OFT finds that Freightliner faces effective competition

OFT merger clearance (9 pages, PDF) of Freightliner's acquisition of the Daventry and Doncaster intermodal railheads.

The OFT found that, in general, the prices of a hypothetical rail-based intermodal freight transporter would be constrained by competition from suppliers using only road freight for inland transport; and that there was nothing special about Daventry and Doncaster to disturb this conclusion in respect of the flows relevant to the merger. Thus competitive pressures on inter-modal freight services were sufficient to prevent a significant lessening of competition from the horizontal aspects of the merger.

A competitor (unnamed but not hard to guess who) complained about the possibility of an abuse of a dominant position by Freightliner through a possible refusal to supply access on fair terms to its intermodal facilities. This is particularly relevant to Daventry, which according to OFT might not have had any effective rail substitute. Freightliner's purchase of the terminal does not reduce competition in terminal access, but the resulting vertical integration was perceived by the competitor to create a real risk of abuse. OFT's main reasons for dismissing this concern is a view that “the merger does not materially change incentives to foreclose” because

... the downstream customers of rail-only competitors are not captive to the minority rail portion of the overall market and there is no suggestion on the evidence that Freightliner would be the next alternative to their chosen (rail) supplier. On the contrary, evidence from market participants confirms that if a rail-only competitor of Freightliner were to pass on inflated costs via a small but significant price increase, they would switch to road, consistent with road's predominant share of the market.

Comment: The OFT's reasoning ignores the possibility that Freightliner could combine restrictions on access to its terminals for its rail competitors with a heightened marketing or price cutting campaign aimed at their customers. I am not convinced that the lower downstream market share is a valid reason to distinguish this case from EWS/Marcroft. This said, it is probably right that anti-competitive conduct is not such an automatic consequence of the merger as to warrant stopping the transaction. Competition law will protect the competitor as well or as badly as it protects other potential victims of abuses of a dominant position. Franck

For further information or advice please contact Franck Latrémolière.

Filed under Merger control, OFT, Public transport.

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