COCOO CASES

The main novelty of our study is the systematic collection, for a large number of deals in the pharmaceutical industry, of factual evidence that could potentially support or dismiss a killer acquisition narrative for specific deals. Existing research mostly provides theoretical or statistical estimates of the overall magnitude of the phenomenon, that cannot be used to pinpoint specific transactions

In the assessment of each of these cases, the following methodology has been adopted:

We first assess the evolution of the overlapping drug R&D projects following the acquisition by examining whether the R&D project has been further developed (e.g. has been moved to a subsequent phase of clinical trials) and/or commercialized. In cases cleared with divestiture, this amounts notably to examining whether the divested asset has been developed and commercialized. When the evidence collected suggests that there has been a discontinuation, the Team first investigates whether the firms’ decision to discontinue the pipeline project is grounded on technical reasons (e.g. safety reasons, poor accrual, poor experimental design). In case the discontinuation can be technically motivated, it can be concluded that it would have happened anyway, and it is unrelated to the merger.When there is not enough or solid evidence suggesting there are technical reasons behind the decision of discontinuing the pipeline project, the Team performs an overall assessment of the Commission’s decision. The key dimensions that typically characterize the Commission’s assessment and that the Team evaluates are: ▪ the definition of the relevant market: are the relevant drugs close substitutes?▪ the assessment of the existing and potential competitors in the relevant market: are there viable and strong competitors to preserve and stimulate the race to innovation? The competitive landscape may also provide useful insights on the chance of success of a pipeline, i.e. the technical and commercial value, regardless of the firms’ incentives.▪ in case of remedies: have the remedies been properly designed to mitigate firms’ incentives to distort competition?

This is an assessment of the suitability of merger and antitrust rules to deal with killer acquisitions that, as such, deserve further scrutiny.Killer acquisitions may fall in one of the following three groups, depending on the modalities of the acquisition and consequently on the available tools to capture them:▪ concentrations that were notified to and examined by the Commission. These cases fall within the scope of the EUMR, and for a sample of such mergers we evaluated if the Commission’s clearance decision (with or without remedies) was followed by a harmful discontinuation, or whether any remedies imposed were effective in impeding competitive distortions;▪ transactions that are structured as concentrations but fall outside the EUMR because they are below its reporting thresholds. For these cases we considered how the Commission or relevant National Competition Authorities (NCAs) could have detected the potential harmful effects of those killer acquisitions;▪ transactions that fall outside the EUMR because they do not constitute concentrations within the meaning of the EUMR (e.g. licensing agreements). The aim with reference to this group of deals has been investigating to what extent the Commission could rely on Articles 101 and 102 TFEU to deal with those killer acquisitions.The report first seeks to find out how well did the Commission’s substantive merger assessment deal with five transactions involving overlapping R&D projects that were notified to the Commission in the period 2014-2019.233 The analysis aims at ascertaining whether the Commission has correctly anticipated the risk of discontinuation, and in case of remedies, whether the remedies have effectively addressed the concern raised.We then turn to a discussion that relates primarily to a different kind of transaction –that is, acquisitions of small innovators whose turnovers may not reflect their competitive importance or trigger review at the time they are acquired. The fundamental question here is not whether the Commission’s substantive assessments are sound, but whether the Commission and other competition regulators have appropriate notice and opportunity to address such transactions ex ante in the first place.We begin our assessment in this area by considering key parameters of the Commission’s competence under the EUMR, and then briefly review various alternatives to the current notification thresholds that have been proposed and some of the challenges they present. We then discuss a different approach to the problem, in the use of referrals under Article 22 EUMR as a corrective mechanism to address cases where regulatory competence otherwise might be lacking or misplaced. We conclude that the referral process is workable in specific situations and has enabled the Commission to address some anticompetitive transactions more effectively. We then conduct two hypothetical case studies, to show how Article 22 EUMR and Articles 101 and 102 TFEU might be applied in practice to deal with potentially harmful transactions. In particular, we start from the facts of two cases that were highlighted in the fact-finding challenge as deserving further scrutiny, and – after having made some assumptions that allow us to obtain two fictitious cases that clearly support a killer acquisition narrative – we evaluate the available tools to deal with such cases. The first case study includes the assessment under Article 22 EUMR tailored to the specific, hypothetical, facts assumed in that case. The second case study allows to formulate twodistinct hypothetical scenarios: one where the transaction can be seen as a concentration – and hence the Article 22 EUMR assessment is conducted – and one where it can be seen as a license agreement – and hence we assess whether Article 101 and 102 TFEU would have been well suited to deal with it.Finally, we observe that a singular challenge in addressing potential killer transactions is detecting them in the first place, given the many ways they might be structured and their possible execution with respect to small, innovative targets. As discussed in Chapter I, many (particularly licensing) transactions are not publicized in any meaningful fashion, and there appear to be very few features by which competitively benign and killer transactions can be systematically distinguished from each other. We therefore suggest that the Commission might consider establishing an online registry of newly acquired interests in pharmaceutical pipelines (of which we provide a model) for a trial period that would enable it to monitor developments and to determine whether the maintenance of such a registry might be a proportionate and effective supplement to current enforcement tools. Box 13: Facts used in our assessments of transactions and case studiesIt is important to note that in assessing individual transactions and preparing this Report, we have relied solely on publicly available information, and did not have access to the companies involved in the relevant transactions or any confidential business information. We relied, in particular, on the following sources of information: ▪ Springer Nature’s AdisInsight database on drugs in commercial development worldwide;234▪ ClinicalTrials.gov worldwide);235(i.e. the most comprehensive registry of clinical trials ▪ online resources for medical professionals, including journal articles regarding the results of clinical trials and R&D trends/challenges that were accessible free of charge through the PubMed database,236 treatment guidelines of various medical associations (e.g. ESMO) that were in force (and often amended) over the period covered in this study, and information published by the EMA and FDA on their official websites;▪ representations made by transaction parties (in, e.g. their press releases, annual reports, SEC filings, published pipelines, management interviews, and the like), which were assembled from the parties’ websites and other online archives; and news reports and analyses by specialists in the pharmaceuticals sector (e.g. Scrip237 and Fierce Pharma238), as well as more general, business-oriented news publications online.Where these public sources were not sufficiently clear, we drew on the knowledge and experience of pharmaceutical industry experts in the Team to assess, e.g. the scope for competition between different molecules, technical trial results and their commercial ramifications, pipeline prospects for success, and the various incentives that might have shaped firms’ strategic decisions.Our desk research into numerous transactions confirms that it is often impossible to reach definitive conclusions, on the basis of public information alone, regarding the reasons companies discontinued various pipelines or the competitive effects of such discontinuations. Accordingly, all references in this Report (whether express or implied) to facts that are not established as matters of public record must be regarded as hypothetical and a means of facilitating the discussion of points of law. They are neither allegations of wrongdoing nor statements of actual fact, and the authors expressly disclaim any interpretation or use of all or any part(s) of this Report that is inconsistent with the foregoing.

For each case assessed as part of the evaluation challenge in section II.1 of the Final Report, this section reports the overlaps that were found by the Commission and for which no discontinuation took place or those that are not relevant for our ex-post assessment. As the methodology, described in section II.1.1.2 of the Final Report,explains, for those overlaps no further analysis is necessary. A.4.1 J&J/ ActelionThe Commission found an overlap between marketed products of Biogen, Inc. (“Biogen”) distributed by J&J in a number of Central and Eastern European countries and one pipeline product of Actelion for the treatments for multiple sclerosis.Table I.42 below shows the evolution of the Parties’ projects after the merger. As shown, Actelion’s molecule, which was a pipeline at the time of the merger, was marketed in the US and registered in Europe in March 2022. As per Biogen’s drugs, these were all marketed at the time of the merger and they are all still marketed today. Therefore, no discontinuation of the Parties’ molecules for the treatments of multiple sclerosis took place.

Novartis/ GSK Oncology:  MEK inhibitors for ovarian cancer:

The Commission found an overlap between Novartis’ and GSK’s MEK inhibitors for lowgrade serous carcinoma (“LGSC”), a rare type of ovarian cancer. In particular, Novartis’ and GSK’s MEK inhibitors (MEK162 and Mekinist respectively) were both in phase III clinical trials for LGSC at the time of the Decision. Table I.43 below shows the evolution of the Parties’ projects after the merger. As shown, a new trial for MEK162 in ovarian cancer is due to start in December 2022, implying that this molecule was not discontinued. As per GSK’s drug, Mekinist, the Phase III study identified by the Commission in the Decision is still “active”. The results, published in February 2022, are positive, and suggest that “Mekinist should be considered a new standard of care for LGSC”.617 Therefore, no discontinuation of the Parties’ moleculesfor the treatments of LGSC took place.

MEK inhibitors for uveal melanoma:

The Decision reports that at the time of the Transaction Novartis had an on-going Phase III clinical trial for the use of its MEK inhibitor (MEK162) in uveal melanoma, while GSK was not developing its MEK inhibitor (Mekinist) for uveal melanoma. The Commission was concerned that, given the more advanced stage of development of GSK’s molecules in other indications (such as advanced melanoma), it was unlikely that the merged entity would have the incentives to pursue MEK162 only for uveal melanoma. The EC cleared the merger subject to remedies, which involved the divestiture of MEK162 and another of Novartis’ molecules (LGX818) to Array.In our ex-post assessment, we noticed that Novartis’ Phase III study referred to by the Commission couldn’t be found. Array was conducting a Phase I/II trial of MEK162 during the Commission’s review. The study622 was begun in August 2013 and terminated for technical reasons in May 2015. The Commission’s reference to a Phase III study may come from there (as uveal melanoma was a minor detail in the Commission’s review, “I/II” may have been transcribed as “III” and the study then erroneously attributed to Novartis). Pfizer, which acquired Array in 2019, is currently trialling MEK162 for uveal melanoma (its most recent study started in December 2021 and is recruiting).623As per GSK’s activity in uveal melanoma, The EC did not mention it in the Decision, but ClinicalTrials.gov reports that GSK also conducted two Phase II trials of Mekinist for uveal melanoma before the merger: one begun in October 2013 and completed in September 2017624, the other begun in 2010 and was then cancelled before any patients were enrolled.625Thus, if our intuition regarding the Array Phase I/II trial having been mistakenly attributed to Novartis is correct, then Novartis would have had no trials for MEK162 in uveal melanoma at the time of the Transaction, and the EC concerns that MEK162 could be discontinued in uveal melanoma would not stand.MEK and B-Raf inhibitors for melanoma brain metastasesThe evolution of the overlapping projects after the mergerTable I.44 details the evolution of Novartis’ combination therapy of MEK162 and LGX818 for the treatment of melanoma brain metastases after the Transaction. As shown, we found that no progression to a later phase was reached for the combination therapy, but new trials are ongoing. Thus, the combination therapy was not discontinued.

Table I.45 details the evolution of GSK’s Mekinist and Tafinlar for melanoma brain metastases after the Transaction. We found that both GSK’s monotherapy of Tafinlar and its combination therapy were discontinued. Since Novartis after the Transaction is not able to influence Array, the discontinuation of GSK’s projects (which were, through the Transaction, acquired by Novartis) is not of interest for our ex-post evaluation.

Reasons for discontinuation:

We found that GSK’s monotherapy of Tafinlar, as well as GSK’s combination therapy were discontinued. Our analysis suggests that these discontinuations were grounded in technical reasons. The ESMO guidelines633 report that there are a number of therapies (or modalities) that can be applied for melanoma brain metastases depending on the individuals’ needs, including targeted therapy with B-Raf/MEK combination (dabrafenib + trametinib). However, they also note that “the optimal sequence or combination of these modalities has not been fully determined, but recent results [including the COMBI-MB trial of dabrafenib + trametinib] can help with decision making until ongoing clinical trials bring more definitive answers.” Therefore, the guidelines seem to flag the importance of new clinical trials to determine the optimal therapeutic approach in this indication.Interpretation of the trial results and feedback from the pharmaceutical experts in the Team suggest that the discontinuation of GSK’s molecules for melanoma brain metastases is due to lack of sufficient efficacy. In fact, our experts advise that the language “it is active” and “there is evidence of clinical benefit” (see the results of the COMBI-MB trial reported in Table I.45) is entirely consistent with when a study doesn’t produce compelling data. Limited enrolment, which as highlighted in Table I.45 brought two trials to termination, is likely to be a secondary effect that demonstrates lack of investigator buy-in to the treatment. Moreover, our pharmaceutical experts suggest that an indication for metastatic melanoma will cover the use in brain metastases, unless it is contra-indicated. The actual use/uptake of the product in brain metastases (an underserved and difficult to treat population) would be driven by evidence and that data if positive could be added to the Summary of Product Characteristics (SPC) to support prescribing. The performed trials show that there has been an attempt to generate this evidence but the data does not seem to be compelling enough to take it further.Therefore, it appears that GSK’s molecules were discontinued for technical reasons, and therefore these discontinuations were unrelated to the merger

BMS/CelgeneIdiopathic Pulmonary Fibrosis (IPF):

In the market for IPF treatments, the Transaction gave rise to pipeline-to-pipeline overlaps between Celgene’s CC-90001 (JNK inhibitor, Phase I at the time of the Decision) on the one hand, and BMS ND-L02-s0201634 (HSP74 inhibitor, Phase II) and BMS-986278 (LPA(1) antagonist, Phase I) on the other. The relevant product market was defined as IPF treatments, with further subsegmentation left open as even in the narrowest possible market delineation (e.g., oral treatments for IPF), no competitive concerns arose due to the Transaction. The relevant geographic market was defined as global or at least EEA wide. Based on the available information, the Commission considered that the Transaction did not raise serious doubts as to its compatibility with the internal market. Firstly, Celgene’s CC-90001 and BMS’ pipeline products are very differentiated in terms of MoA that affect different inflammatory pathways. It was also likely that these drugs would serve different patient groups and would likely have different efficacy and safety profiles. Secondly, postTransaction, the combined entity would continue facing competitive constraints from a large number of actual and potential competitors. Moreover, the Commission found that, given the absence of cure or disease-modifying treatment available on the market, there was high unmet demand for IPF therapies. As such, it was unlikely that the combined entity would have had incentives to discontinue, delay or reorient any of its pipeline products, especially as they were differentiated. In view of the above, no commitments were proposed.Our investigation of the evolution of the IPF programmes post-Transaction can be seen in Table I.46 below. As shown, no discontinuations were detected.

BET inhibitors:

In the market for pipeline BET inhibitor drugs, the Commission found overlaps between Celgene’s CC-90010 and CC-95775 on the one hand, and BMS’ BMS-986158 on the other. The relevant geographic market was defined as global or at least EEA-wide. The Commission excluded serious doubts as to the compatibility of the Transaction with the internal market regarding BET inhibitor drugs. According to the assessment, postTransaction, the combined entity would continue facing competitive constraints from a large number of actual and potential competitors in BET inhibitor drugs. Thus, no commitments were proposed. An overview of our investigation regarding the evolution of the projects post-Transaction can be seen in Table I.47 below. As shown, no discontinuations were detected.

Immunotherapies for NSCLC:

In the market for immunotherapies for NSCLC, the Transaction gave rise to overlaps between Celgene’s pipeline MSC-1 on one hand, and BMS’ marketed Opdivo monotherapy, as well as pipelines of Opdivo combination therapy and Yervoy on the other. The market investigation did not reveal any concrete elements supporting the existence of serious doubts regarding anticompetitive outcomes of the Transaction. Firstly, it was concluded that the MoA of Celgene’s pipeline is very different from BMS’ marketed and pipeline immunotherapies for NSCLC. This meant that if the Parties’ pipelines were to reach the market, there was no indication that the drugs’ efficacy and safety profiles would be similar. Secondly, the development of MSC-1 was at a very early stage (Phase I). At this stage, prospective indications remain uncertain and subject to change especially with respect to immunotherapies. Finally, the combined entity would face competition from at least three marketed products, and several pipeline programmes. In view of the above, no commitments were proposed. Our investigation revealed no discontinuations,

Immunotherapies for ovarian cancer:

In the immunotherapies for ovarian cancer market, the Commission found that the Transaction gave rise to overlaps between Celgene’s pipeline MSC-1 (Phase I), and BMS Yervoy pipelines (Phase II). The market investigation did not reveal any concrete elements supporting the existence of serious doubts regarding anticompetitive outcomes of the Transaction. Firstly, Celgene’s and BMS’ pipelines have very different MoA, implying that in case the Parties’ pipelines reached the market, there was no indication that the drugs’ efficacy and safety profiles would be similar. Secondly, the development of MSC-1 was at a very early stage. At this stage, prospective indications remain uncertain and subject to change especially with respect to immunotherapies. Finally, the combined entity would face competition from several pipeline programmes, including three Phase III pipelines. In view of the above, no commitments were proposed.Our investigation of the evolution of the overlapping programmes revealed no discontinuations,

Immunotherapies for pancreatic cancer:

In the market for pancreatic cancer immunotherapies, the Transaction gave rise to overlaps between Celgene’s pipeline MSC-1 (Phase I) on one hand, and BMS Opdivo (combination, Phase I/II and III), BMS-813160 (Phase II) and Cabiralizumab (Phase II) on the other661. The Commission’s market investigation did not reveal any concrete elements supporting the existence of serious doubts regarding anticompetitive outcomes of the Transaction. Firstly, the Parties’ pipelines are differentiated products, with distinct MoA and thus likely different efficacy and safety profiles. Secondly, the development of MSC-1 was at a very early stage. At this stage, prospective indications remain uncertain and subject to change especially with respect to immunotherapies. Finally, the combined entity would face competition from several pipeline programmes, including pipelines which are at an advanced stage of development. In view of the above, no commitments were proposed

The overlap revealed by the fact-finding challenge in non-small cell lung cancer (NSCLC), gastric cancer and pancreatic cancerThe fact-finding challenge revealed two discontinued overlaps that do not appear in the Commission decision. The first one is described in section II.1.4.5 of the Final Report, while the second one is covered in this section, since the Team’s assessment revealed that it does not appear to be related to the BMS/ Celgene deal. This overlap is between BMS’ BMS 986148 and Celgene’s Paclitaxel in several indications: non-small cell lung cancer (NSCLC), gastric cancer and pancreatic cancer.669It should be noted that this overlap was identified in a therapeutic indication proxied by MeSH codes and in a MoA proxied by PMC correlation. Such an approach is used in the fact-finding challenge when perfect overlaps between therapeutic indications and MoAs cannot be established, and implies that it is not clear cut whether there is indeed substitutability between compounds. Further manual scrutiny in order to ascertain the relationship between the drugs is required.670 At the time of the deal, BMS’ compound was in a Phase I study in advanced solid tumors, among which the above-mentioned narrower indications, whereas Celgene’s compound was marketed in all those indications. After the deal, BMS’ compound’s Phase I study was terminated “for business reasons not related to safety”.671With regard to this discontinued overlap, the Team’s experts advised that: i) even though the large-scale analysis established a close relationship between the drugs’ mechanisms of action based on PMC, BMS 986148 is an Antibody Drug Conjugate, and Paclitaxel a chemotherapy agent, and as such they are not substitute with each other in the commercial reality, ii) in 2019, Paclitaxel was already nearing the end of its life cycle (3-4 years until US generic entry and a European generic already present in 2019), thus a targeted agent like BMS’ compound would have been a good way to extend the franchise, implying that if possible the acquirer would have avoided the discontinuation, and iii) there were a lot of other BMS’ compounds competing with BMS 986148 to be used in combination with another of its drugs, nivolumab, and possibly some of them had more compelling results. In summary, the drugs weren’t directly substitutable, so the discontinuation of BMS’ compound wouldn’t have had an impact on the market positioning of Paclitaxel. Furthermore, the Team and its experts deem that the discontinuation was most likely due to commercial reasons related to BMS having other better performing compounds.

compet.expert.gpt (archived chat)

The document addresses the anticipated joint venture between Vodafone Group Plc and CK Hutchison Holdings Ltd (combining Vodafone UK and Three UK). The UK Competition and Markets Authority (CMA) has provisionally concluded that this merger could lead to a substantial lessening of competition (SLC) in two markets:

1. Retail mobile telecommunications services: Risk of price increases or reduced service quality for UK consumers.
2. Wholesale mobile telecommunications services: MVNOs may face higher prices or less competitive terms, impacting competition in the retail market.

The CMA evaluates two main remedies to address competition concerns:

1. Prohibition of the Merger: Seen as a comprehensive solution to preserve market competition.
2. Network Commitment with Time-Limited Protections:
   • Integration and improvement of network infrastructure over 8 years.
   • Short-term price caps and protections for retail customers.
   • Wholesale terms to support MVNO competition.

The CMA provisionally favors the Network Commitment as a less onerous remedy compared to outright prohibition, aiming to balance competition concerns while enabling investment benefits.

Reasons in Favor of Merger Prohibition:

1. Preservation of Market Competition:
   • Prohibiting the merger ensures that Vodafone and Hutchison 3G UK (Three UK) remain separate competitors, maintaining a market with four Mobile Network Operators (MNOs).
   • This avoids a potential reduction in competitive pressure, preventing price increases and service degradation in both retail and wholesale markets.
2. Protection for Consumers:
   • Prohibition addresses concerns over price increases, particularly for vulnerable and price-sensitive customers, as well as reduced service quality (e.g., data packages, network reliability).
   • It prevents adverse outcomes where millions of customers could face higher prices or receive fewer benefits from 5G investments.
3. Wholesale Market Competition:
   • Ensures that Mobile Virtual Network Operators (MVNOs) continue to have competitive access to wholesale services without dependency on fewer MNOs, which strengthens retail market competition.
4. Market Stability:
   • Preserving current market structure reduces the risks associated with the merger, such as potential inefficiencies in wholesale network access and resource allocation.
5. Low Risk of Implementation:
   • Prohibition is a clear-cut remedy that immediately halts the merger, requiring no further oversight or monitoring.
   • Compared to behavioral remedies, it avoids ongoing risks like monitoring failures or market distortions.
6. Historical Precedent:
   • Past “four-to-three” mergers (reducing market players from four to three) in mobile telecommunications have often shown negative impacts, such as price rises and limited MVNO access, supporting a cautious approach.
7. Doubt Over Efficiencies:
   • CMA provisionally questioned whether the merger’s claimed rivalry-enhancing efficiencies and network investments would fully materialize, particularly the Parties’ ability to implement the Joint Network Plan (JNP) as proposed.

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Reasons Against Merger Prohibition:

1. Pro-Competitive Efficiencies:
   • The merger could generate significant efficiencies through network integration and shared investments, leading to:
     • Improved network quality (better 5G coverage, speed, and reliability).
     • Lower operating costs, enabling the Merged Entity to deliver lower prices or improved services to consumers.
2. Investment in 5G Infrastructure:
   • The joint venture promises substantial investment (e.g., £11 billion over ten years) in 5G standalone (SA) networks, creating a world-class telecom infrastructure in the UK.
   • Without the merger, both companies may lack the scale to invest as heavily in 5G development.
3. Competitive Pressure on Leading MNOs:
   • The merger could enhance competition against dominant converged operators like BT/EE and VMO2, creating a third strong challenger and reducing the duopoly’s market share.
4. Rapid Network Enhancements:
   • From “Day 1,” the merger claims to deliver a better combined network, benefiting customers through wider coverage and immediate improvements in quality at no extra cost.
5. Support for MVNOs Through Commitments:
   • The Wholesale Reference Offer proposed by the Parties includes guarantees to maintain competitive wholesale terms for MVNOs, protecting their access and pricing stability.
6. Short-Term Retail Protections:
   • The Parties proposed price caps and safeguards for vulnerable retail customers to mitigate concerns over early post-merger price increases.
7. Risk of Market Stagnation:
   • Prohibition could perpetuate a low-investment environment, limiting innovation and delaying critical improvements in network infrastructure.
8. Global Market Context:
   • Comparable mergers in other markets have achieved network efficiencies and improved outcomes without necessarily harming competition, although the CMA discounts these cases.

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Summary:

• Prohibition guarantees the preservation of the current competitive structure, addressing concerns about higher prices, weaker wholesale competition, and risks to vulnerable consumers.
• Allowing the merger, with remedies, could unlock network efficiencies, improve 5G investments, and create a more formidable challenger to dominant operators.

The decision comes down to whether the CMA believes the efficiencies and commitments outweigh the competition risks of reducing the UK market from four to three MNOs.

You said:

what is your expert opinon?: should the merger be blocked or cleared? give full detailed reasons

 

Expert Opinion: The merger should be blocked.

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Detailed Reasons for Blocking the Merger

1. Preservation of Competition

• Reducing the market from four to three Mobile Network Operators (MNOs) weakens competitive pressures.
• Consumers risk higher prices, fewer choices, and reduced innovation, particularly in the retail market.
• The wholesale market would be impacted, limiting MVNOs’ access to competitive network terms and conditions, reducing their ability to drive price-sensitive competition.

2. Doubt Over Efficiency Gains

• While Vodafone and CK Hutchison claim significant efficiencies and network quality improvements, the CMA’s findings raise doubts about the full realization of these benefits:
  • Uncertainty exists regarding the delivery of the Joint Network Plan (JNP) over 8 years.
  • Proposed benefits, like improved 5G networks, lack guaranteed delivery mechanisms.

3. Risks to Vulnerable Consumers

• The merger could disproportionately harm price-sensitive consumers who rely on low-cost mobile plans.
• Despite proposed short-term price caps, behavioral remedies like these are difficult to monitor and enforce effectively over the long term.

4. Structural Market Concerns

• The combined entity could control a significant share of the market, reducing incentives for existing players (e.g., BT/EE, VMO2) to compete aggressively.
• Historical evidence from other “four-to-three” mergers globally shows that reducing the number of competitors often leads to:
  • Higher retail prices.
  • Limited competitive offers in wholesale markets.

5. Behavioral Remedies Are Insufficient

• The Network Commitment and wholesale protections are behavioral remedies that are:
  • Complex to implement and monitor.
  • Risky, as market incentives could still favor the merged entity’s interests.
• Structural remedies like blocking the merger provide a more reliable, low-risk solution.

6. Uncertain Long-Term Consumer Benefits

• The Parties claim billions in investments and efficiencies, yet:
  • These benefits are largely speculative and rely on long-term implementation.
  • There is no certainty that consumers will experience price reductions or significantly improved network services.

7. Alternatives Exist

• Both companies could pursue network-sharing agreements or targeted collaborations to achieve efficiency gains without merging. This would preserve competition while enabling shared investments in 5G networks.

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Conclusion

While the merger promises potential efficiencies and network improvements, these are uncertain and come with significant risks to competition, particularly in the retail and wholesale markets. Given the CMA’s focus on ensuring a high degree of certainty in remedies and protecting consumer interests, blocking the merger remains the most effective and proportionate solution.

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READ THE FILE I ATTACHED EARLIER AND BROWSE THE INTERNET TO GIVE ME A FULL LIST OF THE COMPETITORS OF THE TWO MERGING COMPANIES.

As of December 2024, the UK mobile telecommunications market comprises several key players:

1. EE (Everything Everywhere):

• Overview: Formed in 2010 through the merger of T-Mobile UK and Orange UK, EE is a subsidiary of BT Group. It stands as the second-largest mobile network operator in the UK, with approximately 21.2 million customers as of September 2022.
  Wikipedia
• Services: Offers mobile telephony, broadband internet, and digital television services.
• Network Coverage: Provides extensive 4G and 5G coverage across the UK.

2. Virgin Media O2:

• Overview: A joint venture between Liberty Global’s Virgin Media and Telefónica’s O2, established in 2021.
• Services: Delivers mobile telephony, broadband, and television services.
• Market Position: Competes closely with EE and the newly merged Vodafone-Three entity.

3. Sky Mobile:

• Overview: Operates as a Mobile Virtual Network Operator (MVNO), utilizing O2’s network infrastructure.
• Services: Provides mobile services with flexible data plans and integrates with Sky’s other offerings.
• Market Position: Targets existing Sky customers and competes in the MVNO segment.

4. BT Mobile:

• Overview: A division of BT Group, leveraging EE’s network for its services.
• Services: Offers mobile plans primarily to existing BT broadband customers.
• Market Position: Focuses on bundling services for BT’s customer base.

5. Tesco Mobile:

• Overview: An MVNO operating on O2’s network, jointly owned by Tesco and Telefónica.
• Services: Provides competitive mobile plans with a focus on value for money.
• Market Position: Appeals to cost-conscious consumers and Tesco shoppers.

6. giffgaff:

• Overview: An MVNO and a subsidiary of Telefónica, operating on the O2 network.
• Services: Offers flexible, no-contract mobile plans.
• Market Position: Targets users seeking affordable and flexible mobile services.

7. SMARTY:

• Overview: An MVNO owned by Three UK, utilizing its network infrastructure.
• Services: Provides simple, no-frills mobile plans with a focus on data.
• Market Position: Caters to users looking for straightforward, cost-effective mobile services.

The recent merger between Vodafone UK and Three UK, approved by the Competition and Markets Authority in December 2024, has reshaped the competitive landscape, creating the largest mobile operator in the country with around 27 million customers.

GOV.UK

This consolidation reduces the number of major MNOs from four to three, potentially impacting competition dynamics. MVNOs like Sky Mobile and Tesco Mobile continue to play significant roles, offering alternative options to consumers and maintaining competitive pressure in the market.

The evolving market structure necessitates close monitoring to ensure that consumer interests are protected and that the competitive environment remains robust.

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BROWSE THE INTERNET AND READ THE FILE I ATTACHED EARLIER, TO GIVE ME A FULLY DETAILED ANALYSIS OF THE GOODS OR PRODUCTS PRODUCED BY THE MERGING COMPANIES AND THE COMPETITORS SO THAT YOU CAN LET ME KNOW WHICH ARE SUSTITUTABLE

 

ChatGPT said:

As of December 2024, the UK mobile telecommunications market features several key players offering a range of substitutable products and services. Here’s a detailed analysis:

1. Vodafone UK and Three UK (Merged Entity):

• Mobile Services: Both Vodafone and Three provide comprehensive mobile telephony services, including voice calls, SMS, and data plans. They offer various contract lengths and Pay As You Go options to cater to different customer needs.
• Broadband Services: Vodafone offers fixed-line broadband services, providing internet connectivity to homes and businesses. Three has ventured into home broadband using its mobile network, offering wireless internet solutions.
• 5G Services: Both companies have rolled out 5G networks, aiming to provide faster data speeds and improved connectivity.

Competitors:

2. EE (Everything Everywhere):

• Mobile Services: Offers extensive mobile telephony services with various plans, including SIM-only and Pay As You Go options.
• Broadband Services: Provides fixed-line broadband and home phone services.
• 5G Services: EE has a widespread 5G network across the UK.

3. Virgin Media O2:

• Mobile Services: Offers mobile plans under the O2 brand, including contract and Pay As You Go options.
• Broadband Services: Provides high-speed broadband, TV, and landline services.
• 5G Services: Operates a growing 5G network.

4. Sky Mobile:

• Mobile Services: Provides SIM-only and handset plans, often bundled with Sky TV services.
• Broadband Services: Offers broadband and TV packages.
• 5G Services: Utilizes O2’s network for 5G services.

5. BT Mobile:

• Mobile Services: Offers mobile plans, primarily to existing BT broadband customers.
• Broadband Services: Provides extensive broadband and landline services.
• 5G Services: Leverages EE’s network for 5G connectivity.

6. Tesco Mobile:

• Mobile Services: Provides affordable mobile plans, including Pay As You Go and contract options.
• 5G Services: Operates on O2’s network, offering 5G services.

7. giffgaff:

• Mobile Services: Offers flexible, no-contract mobile plans known as “goodybags.”
• 5G Services: Utilizes O2’s network for 5G connectivity.

8. SMARTY:

• Mobile Services: Provides simple, SIM-only plans with a focus on data.
• 5G Services: Operates on Three’s network, offering 5G services.

Substitutability Analysis:

The products and services offered by these providers are largely substitutable, as they all deliver core mobile telephony and data services. The primary differentiators include pricing structures, network coverage, customer service quality, and additional perks such as bundled services or loyalty rewards.

For instance, while Vodafone and Three offer similar mobile and broadband services, competitors like EE and Virgin Media O2 provide comparable alternatives, making it relatively easy for consumers to switch based on factors like price or service quality.

However, unique offerings such as Tesco Mobile’s Clubcard points or giffgaff’s community-driven model may appeal to specific customer segments, slightly reducing substitutability for those attracted to these unique features.

In summary, the UK mobile telecommunications market is characterized by a high degree of product substitutability, with multiple providers offering similar services, allowing consumers to choose based on personal preferences and specific needs.

Sources

 

 

 

 

You said:

BROWSE ONLINE AND READ THE FILE I GAVE EARLIER, TO GIVE ME A DETAILED ANALYSIS OF THE LEVEL OF CONSOLIDATION IN THIS INDUSTRY AND MARKET, INCLUDING MARKET POWER , HHI, AND MARKET SHARE, MARKET DEFINITION ANALYSIS OF EACH COMPETITOR,

 

ChatGPT said:

The UK mobile telecommunications market has undergone significant consolidation, particularly with the recent merger of Vodafone UK and Three UK. Here’s a detailed analysis of the market’s consolidation, market power, Herfindahl-Hirschman Index (HHI), market shares, and the market definition for each competitor:

1. Market Consolidation:

• Recent Merger: In December 2024, the Competition and Markets Authority (CMA) approved the £16.5 billion merger between Vodafone UK and Three UK, creating the largest mobile operator in the UK with approximately 29 million customers.
  Financial Times
• Impact: This merger reduces the number of major Mobile Network Operators (MNOs) in the UK from four to three, potentially impacting competition dynamics.

2. Market Power and HHI Analysis:

• Market Power: The consolidation increases the market power of the merged entity, potentially leading to higher prices and reduced service quality if not properly regulated.
• HHI Calculation: The HHI is a measure of market concentration, calculated by summing the squares of individual firms’ market shares.
  • Pre-Merger HHI: Assuming equal market shares among the four MNOs (25% each), the HHI would be 2,500 (25² + 25² + 25² + 25²).
  • Post-Merger HHI: If the merged entity holds 50% market share, with the remaining two holding 25% each, the HHI increases to 3,750 (50² + 25² + 25²).
  • Interpretation: An HHI above 2,500 indicates a highly concentrated market, suggesting reduced competition.

3. Market Share Analysis:

• Merged Entity (Vodafone-Three): Approximately 50% market share with 29 million customers.
• EE (BT Group): Around 20 million customers, equating to roughly 34% market share.
• Virgin Media O2: Approximately 24 million customers, about 41% market share.
• Note: These figures are approximations; actual market shares may vary.

4. Market Definition and Competitor Analysis:

• EE (BT Group):
  • Services: Mobile telephony, broadband, and digital TV.
  • Strengths: Extensive 4G and 5G coverage, strong brand presence.
  • Market Position: Second-largest MNO pre-merger, now third-largest.
• Virgin Media O2:
  • Services: Mobile services, broadband, and TV.
  • Strengths: Comprehensive service bundles, significant customer base.
  • Market Position: Largest MNO pre-merger, now second-largest.
• MVNOs (e.g., Sky Mobile, Tesco Mobile):
  • Services: Mobile services without owning network infrastructure.
  • Strengths: Competitive pricing, niche market targeting.
  • Market Position: Collectively hold a smaller market share but contribute to competition.

Conclusion: The merger between Vodafone UK and Three UK has significantly increased market concentration, as reflected in the elevated HHI. This consolidation enhances the market power of the merged entity, potentially impacting competition and consumer choice. Ongoing regulatory oversight is crucial to ensure a competitive market landscape.

Vodafone and Three Merger Reshapes UK Mobile Market

 

Financial Times

UK regulator approves £16.5bn combination of Vodafone and Three

4 days ago

 

Reuters

Vodafone-Three merger approval marks UK antitrust shift

4 days ago

 

The Verge

Vodafone and Three clear to merge and form the UK’s biggest mobile operator

4 days ago

Sources

 

 

 

 

You said:

BROWSE ONLINE AND READ THE FILE I GAVE YOU, TO GIVE ME ANY MERGERS OR ACQUISITIONS NEVER NOTIFIED TO THE CMA, NOR REVIEWED BY THE CMA, THAT HAVE TAKEN PLACE IN THIS INDUSTRY AND MARKET, IN THE LAST FEW YEARS,

 

ChatGPT said:

In the UK mobile telecommunications sector, mergers and acquisitions (M&A) involving significant market players are typically subject to scrutiny by the Competition and Markets Authority (CMA) to ensure fair competition and consumer protection. Notable transactions include:

• BT’s Acquisition of EE (2016): BT Group acquired EE, the UK’s largest mobile network operator, in a deal that underwent CMA review and received approval.
• Proposed Merger of O2 and Three (2015): CK Hutchison’s attempt to merge Three UK with O2 was blocked by the European Commission due to competition concerns.

These examples illustrate that significant M&A activities in this industry are generally notified to and reviewed by regulatory authorities like the CMA or the European Commission. Therefore, it is unlikely that any major mergers or acquisitions have occurred in the UK mobile telecommunications market in recent years without such regulatory oversight.

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READ ALL OUR PREVIOUS CONVERSATION, THE FILE I GAVE YOU EARLIER, AND BROWSE ONLINE, TO GIVE ME YOUR DETAILED PROFESSIONAL OPINION ON THIS: WHICH OF THE REMEDIES PROPOSED BY THE CMA COULD BE UNREASONABLE , WHICH ALTERNATIVE REMEDIES WOULD YOU PROPOSE ?

 

ChatGPT said:

The Competition and Markets Authority (CMA) has approved the merger between Vodafone UK and Three UK, subject to specific remedies aimed at mitigating potential competition concerns. These remedies include:

1. Network Investment Commitment: A legally binding obligation for the merged entity to invest £11 billion over eight years to enhance the UK’s 5G infrastructure.
   GOV.UK
2. Retail Price Protections: Short-term commitments to maintain existing retail price plans for a specified period to safeguard consumers from immediate price increases.
   The Register
3. Wholesale Access Terms: A wholesale reference offer to provide competitive access terms for Mobile Virtual Network Operators (MVNOs), ensuring they can continue to operate effectively.
   The Register

Assessment of Remedies:

• Network Investment Commitment: This remedy is reasonable as it aims to enhance network quality and coverage, benefiting consumers and promoting long-term competition.
• Retail Price Protections: While offering short-term consumer protection, this remedy may be insufficient in addressing long-term competitive dynamics, as it doesn’t prevent potential future price increases once the commitment period ends.
• Wholesale Access Terms: Ensuring MVNOs have competitive access is crucial. However, the effectiveness of this remedy depends on the specific terms and the merged entity’s adherence, which can be challenging to monitor and enforce.

Potential Unreasonableness:

The Retail Price Protections remedy could be considered unreasonable if it only offers temporary relief without addressing the underlying reduction in competition. Once the commitment period lapses, the merged entity might have increased leverage to raise prices, potentially harming consumers in the long run.

Alternative Remedies:

1. Structural Remedies: Divesting certain assets or spectrum to facilitate the entry or strengthening of a fourth MNO could maintain competitive market dynamics.
2. Long-Term Price Controls: Implementing extended or permanent price controls on certain services to prevent post-commitment period price hikes.
3. Independent Monitoring: Establishing an independent body to oversee the merged entity’s compliance with wholesale access terms and investment commitments, ensuring transparency and accountability.
4. Facilitating MVNO Growth: Mandating the merged entity to support the development of MVNOs through favorable terms, promoting competition at the retail level.

Conclusion:

While the CMA’s proposed remedies address immediate concerns, their long-term effectiveness requires careful consideration. Implementing structural remedies and robust monitoring mechanisms could provide more sustainable solutions to preserve competition and protect consumer interests in the evolving UK mobile telecommunications market

uk v ec .  19 September 2024

CORRECT.INTERPRET.NAT.LAWS >> CORRECT FOR >> CORRECT BA >> CORRECT MEASURE >> CORRECT DECISION

ECJ Uphold the appeals (UK WINS!) and clarifies  how member’s national laws must be interpreted to learn the correct FOR (reference framework) to be able to ‘select’ amongst measures (ex: tax exceptions) and only so, to be able to decide , for ex: if such measure is illegal SA.clp.alp.ilp.elp …

BESIDES,  ECA FINDING:   EC IS FAILING TO REQUEST TRANSPARENCY DISCLOSURE FROM NATIONS DURING THE EC S.A. INVESTIGATIONS >> THE EC S.A. DECISIONS ARE FLAWED BECOS THEY LACK INFO TO CORRECTLY DECIDE.

The question whether the GC adequately defined the relevant FOR and, by extension, correctly interpreted the law, is a question of law >> can be JR’d on appeal.     -which is the correct FOC to be able to decide if the exemptions gave a selective (and competitive?) advantage?: the appellants (uk…) say that is not the GCTS but the rules applicable to CFC

ecj: to be able to classify a national tax measure as ‘selective’, EC must:

1- identify the (FOR = the ‘normal’ tax system applicable in a given Member State), and

2-demonstrate that the tax measure is ‘anormal’ (so that is out of the FOR). the anormality = that it differentiates between cos who are in a comparable factual and legal situation, and such differentiation cannot be justified to find the correct FOR, we need to look at the national rules’ : content, structure and effects

a/if a national tax measure is inseparable from that nation’s general tax system, the FOR is the nation’s general tax system

b/if a nat.tax.measure is separable from that general system, the FOR is more limited (than the gen.system’s FOR)

ecj: is for that nation to decide, the [FOR >> the nation has the r2interpret its national law] , except if the EC can show that another interpretation prevails in the case-law or administrative practice of that nation. the nation is bound by a duty of sincere cooperation and must in good faith provide the EC with all relevant information requested (to be able to show that the nation’s interpretation cannot prevail over that nation’s caselaw/admin practice)

ecj: the GC found that the GCTS is based on the principle of territoriality (only taxes profits made in the UK), but that also taxes profits artificially diverted from the UK for the benefit of a CFC.   ecj:   this gc finding is based on a logic supplementary, but separable, from the GCTS. gc also found that those rules did not constitute an exception to the GCTS, but could rather be regarded as an extension thereof.

ecj: national provisions which are only supplementary.extension of a wider FOR, is not separable from it.

 The exemptions make it possible not to apply, in whole or in part, the CFC charge where that risk is insufficiently high. Thus, the rules providing for the CFC charge and for the exemptions, complement each to define the scope of the CFC charge the appelants’ interpretation of the cfc rules, is consistent with Cadbury Schweppes and Cadbury Schweppes Overseas. (3) According to that judgment, Articles 49 and 54 TFEU preclude a Member State from taxing a resident company on the profits made by a CFC in another Member State, unless those profits result from wholly artificial arrangements intended to escape the national tax normally due

ecj: ec, gc, were wrong to view the CFC rules as a separate system of taxation and had failed to take into account how the rules, essentially, protected the mainstream CT system in the UK. Seen properly they were not separate but a part of that general system, designed to protect it from profit diversion and abuse

ecj: the GC and EC erred in law in finding that the FOR for deciding the selectivity of the exemptions, consisted solely of the rules applicable to CFCs.   Since the FOR determination is the starting point for the assessment of selectivity, the GC’s error vitiates the whole of that assessment. Consequently, we set aside the GC judgment in its entirety and annuls the EC decision

FACT: UK taxes:

– profits generated by activities and assets in the Uk, and

– profits of controlled foreign companies (CFC) ,(ex like halma plc, is the head of a group that contains cfcs) must pay ‘the CFC charge’, if hmrc considers that profits have been artificially diverted from the UK. It charges only the CFC’s non-trading finance profits, when they arise from activities involving significant human functions carried out in the United Kingdom or are generated from United Kingdom funds or assets. Exception (from the cfc charge): profits from intragroup loans granted by a CFC (‘the exemptions at issue’)

chronology:      [FOR = COCOO’S NIP.IN.THE.BUD]

0-In 2013, the UK introduced a new and modernised CFC regime following extensive consultation. One aspect of this new regime was the inclusion of a “finance company exemption”. This exemption enabled a UK headquartered group to use an foreign financing company (FFC) with the benefit of a 75% exemption from the CFC rules on intra-group financing activities outside the UK, notwithstanding that the income of that FFC might otherwise fall within the CFC rules. This might be the case because, for example, the funds used by the FFC for its financing activities derived from the UK or because activities related to the lending by the FFC took place in the UK.

1-By decision of 2 April 2019 , EC categorised those exemptions as an illegal SA and incompatible with the internal market, and forced UK to remove the exemption in jan 2019

2-The United Kingdom and a number of companies which had all benefited from the exemptions, asked the GC to annul the EC decision

3-By judgment of 8 June 2022, GC held that the EC had not erred in law, on the basis that the FOR is only of the set of rules applicable to CFCs, and not the entire uk gcts (general corporation tax system)

4-appeal to ECJ August 2022 by UK v GC: (Case C-555/22 P): uk v ec, itv.plc, lse :

The appellant claims that the Court should: set aside in its entirety the judgment under appeal and grant the relief sought by United Kingdom before the General Court; alternatively, set aside in its entirety the judgment under appeal and remit the case to the General Court for final determination; and order the Commission to pay the costs of this appeal and the proceedings before the General Court.

Pleas in law and main arguments In support of the appeal, the appellant relies on five pleas in law:

1- the General Court erred in law and/or infringed EU law because it distorted the underlying facts and mischaracterized them in law when it concluded that the reference system was the United Kingdom CFC (controlled foreign companies) legislation.

2- the General Court erred in law when it held that the United Kingdom CFC legislation gave rise to an advantage. This error of law followed from the distortions and mischaracterisations of the facts in relation to the role of significant people functions (“SPFs”) in the United Kingdom CFC legislation and the relationship between Chapters 5 and 9.

3- the General Court erred in law when assessing the objective and the selectivity of the United Kingdom CFC legislation. The judgment under appeal contains repeated distortions and/or manifest errors of understanding with regard to the role of SPFs in the United Kingdom CFC legislation and the interrelation between Chapters 5 and 9 thereof. It also fails to record or address core elements of the United Kingdom’s pleading, in breach of the duty to give reasons.

4- the General Court failed to address the United Kingdom’s argument that the distinction in the Commission Decision¹ between United Kingdom SPFs and United Kingdom connected capital was irrational, in breach of the duty to give reasons. Furthermore, the General Court rejected the justification of administrative practicability for two reasons related to the alleged lack of evidence before the General Court; neither was sustainable, and both involved a clear distortion of the facts that were in evidence before the Court.

5- the General Court’s reasoning contains a clear error of law as to the requirement of the freedom of establishment and the meaning of the judgment of 12 September 2006, Cadbury Schweppes and Cadbury Schweppes Overseas, C-196/04, EU:C:2006:544, (the “Cadbury Schweppes case”) amounting to a disregard of that case. The General Court’s conclusion on this issue reveals several errors. First, it rests on a misunderstanding of the role of the SPFs in United Kingdom CFC legislation. Second, the General Court appears to have assumed that United Kingdom adopted a purely territorial system. Third, this part of the judgment under appeal fails to record or deal with the substantial arguments made by United Kingdom with regard to the impact of the Cadbury Schweppes line of cases on the design of its CFC legislation

• higher MAP, (as fewer firms may increase gws prices), and
• less productivity (if it reduces competition, raises barriers to entry, or encourages rent-seeking (ex lobbying)), or
• more productivity, (if there are EOS (ecs of scale), network effects, or R&D investment)

*productivity =  output (gws) – inputs

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PRODMA (product market) concentration

Concentration ratios (CR.n) represent the sales-MAS of the ‘n’ biggest firms in a market:  a market can be the (whole=aggregate) economy, or granular sectors.   Figures 5 and 6 report concentration ratios for the whole economy as the market:

-Figure 5 shows that aggregate measures of concentration are stable to decreasing in the UK over the period 1997–2020. There is an increase in concentration from 2009–2010, which typically occurs when firms exit during recession. The CR5 measure fluctuates around the 5 per cent level from 2008 onwards. The implication is that one-twentieth of all sales in the UK go through the largest five firms

-Figure 6 shows that concentration ratios increased up to 2016 but declined rapidly afterwards. CR5 more than doubled (4 per cent to 10 per cent) from 1998 to 2016.  The rapid decline in 2020 suggests that the size of the top-five firms in the economy fell more than proportionally than total market size, likely due to the influence of the COVID-19 pandemic. there were similar levels of concentration for several European countries in the pandemic. 

FIGURE 5:

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Concentration aggregated from five-digit SIC sectors

Figure 7 plots concentration ratios aggregated from the most granular industry definition (five-digit SIC) We present the median and mean CRN for the concentration level of these industries each year.

-We observe an increasing concentration trend across all measures over the period, and this is particularly strong for the median measure. In terms of levels, the mean always exceeds the median, which suggests that there is a tail of high-concentration industries. 

-CR5: the median has a SALES-MAS of 15–20% among the top-five firms, and in the average(MEAN) they have 20–25 per cent of market share >> thus, there is nearly 1/5 of the MAS, held by a small group of firms.

– CR10, CR20 and CR50:   we see higher MAS , as a larger number of firms is taken into consideration. For CR10, the MAS for the median five-digit SICindustry, increases from 20 to 25%. CR20 shows similarly sharp increases.

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Concentration distribution across five-digit SIC sectors:

Figure 8 shows CR5 at the five-digit level. the distribution is shifting right over time >>  This means more five-digit industries with higher levels of concentration. This is consistent with the growth in the mean and median concentration (in Figure 7 )

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Figure 9 shows changes in the percentage (of the n.of industries) that have high and low CR5.   ‘CR5: 0–20%’ represents low concentration industries; ‘CR5: 80–100%’ represents high concentration industries. as we see, low concentration industries fall from over 20–25 per cent of five-digit industries, to under 20 per cent of five-digit industries.

fig.9: Open in figure viewerPowerPoint    Percentage of high and low CR5 industries, five-digit:

In 2007, there is a discontinuity leading to a spike in high concentration industries. In 2007, SIC industrial classifications were updated from SIC 2003 to SIC 2007.

In antitrust cases, industries are often categorised based on the (HHI = total of squared MAS). The HHI is then used to classify industries: HHI values between 0 and 1,000 indicate low concentration industries, HHI values between 1,000 and 1,800 indicate medium concentration industries, and HHI values between 1,800 and 10,000 indicate high concentration industries. Figure 10 shows that between 25 to 30% of industries are high concentration and this has increased over the sample period. The level of moderately concentrated industries is stable at 15 per cent. The remaining 50–60 per cent of industries are low concentration

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Business dynamism: entry, exit and net entry :

Entry statistics are one indicator of ‘business dynamism’. Net entry is an alternative indicator of competition, also called ‘business churn’. We determine entry as the first year that a firm is recorded as being active and records employees and turnover as non-zero. Exit is the first year the firm is recorded as being inactive, having been active the previous year

Figures 11 and 12 show that aggregate entry has a flat trend between 1998 and 2020, suggesting stable business dynamism.17 The fluctuations we observe are consistent with well-known characteristics of the business cycle. Entry and exit typically co-move, except in recessionary periods when entry declines and exit increases. Between 2008 and 2011, there was a fall in the number of firms entering and an increase in the number of firms exiting, so net entry became negative.  as the stock of firms declines during recession, an individual firm’s ability to affect industry output rises, and the price elasticity of demand becomes more inelastic, which raises price setting ability, so price markups rise. This apparent decline in competition during recessions coincides with a higher concentration.

FIGURE 11  Open in figure viewerPowerPoint :

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COCOO STEPS:

1/ file LBA (letter.before.action) @EC, vEC    +   @national.court v pus.cnmc, using aC-A.claim.4.dams.v.pus + seek referral to cjeu (on question of interpret of eulaw)

2/issue @cjeu an action of annulment (a4a= 263 tfeu.claim) v EC’s failure to start IP v Spain, and not to trigger the RLCM. this could also include a claim for tort.dams (340 tfeu.claim) v EC and Spain, for eu.wide tort.dams (in.Spain.too). cjeu has no juris on member.state liab, but can impose penalties and measures against a member.state

STEP 0:**********************how2.COOK*****************

all rules (described in this page) are WRT the gws produced by rival.plcs. the post.mato’s consecuences (as described below), take 2 to 3 years to realise

cocoo to find out if the mato.plcs’ proposed post.mato synergies, differ from:   my estimates, and/or from their promises.remedies.conditions (ex given to shs.cma…) <> cocoo has o2.press mato.plcs to tell us of their post.mato MAP estimates…they will refuse as this info could prompt cma to block.

HOW2.foresee matos: 

• gen.rule: higher n.of matos (in a given ims) >> more compet >> less MAS, lower gws prices, higher gws quality , and higher gws value  >> wpi (cons.buyers win)
• v.long.term uas (ex.ppps) are, by definition, incomplete >> require ongoing redrafting….ow, become invalid.
• horiz.matos give a compet.advantage, as they yield( to the mato.plcs): eos>>less prod.costs>>less gws prices>>wpi (consumers/buyers win)
• horiz.quality.matos (are the gen.rule), as they give more synergies, profits and innovation…  MAS falls or keeps unchanged, due to brand overlap/pruning >> more competition (wrt vert.matos).
• vert.quality.matos (are the exception) >>gws quality diverges/segms >> higher MAS and lower competition (wrt horiz.matos)

COCOO HAS O.2analyse CONREPs using DIDAs = consumer.reports (ex.Magazine, by the usa consumers union/TAS) …. why?:

becos they make it possible for me to properly identify the true competitors and the true prod and geo markets . Instead, using econometrics, or SIC.CODES,etc does not really work for this >>  cocoo must use DIDA (diff.in.diff.approach) (to extract (from CONREPs) the true competitors and prod.markets, mato.value…) . DIDA steps:

• i need to extract out of the conrep, all the factors affecting a particular industry…so i am left with just the estimated [mato impact = [ exts(+/-) + internalities (+/-) ] = synergies (+/-) ] on that ind.
• i only need extracting and comparing specific gws categories (produced by our mato.plcs and rivals.plcs)…this is easy, as conreps list gws categories [= consumer/buyer perception of what is a gws SUBSTITUTE] >> i can easily digout which plcs are my plcs’ true rivals, by just finding the list of plcs producing those gws substitutes
• i do not need to waste my time estimating the HHI (ind.competitiveness), becos it does not affect, nor is affected by our post.mato’s gws prices.value.quality
• i need to isolate the estimated postmato’s gws (quality;price;value) (in a given ims), and COMPARE them with their rivals’ gws (quality;price;value) (in that ims)
• i can predict which plcs will mato, and with whom….how and why?:   
  • plcs with quality gws, tend to mato with plcs producing lower quality gws….and viceversa
  • the inds with more matos, are those that have more n.of plcs. (obviously)>> cocoo to specialise in inds with more n.plcs
  • inds in decline have slower growth>>more (stealth) consolidation (concentration)>> not higher MAP, but lower n.of brands (less segm.diversif) >> less n.of rivals = horiz matos (gws converge)
  • inds in maturity grow only at the expense of competitors.    new inds have high growth >> less gws quality convergence (post.mato), lower customer service; gws prices dont fall as much.
  • MAP is not a mato driver. 
  • plcs with high MAS are more prone to mato, becos gws prices fall, value increases and quality increases
  • matos with an intl.plc >> higher MAS and higher gws diversity

• i only need to identify the right counterfactuals (but4test) :

1-are the gws price and quality correlated (between our mato.plcs and rivals)?. if yes, is + or – correlation?.   plcs are in the same market (and are therefore rivals, only when their gws price, quality and/or value are + correlated (which happens whenever consum/buyers have access to quality information (so that they can easily switch, as they have access to plenty of substitite.gws).  [more swithpower = less MAP = less postmato gws prices ] >> there is transparency (as to who the rivals are and which the relevant.market is….. this search for transparecy is why (iPOS=ltd>>plc) are so popular, as becoming plc is a shield against foreign rivals, as the new plc gains ‘info.aggregation’ of foreign.plcs pot rivals, and from pot new inventions…….NSIACT (17 SECTORS)of nat.sec wpi are meant to reduce foreign plc’s ENTRY (to uk markets), becos the mere pot.of a foreign.plc entry, can easily cause mato.plcs to drop MAS, or keep it constant….Thus, vert.matos between national.plcs >> diversif.of gws >> foreign and other national plcs are disuaded from even attempting to enter that national market….>> cocoo: THIS IS AN ENTRY BARRIER >> COCON

2-would pricing have declined, absend the mato?: to answer i need to know:

-are the postmato impacts a continuation of a premerger trend?; 

-are the mato.plcs horiz or vertical?

-(horiz) matos:  between plcs producing same gws >> less gws prices; same/converge gws quality (as gws from both plcs converge, overlap); HIGHER EOS and higher pot.synergies  (EOS = LESS costs to produce gws >> less gws prices >> consumers win (wpi)).   (ex.killer acquis = cannibalisation).   MAS remains constant or even drops (due to brand.pruning)

-(vertical) matos: between plcs producing diff. gws >> diversif.segm into new gws = vertical.mato > prices drop, and synergies happen, but the evidence thereof vanishes…..BUT, although no evidence is left, we know that MAS grows, and EOS drop >> more costs to produce gws >> higher gws prices >> comsumers lose (wpi harm)

the UK is not seeking to recover these funds; instead, it is refunding the amounts previously collected under the now-overturned state aid decision…….after a recent ruling by the (CJEU), HMRC is in the process of, voluntarily, without FOCS,  refunding approximately £700 million to major British companies, including the London Stock Exchange Group and ITV. This action comes after the CJEU overturned a 2019 European Commission decision that had classified the UK’s tax exemption as illegal state aid. Financial Times: The CJEU’s ruling in September 2024 concluded that the European Commission had erred in its assessment, leading to the annulment of the previous decision. Consequently, the UK government is refunding the collected taxes to the affected companies. This development indicates that HMRC is not pursuing the recovery of these funds; instead, it is returning them to the companies that had benefited from the exemption.   Therefore, despite the UK’s departure from the EU, HMRC is adhering to the CJEU’s ruling and is not seeking to reclaim the exempted amounts.

>> cocoo:  the fact halma will be refunded the alleged ‘illegal state aid’, adds up to the fact that HALMA PLC HAS BEEN ENGAGING IN :

• -KILLER ACQUISITIONS FOR A LONG TIME >> POT ADP (‘MOAT’)
• -STEALTH CONS. IN ITS INDUSTRY.MARKET…..WHICH IS QUITE DANGEROUS AS IT IS DEDICATED TO SAFETY.    <>  IN HEALTH/SAFETY,, THE WPI MANDATES CMA TO PROACTIVELY REVIEW, WITH DISREGARD TO THRESHOLDS , VOL OR NOT.
• -ANOTHER POT WPI VIOLATION IS THAT ITS SUBSIDIARY, CROWCON (GAS DETECTION), HAS BUSINESS TIES WITH IRAN’S OIL INDUSTRY
• -ENJOYED COMPET.ADVANTAGE…..DID HALMA REPAY THE MONEY TO THE EU?

list of companies: https://www.halma.com/our-companies

eu publications office =     op.europa.eu      lexology.search  : case: group.fin.exemption: [vodafone,halma plc etc  v  EC]:     ecj concluded that the UK tax exemption granted illegal state aid advantage for UK multinationals in certain circumstances.  FACTS OF CASE: MLEX:  2019: The appeal by Vodafone, GlaxoSmithKline and another 15 companies of a European Commission decision at the EU’s lower-tier General Court has been published in the EU’s Official Journal. The companies are seeking to overturn a decision ordering the UK to claw back taxes from companies that benefited from certain tax exemptions on cross-border lending under controlled-foreign-corporation rules.(July 15, 2019, 16:27 GMT | Insight) — Vodafone, GSK and Diageo are among at least 15 companies and groups that have filed appeals challenging an EU order from April that the UK recoup unpaid taxes from a series of multinationals, MLex understands. The appeals shed light on what companies benefited from the loophole and are now facing a tax bill, since the commission never identified them. They include: BT Group, AstraZeneca, BASF, Pearson, Spectris and Weston Investment.The UK government is also seeking to overturn the decision by the EU’s state aid watchdog, which found that its exemption for some cross-border lending between companies in the same group breached the bloc’s rules. Its appeal was filed at the EU’s lower-tier General Court on June 12. The latest appeals were filed around the first week of July. In 2017, the commission opened a probe into whether the “group financing exemption” in UK tax law complied with EU state-aid rules. The exemption, since removed, allowed certain companies to avoid “controlled foreign company” rules designed to prevent multinationals avoiding taxes through elaborate offshore tax structures. in 2019, ec concluded that while the group financing exemption was “partially justified,” it had still given certain companies a selective advantage (see here). It ordered the UK to recover the taxes from the companies which had benefited from the scheme, although it left the job of calculating the final bill to UK authorities.>>>>  many uk plcs appealed the ec.decis to ECJ, using these 9 pleas in law (JR standard):

1. First plea in law, alleging that that the Commission wrongly applied Article 107(1) TFEU and/or made a manifest error of appraisal or assessment in its selection of the reference framework for the analysis of the tax regime. The Commission should have treated the reference framework as the UK’s corporation tax regime, not simply the controlled foreign companies (CFC) regime itself.
2. Second plea in law, alleging that the Commission erred in law in its application of Article 107(1) TFEU and/or made a manifest error of appraisal or assessment by adopting a flawed approach to the analysis of the CFC regime. The Commission at recitals (124) to (126) of the contested decision wrongly treated the provisions of Chapter 9 of Part 9A of the UK’s Taxation (International and Other Provisions) Act 2010 as a form of derogation from a general charge to tax found in Chapter 5 thereof.
3. Third plea in law, alleging that the Commission erred in law in its application of Article 107(1) TFEU when finding at recitals (127) to (151) of the contested decision that the selectivity criterion was fulfilled in that undertakings in factually and legally comparable positions were treated differently.
4. Fourth plea in law, alleging that the 75 % exemption under section 371ID of the Taxation (International and Other Provisions) Act 2010 is justified by the nature and overall structure of the tax system.
5. Fifth plea in law, alleging that the imposition of a tax burden on CFCs meeting the exemptions contained in Chapter 9 of Part 9A of the UK’s Taxation (International and Other Provisions) Act 2010 as a class would breach the applicants’ freedom of establishment contrary to Article 49 TFEU.
6. Sixth plea in law, alleging that there was a manifest error of appraisal or assessment in relation to the 75 % exemption and fixed ratio issue.
7. Seventh plea in law, alleging that the Commission’s decision fails to comply with the general EU law principle of non-discrimi-nation or equality.
8. Eighth plea in law, alleging that the Commission also erred in law in applying by analogy or placing undue reliance upon the terms of Council Directive (EU) 2016/1164, which was not applicable ratione temporis.
9. Ninth plea in law, alleging that the Commission erred in law in its application of Article 107(1) TFEU by finding at recital (176) of the contested decision that a class of beneficiaries exists (including the applicants) and that the applicants had obtained any aid which needed to be recovered under Article 2(1) of the contested decision.

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https://www.investegate.co.uk/announcement/rns/halma–hlma/half-year-results/7884403

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https://opencorporates.com/companies/gb/00040932    >>>>  UKSIC 4digitcode: halma plc = Activities of head offices.   this code lets us assume who are a plc’s direct competitors (horiz.comp)

Code70.10Code SchemeUK SIC Classification 2007Code Scheme Websitehttp://www.ons.gov.uk/ons/guide-method/classifications/current-standard-classifications/standard-industrial-classification/index.htmlParent Code70.1: Activities of head officesMaps To

• 70.10: Activities of head offices (European Community NACE Rev 2)
• 7010: Activities of head offices (UN ISIC Rev 4)

main markets for which the companies that halma manages (as head office):  Global Fire and Gas Detection System Market   ; TECHNOLOGY; MEDICAL DEVICES

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https://www.opensanctions.org/entities/ir-br-co-b165ee410eb0c3b6e5d83407d5c0449ee802c953/  >>Crowcon Detection Instruments Ltd. is an entity of interest. It has not been found on international sanctions lists.

https://www.unitedagainstnucleariran.com/company/crowcon-detection-instruments-ltd   :  According to the webpage of Iranian company, Tima Kala Tehran Engineering Co Ltd. (“Tima Kala Tehran”), Crowcon is a partner of Tima Kala. Crowcon Detection Instruments Ltd. (“Crowcon”), a Halma plc (“Halma”) subsidiary, is listed as an exhibitor at the 23rd International Oil, Gas, Refining and Petrochemical Exhibition (“IOGRPE”),

https://www.crowcon.com/   =  detecting gas, saving lifes:   With over fifty years’ experience, we’ve helped keep 25 million lives safe [OR AT RISK!],  through our award-winning gas detection technology. Whatever your needs, Crowcon offers reliable gas detection when you need it most, helping keep your people and property safe.

Iran UANI Business Registry2,629   = REG. OF COS THAT DO BUSINESS WITH IRAN =    https://www.opensanctions.org/datasets/ir_uani_business_registry/

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Halma’s now totals  19 company (KILLER) acquisitions, with a total of 53 businesses across all three of its divisions

• INDUSTRY: Security & Protection Services
• sector: Services

Halma plc is a life-saving technology company. Its segments include Safety, Environmental & Analysis and Healthcare. The Safety segment provides products that protect people, property and assets and enable safe movement in public spaces. This segment’s solutions include fire safety, through fire detection and fire suppression solutions; safe movement in public, commercial and industrial spaces; elevator safety, and more. Its Environmental & Analysis segment provides solutions that monitor the environment and improve the availability of life-critical natural resources, such as air, water, and food, and analyze materials in a range of applications. It also manufactures devices for high-precision measurement of trace moisture found in gases. Its Healthcare segment helps healthcare providers to improve the care they deliver. It offers minimally invasive procedures, complementing its products used to diagnose and treat cancer. It also develops, manufactures and supplies medical devices

Industry

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https://www.annualreports.com/Company/halma-plc:  Statement of compliance: The Company confirms that it complied throughout the year with the provisions of the Competition and Markets Authority’s Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of  Competitive Tender Processes and Audit Committee Responsibilities) Order 2014.

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recent acquis exs:

01 May 2024:   MK Test Systems Limited (MK Test), a leading provider of safety-critical technology for the aerospace, rail, and commercial electric vehicle industries, is pleased to announce its acquisition by Halma Plc, the global group of life-saving technology companies

27 June 2024 : Halma, the global group of life-saving technology companies, today announces that it has acquired G.F.E. – Global Fire Equipment, S.A. (“GFE”) for its Safety sector company Ampac

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Dharmash mistry

is a director of halma plc and was appointed as a CMA Board member in February 2024.

Dharmash is a venture capitalist, specialising in technology, new business models and finance. He has served on a wide range of board in executive and non-executive capacity. He is currently a Non-executive Director of Halma PLC, the Premier League, the Football Association and Rathbones PLC.

Dharmash was appointed as a CMA Board member in February 2024.

Dharmash is a venture capitalist, specialising in technology, new business models and finance. He has served on a wide range of board in executive and non-executive capacity. He is currently a Non-executive Director of Halma PLC, the Premier League, the Football Association and Rathbones PLC

Other roles held at present

• Non-Executive Director, The Football Association Premier League Ltd
• Non-Executive Director, Investec Wealth & Investment Limited
• Non-Executive Director, Rathbones Investment Management Ltd
• Non-Executive Director, Rathbones Group Plc
• Non-Executive Director, Football Association Limited
• Non-Executive Director, Halma Plc
• Adviser at Blue Lion LLC
• Adviser at Blue Coast Capital

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https://www.stockopedia.com/articles/four-clues-to-the-competitive-moat-at-halma-plc-4561/

What makes these elite stocks so appealing is their ability to resist competitive threats and generate breathtaking profits. They compound investment returns at consistently above-average rates over the long term.

These stocks are different because they’ve got what billionaire investor Warren Buffett, calls economic moats. Like medieval castles, their profits are fortified by impregnable business models.

In this article, I’m going to tell you what makes these stocks so special – and I’m going to use Halma (LON:HLMA) as an example. Halma is a conservative, large cap in the Electrical Components & Equipment industry

How can you tell whether a company has a moat?

Moats are desirable because they often guarantee a sustainable competitive advantage. But there are several ways that companies can get them. For example, they might have:

• Intangible Assets – Such as brands that customers love, valuable patents or regulatory approvals
• Switching Costs – It might be too costly, complicated or unnecessary for customers to look elsewhere
• Network Effects – When customers become part of a product it creates tremendously powerful businesses
• Cost Advantages – Superior processes and unique locations and assets make it hard for others to compete
• Great Scale – Large infrastructure and distribution networks are powerful barriers to entry in many industries

Has Halma (LON:HLMA) got a moat?

When it comes to searching for companies with moats, some of the biggest clues actually lie in their financial statements. By looking at a small number of important ratios you can get an idea about the competitive strength and profit power in a business.

Here’s what they are and why they are important – and how Halma stacks up against them:

1. High rates of Free Cash Flow – the measure of a thriving company.
   – A high ratio of free cash flow to sales can be a very positive sign. For Halma, the figure is an impressive 14.6%.
2. High Return on Capital Employed – the measure of a company growing efficiently and profitably.
   – A 5-year average ROCE of more than 12 percent is a pointer to strong efficiency. For Halma, the figure is an eye-catching 14.7%.
3. High Return on Equity (compared to peers) – the measure of a company making good profits from its assets.
   – Halma has a 5-year average ROE of 18.5%.
4. High Operating Margins (compared to peers) – the measure of a company with pricing power
   – Halma has a 5-year average operating margin of 17.8%.

 ANNUALREPORTS     GLOBALDATA  statista.ind.reports       s&p.ind.reports    moodys.ind.reports     bloomberg.ind.reports/intel       market.research     mordor.market.analysis        first.research.IND.PROSPECTOR        IBIS.ind.research      bcc.research        free.INDUSTRY REPORTS      

https://www.mckinsey.com/industries    https://www.bcg.com/industries     https://www.bain.com/insights/industry-insights/
https://www.pwc.com/gx/en/industries.html       https://www.kpmg.us/industries.html

https://www2.deloitte.com/us/en.html?icid=site_selector_us    https://www.ey.com/en_gl/industry-reimagined
https://www.accenture.com/us-en/industries/banking-index      https://www.capgemini.com/ca-en/industries/
https://www.rolandberger.com/en/Expertise/Industries/          https://www.oliverwyman.com/our-expertise/industries.html

Pfizer Inc. and Pfizer Limited v Competition and Markets Authority [2024] CAT 65 (20 November 2024)

CAT HELD:

-Attribution: 

questions of attribution arise, particularly in the case of subjective states of mind like intention. In the case of competition law infringements, the concept of the UA (“undertaking”) renders such issues academic. Thus: …the “unit of account” for purposes of competition law infringement and penalty is the “undertaking”, an economic and not a legal characterisation of an organisation. Thus, provided that legally recognised entities (incorporated or not) form part of the same economic unit, their conduct, knowledge and state of mind can be pooled into the UA…  In this case, we have no hesitation in concluding that both Pfizer and Flynn intentionally infringed the Chapter II prohibition. We have reached this conclusion for the following reasons:

(1) For a Seller in a market, price and price setting is a critical part of staying in business. Just as any Enterprise will have the control of costs well in mind, so too will that Enterprise have a very clear understanding of what drives its margins, both in terms of individual product and in terms of overall profitability. Cost and price are the central considerations that will inform most, if not all, aspects of a commercial Enterprise’s consideration.
(2) With this focus on cost and price, every Enterprise will have an awareness – profounder than that of any regulator or reviewing court – of the competitive environment in which they function, which drives both cost (the price the Enterprise must pay for the Factors of Production they need to obtain) and price (the cost to that Enterprise’s Buyers).
(3) In this case we are concerned with the price and the cost of the various Capsule dosages, and with the profit that constitutes the difference between these metrics. We have – in order to resolve these appeals, considered these metrics in a very specific way: we have focussed on Product Unit Cost and Product Unit Price and Profit Margin, as derived from the Focal Product Spreadsheets. We anticipate that Pfizer and Flynn did not parse their costs and prices in quite this way. However, we find that both Pfizer and Flynn will have been well-aware, in relation to the Capsules, of both their cost and their price and the profit margin that accrued to them because the latter dramatically exceeded the former……In short, the Appellants will have known that there was a significant difference to their very considerable benefit between cost and price, and that the Capsules represented “good business” for them. Not only were the per unit margins great, but the overall revenues derived from the volumes of Capsules sold rendered the revenuesto both Pfizer and Flynn enormous.
(4) Pfizer and Flynn must have been aware that the products they were selling had certain characteristics that enabled them to price at will. Not only were the Capsules medically necessary, because of the issue of Continuity of Supply, Pfizer and Flynn would have appreciated that substituting other phenytoin sodium products for the Capsules would be difficult.

(5) The ability effectively to price at will is clear from the original arrangements between Flynn and Pfizer in 2012 and their joint decision
to “de-brand” the Capsules. The reason for de-branding was to escape the PPRS price control: the only reason to seek to escape a price control is an appreciation that the price control is exactly that – a fetter on the ability to price higher. The PPRS scheme does not apply to unbranded products because it is assumed that competition will act as a control on price. In this case, both Pfizer and Flynn knew – for the reasons we have articulated – that there were no competitive controls over the prices they could charge for the Capsules. We conclude that throughout the Relevant Period, Pfizer and Flynn knew the margins they were making, and knew that they were pricing at well-above CMA Cost Plus.

(6) That, of course, is not enough to justify a conclusion that there was an intention to infringe the Chapter II prohibition by pricing unfairly. Unfair pricing is not a legal concept. To achieve an objective outcome, unfair pricing is best analysed through the economic lens of Consumer and Producer Surplus. But the requisite intention to infringe can be established without reference to these economic concepts. The key questions are these:

(i) Is the Enterprise able to charge a price that is not particularly informed by its costs?
(ii) If so, why is the Enterprise able to do so?

(7) It will readily be appreciated that these are, in lay terms, precisely the sort of questions that this Judgment has been concerned with. In particular, the second question – why can the Enterprise price in a manner that is above cost but at prices not otherwise informed by cost? – raises exactly the questions regarding the Producer Surplus that we have been considering. In this case:

(i) Both Pfizer and Flynn knew that they were pricing at well above cost and at prices that involved some form of Producer Surplus. We do not consider that it can plausibly be suggested that the Capsule Prices were at what we have referred to as CMA Cost Plus, no matter how generously this was calculated.
(ii) Nor do we consider the prices of “competitors” or other Sellers in the same market to be particularly relevant. Pfizer and Flynn
may have been pricing in line with an industry standard, but that says nothing about how the industry sees its prices. Equally, the
Drug Tariff is no justification for a fair price, for the reasons that we have given.
(iii) Pfizer and Flynn were aware that they were able to price independently of cost and independently of competitive constraints. As successful Enterprises, they will have been well-aware of why this was the case. They were in a dominant position because of the need for Continuity of Supply, which was not something they delivered to the market, but rathersomething that they took advantage of. In short, they priced not because demand exceeded supply (Case 1), nor because of any particular innovation (Case 2), but because there was a basic human need for the Capsules, which only they could satisfy. The human need was not as stark as it might have been – the State intervened to pay – but that does not disguise the fact that both Pfizer and Flynn were gouging the market in a manner that can only be characterised as unjustifiable or opportunistic or – in a word –unfair

(8) This is something that Pfizer and Flynn intended. They did not accidently or negligently overprice. They had market power given them; and they abused it>>>  there is jurisdiction to impose a penalty; and the basis on which we assess that penalty is one of intentional infringement of the Chapter II prohibition. Questions of negligence do not arise.

PENALTIES

-are the amount of the fines imposed by cma correct? : ‘Pfizer’s pricing of the 25mg Capsules, which we have found did not infringe the Chapter II prohibition. It is appropriate that we adjust the fine downwards. We do so by reference to the total monthly Profit Margin accruing to Pfizer as disclosed in Figure/Table 19. Total Profit Margin across all Capsule sales was £1,187,600, of which the Profit Margin of 25mg Capsules was £12,647 or 1.06%. We reduce Pfizer’s penalty by 1% or £630,000 accordingly.

ANEX:  CASE 1 PRODUCER SURPLUS EXAMPLE        [sar= saudiarabia]

sar enjoys the worlds lowest oil production costs…while south&north.america suffers the worlds highest oil production costs….. (and viceversa with cumulative oil production[in millions of barrels per day (“mbpd”)]…this is becos is inverse.proportional to oil production costs)

1.  the same product (oil) has multiple producers, each with dramatically different costs of production. We assume a competitive
market in the sense that each producer is seeking to sell as many barrels of oil as they can (i.e. all will sell to capacity) and that they are not colluding as to price. Depending on the level of aggregate demand, there will be no dominance. We will suppose, for the moment, a level of demand at 60 mbpd and that (at this level of demand) buyers are prepared to pay US$70/per barrel, although of course, they would like to pay less. On this basis, all producers up to US Gulf of Mexico Deep Water producers will have costs (excluding the Reasonable Rate of Return, as we do) that will enable them to sell in this market. US Gulf of Mexico Deep Water Producers – costs at US$70/barrel – can only sell in this market if they are prepared to take a loss. On our assumptions, they will not, because as well as covering costs, they will want to make a Reasonable Rate of Return…(2) Looking to the other end of the costs scale, Saudi Arabia (costs at just over US$20/barrel) is clearly not dominant. Their production level is just under 10 mbpd, and there are at least 10 other sellers able to sell in this market in competition to Saudi Arabia.

2. We are – unrealistically, but it is a useful simplifying assumption – going presume that the Reasonable Rate of Return is a percentage of cost, and that that percentage is 10%

3. Let us ask ourselves what price would be charged – in this market – by the cheapest producer (Saudi Arabia). The price of Saudi Arabian producers will not be CMA Cost Plus. That would be an economically irrational price to charge, being far too low. Depending upon aggregate demand, and elasticity of supply – two points we will come to – Saudi Arabia will price at the CMA Cost Plus level of the least efficient competitor who is able to sell product into the market. In short, Saudi Arabia’s price – in a competitive market – will have
nothing to do with its costs, save that price will sit (well) above those costs. We expand upon why this is the case in the following sub-paragraphs:

(1) We are assuming that Saudi Arabia – as with all of the producers – is selling as much as it can produce. In other words, the 10 mbpd figure for Saudi Arabian producers is an inelastic figure (on the supply side) that  cannot be increased. We are assuming this to be the case for all suppliers (all are supplying the maximum).
(2) As we have stated, we are supposing a level of demand at 60 mbpd and that (at this level of demand) buyers are prepared to pay US$70/per barrel. On this basis, UK North Sea producers can sell at above US$60/barrel. Indeed, they can sell at: Cost (US$60/barrel) + Proper Return (US$6/barrel) = Price (US$66/barrel)
(3) But that is not the price at which these producers will sell. The price at which each producer will sell will actually be determined by the next most (in)efficient producer, here Other North America producers, whose Cost appears to be about US$62/barrel (the graph is not easy to read accurately, but that does not matter), and whose proper return would be US$6.20. The minimum price for these producers would be US$68.20/barrel. UK North Sea producers would not sell at US$66/barrel but at US$68/barrel (or just below the next most inefficient producer’s minimum price).
(4) In short, the constraints on the price of UK North Sea producers are a combination of cost and Reasonable Rate of Return (which determine the “floor” below which these producers will not sell) and other producers’ “floor” (which determines the “ceiling”, above which these producers cannot sell). In short, the ceiling is a constraint derived from the next most (inefficient) producer in this case. As we shall see, for those like Saudi Arabian producers, the constraint is the CMA Cost Plus level of the least efficient competitor who is able to sell product into the market (i.e. in this case, UK North Sea producers)

In other words, Saudi Arabia will also sell at just above US$68/barrel, the price of its least efficient competitor, UK North Sea producers. If Saudi Arabian producers priced at above this level, they (like their least efficient competitor) would lose market share to the producer presently not in the market – Other North America producers. In other words, exactly the same constraint as operates on the UK North Sea producers.

4. Let us now assume an additional capacity in oil production capability of Saudi Arabia: say an additional capacity of 3 mbpd – which is the total capacity of the UK North Sea producers. Depending on the level of aggregate demand, it might pay Saudi Arabia to price at US$65/barrel, thus cutting out UK North Sea producers. Whether that is the case depends not on cost, but on aggregate demand. We are supposing a level of demand at 60 mbpd such that at this level of demand buyers are prepared to pay US$70/per barrel. At this level of demand, it will pay the Saudi Arabian producers to undercut the UK North Sea producers and drive them from the market. The model below assumes:

(1) Aggregate demand at 60 mbpd, which (with the levels of production shown in the graph) enables UK North Sea producers to stay in the market because of the supply constraints of other more efficient producers. In other words, if, as we will be assuming, the ability of one of the more efficient producers to supply the market increases, then the possibility of undercutting the less efficient producer arises.
(2) Cost per barrel of US$20/barrel for Saudi Arabian Producers, and US$60/barrel for UK North Sea Coast producers. The Proper Return, in each case, is 10% of Cost

5. UK North Sea Coast producers produce and sell 3 mbpd. These producers are selling at the margin: they are the least competitive producer in the market, and were aggregate demand to fall by 3 mbpd or the supply of more efficient producers to increase, there is a risk that UK North Sea Cost producers could be undercut. It is the latter case that we will consider. Example 1 assumes capacity
in Saudi Arabian producers of 10 mbpd; Example 2 assumes that that capacity increases to 13 mbpd.

CONCLUSION:  competition has benefit.  the price falls by $3/barrel, and producer profits go up….but the consumer does not win as much as they would on a pure cost plust basis.  [the same outcome would happen if SAR were dominant.  in example1, everyone is incentivised to be efficient, as it is no assumption that either sar or the uknorthsea are deliberately inefficient.   sar have less incentive to be [efficient =cut costs] becos their oil production costs are the world’s lowest >> sar’s margins are huge, so , like a monopolist, they may become lazy to be efficient.