No Safe Way: The New Law and Economics of UK Merger Policy
London, England
15 October 2003
Hosted By: the UK Law Society's European Group
NERA Director Dr. Mark Williams presented a seminar at the UK Law Society's European Group on the recent Competition Commission investigation into the proposed takeover bids for Safeway.
The UK supermarket sector includes four national firms -- Tesco, Asda, Sainsbury, and Safeway -- and various regional players, including Morrisons, which has a strong northern presence. Early in 2003, Morrisons bid for Safeway, the smallest of the national supermarkets. This was followed in rapid succession by rival bids for Safeway by the other three national players and by a financial bidder, Phillip Green. The UK antitrust authorities considered the five bids, clearing the financial bid and referring the four trade bids to the Competition Commission. While the Commission cleared the acquisition by Morrisons subject to divestments of large stores in 48 localities and small stores in 5 others, technically its finding was that Morrisons' bid was against the public interest. By contrast, the acquisition of Safeway by any of the other national players (Asda, Sainsbury, Tesco) was prohibited outright on the basis that no reasonable divestment program would adequately restore a fourth national competitor. More controversially, the "Big Three" were prohibited from purchasing Safeway stores other than those recommended for divestment by Morrisons.
In the seminar, Dr. Williams argued that the Commission placed considerable reliance on general principles of industrial economics to support its view that a 4 to 3 merger restricts competition, thereby placing greater weight on theoretical economic evidence than it had done in many other cases. The Commission's report is noteworthy for its discussion not just of unilateral effects and coordinated effects in merger control, but also for its emphasis on competition as a form of rivalry; this discussion leads to the view that a merger can reduce competition if it reduces strategic rivalry, independent of any unilateral or coordinated price effects. Finally, Dr. Williams said the supermarkets' merger also raises complex questions of the relevant counterfactual for merger analysis, and in particular whether a comparison with the pre-merger situation is or is not appropriate if there is a plausible case that one of the bids (Morrisons) would be positively pro-competitive.
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