Competition
Merger
Market Shares and Concentration
Herfindahl-Hirschmann
Index (HHI)
Coordinated Effects
and/or Unilateral Effects
Tacit Collusion = Oligopolistic
Price Coordination = Conscious Parallelism
Commodity Product
Barriers to Entry
After determining the relevant product and geographic market, the next
step is to “consider the likely effects of the proposed acquisition on
competition within that market.” Swedish Match,
131 F. Supp. 2d at 166. The government can establish a presumption that the
transaction will substantially lessen competition by showing that the
acquisition would produce “‘a firm controlling an undue percentage share of the
relevant market, and would result in a significant increase in the
concentration of firms in that market.’” Heinz, 246 F.3d at 715 (quoting
Philadelphia Nat’l Bank, 374 U.S. at 363); see also Baker Hughes,
908 F.2d at 982. “Market concentration . . . is often measured using the Herfindahl-Hirschmann Index (‘HHI’).” Heinz,
246 F.3d at 716; Swedish Match, 131 F. Supp. 2d at 166 n.11.
(…) Sufficiently high HHI figures establish a
prima facie case of anticompetitiveness. H&R Block, 833 F. Supp. 2d
at 71 (citing Heinz, 246 F.3d at 715 n.9).
The Merger Guidelines consider markets with an
HHI above 2500 to be “highly concentrated,” and state that “mergers resulting
in highly concentrated markets that involve an increase in the HHI of more than
200 points will be presumed to be likely to enhance market power.” Merger
Guidelines § 5.3; Heinz, 246 F.3d at 715 (citing Baker Hughes,
908 F.2d at 982) (noting that significant increase in market concentration
“establishes a ‘presumption’ that the merger will substantially lessen
competition.”).
The North American chloride TiO2 market is
dominated by five major producers. Tronox, Cristal, Chemours, Kronos, and
Venator account for over 99% of chloride TiO2 sales in North America. Based on
producer invoice and other pricing data analyzed by Dr. Hill, the market
participants and their market shares in 2016 were as follows: Tronox , Cristal
, Chemours , Kronos , and Venator . Post-Acquisition, the combined firm would
have a market share of nearly 40% of North American sales of chloride TiO2.
Dr. Hill also calculated HHIs, based on the
market share data. Dr. Hill’s calculations show that the Acquisition would
increase the HHI by over 700 points, to a level of over 3000, which, under the
Merger Guidelines, would render the post- Acquisition North American chloride
TiO2 market a “highly concentrated” market. See Merger Guidelines § 5.3.
These market share statistics demonstrate that the proposed Acquisition is
presumptively anticompetitive. See FTC v. Staples, Inc., 190 F. Supp. 3d
100, 128 (D.D.C. 2016); Sysco, 113 F. Supp. 3d at 52-53.
Accordingly, based on the foregoing, Complaint
Counsel has established a presumption that the effect of the Acquisition may be
to substantially lessen competition. Under applicable authorities recited in
section II.B.2., this presumption is sufficient to establish a prima facie case
under Section 7 and shift the burden of rebuttal to Respondents. Moreover, in
the instant case, the presumption is strengthened by additional evidence
demonstrating a reasonable probability of anticompetitive effects, as discussed
below.
Reasonable probability of
anticompetitive effects
As the court explained
in ProMedica Health Systems v. FTC, anticompetitive effects of a merger
can include coordinated effects and/or unilateral effects.
The idea behind
coordinated effects is that, “where rivals are few, firms will be able to
coordinate their behavior, either by overt collusion or implicit understanding
in order to restrict output and achieve profits above competitive levels.” H&R
Block, 833 F. Supp. 2d at 77. . . . Unilateral-effects theory, on the other
hand, holds that “the elimination of competition between two firms that results
from their merger may alone constitute a substantial lessening of competition.”
Merger Guidelines § 6 at 20.
Likelihood of
coordinated effects: “Tacit collusion, sometimes called oligopolistic
price coordination or conscious parallelism, describes the process,
not in itself unlawful, by which firms in a concentrated market might in effect
share monopoly power, setting their prices at a profit-maximizing,
supracompetitive level by recognizing their shared economic interests and their
interdependence with respect to price and output decisions.” Brooke Group v.
Brown & Williamson Tobacco Corp., 509 U.S. 209, 227 (1993). See also
Merger Guidelines § 7 (Coordinated interaction includes an implied
understanding or parallel accommodating conduct not pursuant to a prior
understanding.).
(…) Chloride TiO2 is a
commodity product. Markets for homogenous products are more
susceptible to coordination (…) Each firm’s product is largely interchangeable
with its rivals’ products (…) In this case, given the small number of market
participants in the relevant market, and the commodity nature of chloride TiO2,
the market is fairly characterized as an oligopoly (…) (“The titanium
dioxide market has been described as an ‘oligopoly,’ as TiO2 is a
‘commodity-like product with no substitutes, the market is dominated by a
handful of firms, and there are substantial barriers to entry’”).
(…) “Regular
monitoring by suppliers of one another’s prices or customers can indicate that
the terms offered to customers are relatively transparent.” Merger Guidelines §
7.2. See also Oracle, 331 F. Supp. 2d at 1166 (“Without homogeneity
or transparency, the market conditions are not conducive to coordinated
effects, either tacit or express”). The evidence in this case shows that TiO2
suppliers monitor, and are able to observe, significant moves by their
competitors, including as to price and output, from public statements by
competitors and information obtained from customers (…) Tronox and Cristal
monitor and analyze public statements by competitors such as quarterly
earnings updates, presentations at industry conferences, and ratings agency
meetings (…) The information provided in public earnings calls and similar
public presentations can be specific. Tronox discusses in its quarterly results
earnings calls such matters as changes in sales volume, changes in the selling
prices by region, margin information, and operation related information such as
relative plant utilization rate and inventory levels. (…) The Acquisition will
increase the competitive information available to market participants through
earnings calls and similar public presentations. Tronox, Chemours, Kronos, and
Venator are publically traded companies, and therefore required to report
earnings and similar business information to investors and others in the
ordinary course of business. Presently, Cristal is a privately held company.
With the merger, all participants will be reporting as public companies.
Complaint Counsel’s
additional theory of likely anticompetitive effects, that the Acquisition will
enable the combined entity to engage in strategic output withholding
(unilateral effects), has been fully considered, together with the relevant
evidence in the record. However, findings or conclusions as to the likelihood
of anticompetitive unilateral effects are unnecessary because the presumption
of anticompetitive effects, based on market concentration evidence, combined
with the evidence of likely coordinated effects, is already sufficient to make
a strong prima facie case of likely anticompetitive effects. Further
determining the likelihood of unilateral effects would not affect this result.
Rebuttal
As noted in section
II.B.2. above, a defendant may rebut a prima facie showing of likely
anticompetitive effects with evidence that anticompetitive effects are not
likely to result from the merger, or that procompetitive benefits, such as
efficiencies, outweigh any likely anticompetitive effects. See, e.g., Baker
Hughes, 908 F.2d at 985; Polypore, 2010 WL 9549988, at *9.
(Entry; Efficiencies;
Output increasing synergies (vertical integration); Cost savings).
Respondents have
failed to rebut the prima facie proof that the Acquisition is reasonably likely
to have anticompetitive effects in the relevant market for the sale of chloride
TiO2 in North America. Accordingly, the evidence proves that the planned
Acquisition may substantially lessen competition in violation of Section 7 of
the Clayton Act and Section 5 of the FTC Act.
(FTC, Office of Administrative Law
Judges, In the Matter of Tronox/Cristal USA, Dec. 7, 2018, Docket No. 9377)
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