Nestlé/perrier Case

The Commission of the European Communities has clearly stated in its Nestlé/Perrier decision that Community merger control does cover oligopolistic dominant positions. After the Nestlé/Perrier decision, it is clear that the Commission's application of the Merger Regulation will also take into consideration the creation or strengthening of oligopolistic or collective dominant positions. Whether the Merger Regulation could be applied to collective or oligopolistic dominance has been the subject of some debate and controversy in the past. Some people have defended the position that the Merger Regulation empowers the Commission to handle only single dominant positions. The argument was based mostly on legal grounds, since few economists would doubt that an oligopoly might produce (and often produces) the same anticompetitive effects as a single dominant position.

Both the "for" and "against" sides have developed reasonable legal arguments on the issue of whether the Merger Regulation covers oligopolies. I personally find that the arguments "for" are stronger. However, this discussion has already been resolved, at least from the Commission's perspective until an appeal in a particular case gives the Court of Justice the opportunity to examine this question and take a final decision on it.

What is important now is how the Commission will tackle oligopolies under the Merger Regulation. The Nestle/Perrier decision being the first to explicitly address the issue, offers useful insights into the Commission's concept of oligopoly and the criteria it intends to use to declare a concentration in an oligopolistic market incompatible with the common market.

I.IMPLICATIONS OF OLIGOPOLIES FOR COMPETITION.

In order to place the criteria used by the Commission to conclude that the acquisition of Perrier by Nestlé raised serious competition problems in their context, we need to recall the basic economic theory relating to oligopolies.

Economic theory tells us that profit maximizing firms in perfectly competitive markets will produce an optimum level of output at the lowest possible price with given costs conditions, and an efficient allocation of resources will result in the economy.

It also tells us that a profit maximizing monopolist will inevitably produce less output at higher prices, and this will produce an inefficient allocation of resources. Theoretical monopolists (or its more realistic equivalent, firms in dominant positions) are therefore unequivocally undesirable. Perfectly competitive markets (competitive relations between firms in a market in its realistic equivalent) are unequivocally desirable.

Economic theory is not that categoric with respect to oligopolistic markets, where a few suppliers account for most of the sales in the market. Moreover, economic theory does not