with the Authority, but on the other
119

hand, it does not mean that the undertaking should incriminate itself by
admitting infringement of competition law.
Consequently, the Authority is entitled to request the undertaking to answer
questions about facts (purely factual questions), but it has no right to compel the
undertaking to give answers which might involve an admission on its part of the
existence of an infringement which it is incumbent upon Authority to prove.
Among

these

questions,

response

to

which

include

admission

to

any

infringement, are direct questions (for instance, whether the company has
participated at the particular collusion?) and indirect questions (for instance, on
the subject and the results of meetings, on agreements made). When refusing to
answer such questions, the undertaking may refer to its right to remain silent as
part of its rights of defence.
In the second situation, the right against self-incrimination does not restrict the
Authority powers of investigation in relation to the documents. The undertaking,
if it is requested, shall present available documents relating to the subject of the
investigation, even if these documents can be used for the establishment of
infringement. Consequently, the obligation of co-operation does not allow the
company to avoid the request to present documents, referring the refusal by the
fact that with submitting of those documents the undertaking will be forced to
incriminate itself.
Summarising the above mention, it follows that the right against selfincrimination does not apply to information that exist independently from of the
undertaking will, i.e. to information about the facts and documents. The
undertaking is entitled to prove during further procedure at the Authority or at
the court that the documents produced and answers to the questions about the
facts have a different meaning from that ascribed to them by Authority.

120

3. The main principles for operations with electronic

evidence
3.1.

Receiving the information stored in electronic format

We recommend starting development in this are from creating technical basis.

You need to purchase storage media: CDs, flash cards, hard external drives. The
above media are required for search of electronic evidence, transfer them from
the place of inspection to the Authority and for storage of the data. If the
Authority intends to continue to engage itself into procession of information
(filtration), we recommend purchasing computer for this purpose.
The next step is personnel training and mastering the computer programs; it is
preferable to start cooperation with official government institutions that are
engaged in area of cyber technological expertise. Additionally you will need some
internal regulation for actions of Authority that identifies, verifies and withdraws
electronic data (development of Protocol forms for fixation of the verification
process of electronic information systems, list of computer programs and
securing the rights of investigation to use appropriate programs).
The least harmful interference with the activities of the company during the
inspection is done, when the computers are not removed for detailed inspection,
but there are so-called "Mirror images" (image copies) from the hard drives
made to media storages of the Authority and further data analysis is done on
these storages. We recommend mastering the technology of creating image
copies. The advantage of this technology lies by the fact that when you create an
image copy simultaneously there is so-called "Mixed sum" (a certain set of
numbers) created. Having fixed this set of numbers, you will be able with this
"mixed-sum" to prove in court that the Authority has not changed the content of
the files.

3.2.

Processing the information stored in electronic format

Please keep in mind that there are two possibilities how to organize the
processing of information received: 1) to train your personnel, to master freeware and purchase and master charged software that are designed for a deep
121

and specific data analysis; and 2) to use the "outsourced" services, establishing
co-operation with relevant agencies.
To facilitate the work of persons involved in the evaluation of the evidence
(investigation, members of the board, participants in the process, the court) we
recommend to print the files containing the proof and to attach them to the case
materials. We recommend regulating the procedure of annexing printed
documents to the case materials by internal regulation.

3.3.

Storage of information received in electronic format

We also recommend regulating the issue of storage of the electronic evidence by

internal regulation. In this act we recommend you to consider the following key
points:
1) Limited access to information (stored in a safe);
2) Reporting and responsibility of persons who have access to electronic
evidence;
3) Duplication of information (2 copies of information in case of accidental
loss / destruction thereof);
4) Recording the movement of electronic evidence (acts on the transfer to
another institution for filtering (including by keywords));
5) Destruction of information or return of it after the decision has entered into
force.

M.

Leniency program

Guiding principles for adopting a successful leniency program in

Moldova

This document reflects general principles shared by the National Agency for the
Protection of Competition (NAPC) for the effective implementation of the leniency
program by the NAPC and is to provide practical guidance on the conduct of the
proceedings before the NAPC concerning the leniency provisions in the draft
Competition Act.

122

1. Scope of leniency
The scope of the leniency program is co-extensive with the scope of the
substantive

provision

prohibiting

anticompetitive

or

restrictive

agreements/practices (Article 84). The inclusion of vertical restrictions of

competition to the scope of the leniency program extends the scope also to
vertical behavior which might be said to be facilitating horizontal cartel activities.
Comment A: Including all types of infringements, that is, both horizontal and
vertical agreements/practices, to the scope of the leniency program recognizes
the fact that leniency generally contributes to the effective and efficient
prosecution of anticompetitive practices. Indeed, the key driver for a leniency
policy is detection. Also, cost reductions and efficiency gains in pursuing an
investigation/punishing an infringement justify a wider scope.

2. Thresholds for immunity

Pursuant to the leniency program a 100% reduction from fines is guaranteed for
a company provided that it submits sufficient information and evidence which,
according to the NAPC's view, either allows the NAPC to carry out an inspection
(type A ) or, in case the NAPC is already in possession of sufficient evidence to
carry out an inspection, enables the NAPC to find the infringement (type B).
Comment A: The minimum threshold to qualify for immunity, when the cartel is
still undetected (type A), is substantially lower than when the NAPC has already
started its investigation but had not gathered sufficient evidence to find the
infringement (type B). The differing immunity thresholds ensure that the option
of informing the NAPC about an unknown cartel is the more attractive choice for
companies which, thus, will create an incentive to come forward at a stage
where the NAPC is not yet aware of the cartel.

3. Excluded applicants
Pursuant to the leniency program, companies which have instigated and/or
coerced others to participate in the alleged anticompetitive conduct are excluded
123

from the possibility to benefit from immunity, though they may still benefit from
reduction in fines (Article 88).
Comment A: A coercer may be defined as a company which compelled another
company to participate in the cartel by means of coercion, such as violence,
threats in an economical sense, or boycotts.
Comment B: An instigator may be defined as a company which is concerned with
the establishment or enlargement of a cartel by way of persuasion or
encouragement of other companies to establish or join a cartel.
Comment C: Under efficiency considerations the scope of the exclusion should
generally not only encourage companies to come forward which were merely
marginally involved in the cartel. Indeed, companies playing a leading role in the
cartel are most likely the best source of information on a cartel. It is therefore
submitted that in practice the scope of the exclusion should be construed
narrowly, not least because instigation is considered as an aggravating
circumstance under the draft competition act.

4. Thresholds for the reduction of fines

Applicants who are not the first to report the cartel and/or fail to meet the
immunity thresholds (type A or B) may qualify for a reduced fine (Article 89). In
order to have their fines reduced, the applicants must contribute significantly to
the investigation of the alleged infringement.
Comment A: Reduction form fines is closely linked to the granting of immunity to
a company as it only comes into play where immunity is no longer available. In
particular in situations where the NAPC has already started an investigation but
has not gathered sufficient information to prove the infringement, the provision
of further information is of crucial interest to the authority as it eases its burden
of proof.
Comment B: The leniency program does not set out any particular time limit
until what point in time companies can come forward to apply for reduction from
124

fines. However, it is submitted that the reduction of fines applicants may come
forward throughout the administrative procedure until the investigatory report is
sent.
Comment C: To qualify for a reduction in the fine, the company must
significantly contribute to the investigation and ease the NAPCs burden of proof.
That is, the relevant substantive test applied in order to qualify for a reduction of
fines may be referred to as the significant added value test (SAV).
Comment D: Whether the evidence submitted amounts to SAV is not assessed
on a stand-alone basis but is to be assessed against the information and
evidence the NAPC has already got in its possession. Thereby, the relevant
benchmark is not the evidence which the authority has already got from the
reduction of fines applicant, for instance by means of an inspection, but rather
the entire evidence that is in the file. This creates an incentive for companies
both to come forward quickly and to provide the best possible evidence. This
ensures also the race between companies to provide the information and
evidence required to meet the SAV threshold which effectively contributes to the
detection and termination of the infringement.
The requirement of significantly contributing to the investigation refers to the
extent to which the evidence provided by a company enhances, by its nature
and/or level of detail, the NAPCs ability to prove the existence of the alleged
infringement.
Comment A: The evidence submitted by the reduction of fines applicant must
ease the NAPCs burden to prove the alleged cartel. Evidence must therefore, by
its nature and/or level of detail, strengthen the NAPCs ability to prove the
alleged infringement. That is, the evidence amounts to added value only if it
constitutes incriminating evidence and, thus, contributes to establish the facts in
question.
Non-incriminating

evidence

which

does

not

contribute

to

establish

the

infringement should not be deemed to provide added value, that is, for
instance, information which concerns the economic and legal context in which
the alleged infringement took place, such as information on the relevant market,
125

the market shares of the companies involved, the effect of the anticompetitive
conduct on the market, the products or services concerned, or other general
information on the companies involved in the alleged infringement.
Comment B: The requirement to submit evidence which adds significant value
to the investigation refers to the fact that the evidence must not only strengthen
or confirm the evidence already in the NAPC's possession (for instance a
corporate statement not disputing the facts). Rather the evidence and
information must put the NAPC in a position to prove all or part of the facts
already known to it or enable it to prove facts not yet known to it.
Comment C: It is submitted that the term "significant" adds discretion to the
NAPC's assessment of whether the SAV threshold is met or not. This will require
the NAPC to take into account all the specific circumstances of a case.
The NAPC will grant a reduction in the fine of between 30 and 50% to the first
company which is deemed to have provided evidence representing significant
added value. The second company will be granted a reduction of between 20 and
30% and all subsequent applicants will be granted a reduction of up to 20%
(Article 89).

Applications for a reduction in the fine must be made in an explicit form (Article
90).
Comment A: A company may only benefit from a reduction of a fine if it makes a
formal application to the NAPC.
Comment B: According to the leniency program, the NAPC is under no obligation
to take a position on the first reduction of fines application before the
examination of the second application. That is, companies compete with each
other for the purpose of passing the SAV threshold. The company which is first
to submit evidence amounting to SAV will be able to secure its place in the
highest band of reduction.
Comment C: Successive applications are examined in a chronological order, that
is, each application is assessed whether the substantive test is met on the basis
126

of all the evidence and information submitted by the applicant, even if another
applicant for a reduction from fines has also submitted relevant information in
the meantime.
The level reduction of fines within each band of reduction is determined by the
time at which the submission of the evidence is made and the extent to which
the supplied evidence provides added value.
Comment A: Generally speaking, the magnitude of the reduction granted should
reflect the effective contribution to the investigation.
Comment B: The first criterion is the time at which the evidence is submitted in
relation to the stage of the NAPCs investigatory proceedings. Evidence
submitted at an early stage of the investigatory proceedings is considered of
more value than evidence supplied at a later stage, that is, when the NAPC has
applied an array of investigatory measures, such as requests for information.
Comment C: The second criterion relates to the extent to which the evidence
amounts to added value, that is, the more facts the submitted evidence
contributes to establish the higher the reduction within a given band of reduction
should be. In this context, it is submitted that the authority will necessarily also
have to look at the probative value of the evidence submitted.

5. Partial immunity
If an applicant for the reduction from fines provides evidence concerning facts
previously unknown to the NAPC, which have a direct bearing on the gravity or
duration of the infringement, the NAPC will grant immunity for such facts.
Comment A: If a company is the first to submit evidence pertaining to facts
which have a direct bearing on the amount of fine, these will not be taken into
account when the NAPC imposes the fine against the company which submitted
that evidence. This implies that the effective reduction in the applicant's fine
may, in effect, be greater than the reduction bands set out in the leniency
program. Critically, this provides an incentive to come forward with as much
127

information as possible and to submit the best evidence pertaining to the

additional facts.
Comment B: The concept of partial immunity can be applied, for instance, where
an undertaking allows the NAPC to extend the geographic scope of the
investigation. It could also apply if the company shows that the investigated
infringement covers more products than the authority had identified or is of a
longer duration as previously known.
Comment C: The evidence must relate to facts which pertain to the cartel
conduct under investigation. That is, if the company submits evidence
concerning a different anticompetitive conduct, it could be granted immunity for
that other cartel, provided the evidentiary thresholds (type A) are met, without
increasing the reduction of its fine in the first procedure.

6. Conditions attached to leniency

Both immunity and reduction of fines applicants must meet three cumulative
conditions in order to qualify for lenient treatment. The applicant must fully,
continuously, and expeditiously cooperate with the NAPC.
Comment A: Generally, the duty to cooperate starts at that point in time at
which the application is lodged with the NAPC. Yet, it is submitted that the
obligation not to destroy relevant information and evidence arguably starts as
soon as the company intends to come forward and apply for lenient treatment.
The obligation not to destroy evidence is crucial to preserve key documents for
the investigation.
Comment B: The obligation to provide all evidence requires the company to
supply the entirety of the evidence available to it and not merely information to
meet the type A threshold, that is, to allow the NAPC to carry out an
investigation.

128

Comment C: The obligation to answer all questions is important to the NAPC not
only to elaborate the facts provided by the applicant but also to understand the
legal and economic context in which the alleged infringement took place.
Comment D: It is submitted that the general obligation to fully cooperate with
the NAPC also includes the duty to make the personnel involved in the cartel
conduct available for interviews with the NAPC (this is of particular importance if
witness testimony is permitted to prove the infringement).

The company must end its involvement in the cartel upon the NAPCs request.
Comment A: The obligation to terminate the infringement means that the
applicant both informs all relevant business sections within her company and
ensures that the company's instruction to cease the cartel activities are
respected. To that end, it is necessary that the company's implicated employees
clearly

dissociate

themselves

from

all

current

and

future

cartel

contacts/activities.
Comment B: According to the leniency program the obligation to terminate the
infringing conduct does not automatically become effective at the point in time
when the application is lodged. Rather, the applicant may continue its
participation until the NAPC instructs otherwise.
Comment C: The NAPC's discretion as to when the applicant must terminate the
infringement avoids the risk that, if the applicant suddenly would cease her
cartel activities, other cartel participants might raise suspicion. That might
consequently lead to the destruction of evidence before the inspection took
place. Thus, the continuation of certain cartel activities might be necessary to
safeguard the integrity of the investigatory measure.
Comment D: Yet, the NAPC's responsibility to decide when to stop might expose
the NAPC to accusations of condoning illegal activities (possibility of damage
claims). This requires the NAPC (i) to go ahead with the investigation quickly so
that the termination of the infringement can be requested as soon as possible
and (ii) to discuss with the company immediately after it lodged its leniency
application which cartel activities are indispensable and, thus, necessary to be
129

continued in order to avoid risking leaks or destruction of evidence. It is essential

that any further cartel activities should be strictly limited to passive cooperation
with other cartelists without requiring the applicant to actively solicit or reveal
any sensitive data.

Failure to comply with one of the obligations results in a loss of lenient treatment
of which the applicant is notified only in the final prohibition decision with fines.

7. Procedure
7.1.

Full application system

The immunity applicant's place in line and, thus, the possibility to obtaining
immunity is determined by the point in time at which the full application is
submitted.
Comment A: For the submission to be deemed a full application, it has to be
immediate and substantial, that is, it already needs to contain all information
stipulated in the leniency program including all the evidence and information that
the applicant has at her disposal at that point in time.
Comment B: Under the full application system no other application will be
considered until a position has been reached on the prior application whether or
not the evidence submitted suffices to overcome the evidentiary threshold.
Comment C: Under the full application system the applicant's place in the
leniency queue only crystallizes when the company provides sufficient evidence
to meet the evidential threshold. That is, only the company which is first to
submit information and evidence which meets the evidential threshold (type A or
type B) will be granted immunity.
Hence, any application which does not yet encompass all evidence available to
the applicant (staggered applications) cannot be completed if in the meantime a
second immunity application is lodged. The first application must then be

130

evaluated only on the basis of the information and evidence submitted until the
moment when the second applicant came in.

7.2.

Hypothetical/Anonymous applications

Under the leniency program companies are able to approach the NAPC in an
anonymous way in order to check whether they are able to overcome the
evidential threshold and qualify for (type A or B) immunity (Article 91).
Comment A: The procedure proposed under the leniency program takes place in
two stages. In a first step, the potential applicant submits a list of the evidence
in her possession which describes the nature and content of each item of
evidence. In a second step, after the NAPC concluded on the basis on the
descriptive list that the evidence will meet the evidential threshold and verified
whether the actually submitted evidence corresponds to the list provided by the
applicant the NAPC grants conditional immunity.
Comment B: It is submitted that in practice the applicant should be requested to
adduce all "direct" evidence in his possession (such as, minutes of meetings or
notes from cartel contacts) allowing, though, that names and other indications
which might reveal the identity of the company are blackened. Moreover, it is
crucial that also the type of the infringement, the products concerned (at least
the broad product sector), the geographic scope and the duration are revealed in
order to be able to check whether or not there is already an investigation under
way in that sector concerned. The descriptive list together with the submitted
direct evidence should enable the NAPC to render a firm opinion whether the
evidence is sufficient to meet the applicable substantive test.

7.3.

Conditional immunity notification

As soon as the immunity applicant meets the evidential threshold the NAPC will
grant conditional immunity.
Comment A: To assure the company about the status of its application, a
conditional immunity decision is to be made as soon as the NAPC determines
that the evidence submitted meets the type A or B threshold.
131

Comment B: In order to determine exactly for what infringement the grant of

conditional immunity refers to the NAPC should specify the infringement by
describing the products or services concerned, the geographic scope and the
duration of the alleged infringement. Also, the conditional immunity decision
should explicitly stress the obligation to fully cooperate and, most importantly,
the duty not to reveal to other participants in the cartel the fact that an
application has been lodged with the NAPC.

If the information and evidence submitted fails to meet the requirements under
type A or B, the NAPC will inform the company that it does not qualify for
immunity.
Comment A: As soon as the NAPC concludes that the evidential threshold has
not been met it will notify the applicant that it rejects the application. It is
submitted that the NAPC, as long as there has not been a second company
lodging an immunity application, should not outright reject the application but
rather informally indicate, upon the inquiry of the first applicant whether she
qualifies for immunity, that the authority views the evidence as insufficient. That
will allow the first applicant to search actively for additional pieces of evidence
relating to the infringement and to communicate them to the NAPC. However,
adopting a rejection decision is inevitable if, for instance, a second application
was lodged in the meantime or the first applicant clearly indicates that she is not
in the position to supply further information and evidence.
Comment B: It is submitted that companies notified on the NAPCs decision to
reject the immunity application should be construed as not being challengeable
in its own right as the effects of the NAPC's decision will only appear if and when
the NAPC takes a final decision with fines. Consequently, rejection decisions
should be deemed only as provisional acts.

132

7.4.

Notifying the company on whether significant added value has been

provided

The NAPC will, no later than the investigatory report is sent, notify the reduction
of fines applicant in writing whether the company has provided significant added
value and, thus, will qualify for a reduction from fines. If the NAPC concludes that
the evidence amounts to significant added value, the NAPC also specifies the
band of reduction within which the applicant is placed.

7.5.

Oral applications

Corporate statements which describe in detail the company's involvement as well

as that of other undertakings can be provided orally.

8. Miscellaneous
8.1.

Leniency for individuals

Under the leniency program lenient treatment is only available to companies

which leaves the personnel of a company unprotected against criminal
prosecution.
Comment A: Pursuant to Art 246 Criminal Code individuals can be prosecuted for
entering into agreements which separate markets, limit access to the market,
eliminate other market participants, or increase prices provided a significant
profit was obtained or a significant damage was sustained by third parties.
Comment B: If individuals are not granted immunity from criminal prosecution
simultaneously with the company they work for, this might influence corporate
decision-making away from seeking corporate leniency out of concern, in part,
for their own circumstances. It is submitted that, as a result, lack of coherence
between competition law enforcement and criminal enforcement might lead to
under-enforcement.
Comment C: A possible way to tackle this issue is to foresee leniency for
individuals, that is, to extend leniency automatically to current and former
133

employees and directors of the company which has submitted a leniency

application. The advantage would be that this would increase the effectiveness of
the investigation as it poses a real incentive for individuals to cooperate with the
investigation.

8.2.

Personal scope of the corporate leniency program

8.3.
The personal scope of the leniency program concerns both undertakings and
associations of undertakings.

N.Fining
1. General Notions
The Autority's policy with regards to competition law infringements is one of
prevention. Hence it issues extensive guidance on how to comply with the law.
Should companies break the law, fines may be imposed. These too are ultimately
aimed at prevention, and must hence fulfil two objectives: to punish and to deter.
Breaking the competition rules is profitable if it goes unpunished that is why
companies do it. To take cartels as an example, the OECD looked at a selection
of cartels, estimating the median price increase to be 15 to 20%, with a high of
over 50%.
If a cartel lasts for several years, then the companies involved benefit from these
higher prices for every year of the cartel. The fine has to take this into account if
it is to achieve its objective of prevention on industry as a whole. Commission
fining policy is based on the principles that some breaches cause more harm to
the economy than others, that breaches affecting a high value of sales cause
more harm than infringements affecting a low value of sales, and that longrunning breaches cause more harm than short ones.

134

The position of fines as the only sanction against cartels or one of a bigger
number of sanctions can potentially have an important impact on the approach to
determining the amount of the fine. Where fines are the only sanction, they must
bear the entire burden of deterrence, and a priori may need to be higher than in
jurisdictions where they are combined with other sanctions (most notably this
concerns prison terms).

2. Fines in the Context of the General Legal Framework

In jurisdictions which have introduced incarceration as a sanction, or which have
been able to incarcerate individuals for some time, the primary reason for the
introduction of this sanction has been the aim of increasing effective deterrence
by focusing the attention of company managers on the extreme personal
consequences of participating in cartels. It is sometimes felt that fines on
companies affect in the first place shareholders, who are not involved in the daily
running of a company, and thus may have limited effect on the behaviour of
managers. On the other hand, the European Commission considers that effective
deterrence can be achieved through pecuniary sanctions, but only with very high
ones, especially for recidivists.
Moreover, civil damages actions (under civil law) by the injured parties of a cartel
may be also available (whether these are regarded as sanctions or not is a moot
point). Recovery of damages for their monetary loss, either in the course of the
enforcement proceeding by the competition authority or separately in a civil
action, is also possible. To be successful, claimants have to be able to prove the
damage they suffered and the causality with the cartel, which often may not be
that easy.
The issue of transparency is not only related to good enforcement practice and
openness of information but also to other factors such as the relationship
between the predictability of sanctions and deterrence. According to the principle
nullum crimen et nulla poena sine lege, for conduct to be considered as a
crime/offence, there must be a legal provision establishing it and imposing a
specific punishment on the perpetrators of such conduct. In cartel cases, the
imposition of a specific punishment will affect deterrence of cartel conduct. If a
135

company could determine in advance the amount of the fine which would be
imposed on it for any particular cartel offence, it could take a rational decision
about whether or not to become involved in a cartel.
Under a rather simple cost benefit analysis, the company and the executives
acting on its behalf could determine in which circumstances or conditions it would
be economically sound to enter a cartel or to stay in it. Corporate executives will
be deterred from committing cartel offences if they perceive that the potential
costs of engaging in the conduct exceed the anticipated rewards.

3. Fining Principles in the EU

In the EU, the European Commission has published guidelines on the
determination of fines concerning anticompetitive conducts since 1998. These
guidelines were amended in 2006. The rationale for the 1998 Guidelines also
mentioned in the 2006 Guidelines is to ensure the transparency and impartiality
of the Commissions decisions. This must be combined with the objective of
reaching a sufficiently deterrent effect, not only in order to sanction the
undertakings concerned (specific deterrence) but also in order to deter other
undertakings from engaging in, or continuing, behaviour that is contrary to
Articles 81 and 82 of the EC Treaty (general deterrence).
The guidelines aim at limiting the Commissions disctretion, which otherwise
would only be bound by the statutory maximum of 10% of the annual world-wide
turnover of an undertaking. According to the case-law of the European Court of
justice, the Guidelines are an instrument intended to define, while complying
with higherranking law, the criteria which the Commission proposes to apply in
the exercise of its discretion when determining fines, the Commission must in
fact take account of the Guidelines when determining fines, in particular the
elements which are mandatory under the Guidelines.
In the EU, the Commission in determining the basis for setting the fine refers to
the value of sales of the goods or services to which the infringement relates. The
value of sales in this context refers to the sales of the cartelised product(s) in the
geographic area concerned in the EU or EEA. The combination of the value of
136

sales to which the infringement relates and of the duration of the infringement is
thought to provide an appropriate proxy to reflect the economic importance of
the infringement as well as the relative weight of each undertaking in the
infringement.
In the EC, the basic amount of the fine will be related to a proportion of the value
of the cartelised sales, depending on the degree of gravity of the infringement,
multiplied by the number of years of the infringement. The proportion of the
value of sales taken into account can be set between 10 and 30%, depending on
several factors (discussed above). Such amount will be multiplied for each
undertaking by the number of years of its participation in the cartel. In addition,
irrespective of duration, the basic amount in cartel cases will include an entry fee
of between 15% and 25% of the value of the cartelised sales during the last year
of the infringement. The latter amount aims at deterring undertakings from even
entering into a hardcore cartel.
Increases and Decreases: The fine can be increased (for example if the company
is a repeat offender), or decreased (for example if the companys involvement
was limited, or legislation or authorities encouraged the infringement).
Leniency Reductions: The Commission encourages companies that are involved in
a cartel to come forward with evidence to help the Commission to detect cartels
and build its case. The first company to provide sufficient evidence of a cartel to
allow the Commission to pursue the case can receive full immunity from fines;
subsequent companies can
receive reductions of up to 50% on the fine that would otherwise be imposed.
Settlement Reductions: In cartel cases, the Commission also offers a reduction of
10% in the fine if the Commission reaches a settlement with the company.
Settlements reduce the administrative costs of cartel decisions, including before
the court, and help the Commission deal more quickly with cartel cases, freeing
up resources to devote to new investigations.
In exceptional circumstances, the Commission may reduce the fine if the
company provides sufficiently clear and objective evidence that the fine is likely
137

to affect seriously the economic viability of the undertaking. The analysis looks in
detail at various company-specific factors, and aims to be as objective and
quantifiable as possible to ensure equal treatment and maintain deterrence.

4. Fine Calculations in Moldova

138

Literature

Commission notice on remedies acceptable under Council Regulation (EC)

No 139/2004 and under Commission Regulation (EC) No 802/2004.

Merger Remedies: Competition Commission Guidelines, November 2008

(www.competition-commission.org.uk).
ICN Merger Working Group: Analytical Framework Subgroup. MERGER
REMEDIES

REVIEW

PROJECT.

Report

for

the

fourth

ICN

annual

conference.
ANTITRUST DIVISION POLICY GUIDE TO MERGER REMEDIES.

U. S.

DEPARTMENT OF JUSTICE Antitrust Division. June 2011.

Market definition. Understanding competition law. Office of fair trading.
2004,
www.oft.gov.uk/shared_oft/business_leaflets/ca98_guidelines/oft403.pdf

139