The SIEC test is a substantive test that the competition authorities apply in the course of the merger review. Merger controls of various jurisdictions vary with respect to the test for compatibility of the proposed concentration with the competition in the market with the SIEC and dominance tests being the most commonly used ones.
Article 2 of the EU Merger Regulation sets forth the SIEC test as the basic rule for appraising the concentrations with the EU dimension with a view to establishing whether they are compatible with the internal market. For that purpose, the European Commission must assess whether a concentration would significantly impede effective competition, in particular as a result of the creation or strengthening of a dominant position in the market or a substantial part of it. Concentrations will be allowed unless they lead to a significant impediment of competition.
The SIEC test goes beyond the concept of dominance. The SIEC test captures transactions that do not necessarily create or strengthen a dominant position but still cause an impediment to competition (i.e. where the merging firms are able to raise prices, and thus exercise market power, without coordination and without holding the largest market share in the market). As practice shows dominance is viewed as a leading (although not the only) factor that may cause the SIEC. The creation and strengthening of a dominant position is no longer a prerequisite for prohibiting the transactions as long as a healthy post-merger competitive environment exists. In order to assess whether or not a healthy competitive environment exists or will exist after the concentration, in the first stage, it is assessed whether or not the entity to be formed as a result of concentration shall be able to impede effective competition in the market. Creation or strengthening of a dominant position is cited as a major factor causing such an effect.
When assessing whether a concentration significantly impedes competition the competition authorities would look at the structure of all related markets, actual and potential competitors, market shares of undertakings party to the concentration, convenience of access to market and inputs by these undertakings, availability of product/service alternatives to the products/services of the undertakings which are part of the concentration, supply and demand trends related to these products/services, legal and/or other barriers to entrance to the market, benefits to intermediaries and consumers and finally contribution to economic and technical development.
The competitive conditions existing at the time of the merger constitute the relevant comparison for evaluating the effects of a merger in most cases. In some circumstances, the future changes to the market that can reasonably be predicted may be considered. In particular, the likely entry or exit of firms absent the merger may be taken into account. For example, in Essilor/Luxottica the European Commission concluded that Luxottica’s current and planned activities in ophthalmic lenses would be insufficient to allow it to exert a strong competitive constraint on Essilor as an existing or potential competitor.
Dominance is considered as part of the economic analysis while applying the SIEC test. For instance, in EssilorLuxottica/Grandvision the Turkish Competition Authority assessed the company’s dominant position within the framework of factors such as market shares, market entry conditions and buyer power. It stated that concentrations could significantly impede competition in two ways, including by: (i) creating or strengthening a dominant position as a result of the transaction, and (ii) cooperating with undertakings with which there was no coordination prior to the transaction. It was concluded that in the retail market where horizontal overlap was observed, the product and customer portfolios of the undertakings differed to a large extent and their market shares did not reach a level that would raise competitive concerns, so that a situation that would significantly impede competition would not arise. The remarkable point in the decision in terms of the SIEC test is the parties’ submission of commitments regarding vertical markets, even though the dominant position was not determined. While the dominant position test was insufficient to go beyond the dominance evaluation, together with the economic evaluations made within the scope of the SIEC test, competitive concerns that can be observed even in the absence of determination of a dominant position were put forward and the transaction was cleared conditionally.
The Migros/Carrefour can be cited as another example of the SIEC test in practice. The TCA evaluated the transaction regarding the acquisition of the tenancy right of 34 stores of Carrefour by Migros. Here, the TCA’s assessment was not limited to market shares and dominant position analysis. It looked into the possibility of the new entries to the market, obstacle for competitors to increase capacity, market foreclosure etc. Based on these considerations, the TCA concluded that there would be no significant impediment of effective competition and granted clearance to the transaction. Although it was determined that a dominant position would not be created as a result of the transaction, the examination was not limited to this.
The main difference between the SIEC test and the dominance test may be seen in terms of the transactions that do not create a dominant position or strengthen an existing dominant position, but the ones in which the undertakings can increase the price unilaterally after the transaction. The Marport, the first case that was blocked by the TCA due to the application of the SIEC test, emphasizes that the SIEC test may prohibit the transactions that significantly impede competition, within the evaluation of theories of harm, in addition to the transactions that result in the creation of a dominant position or the strengthening of the current dominant position.
All in all, the SIEC test shows less reliance placed on market share indicators, but with greater emphasis to assessing the competitive characteristics of the relevant market, the dynamics of competition between the concentration parties and the effects of notified transactions.