Federal Cartel Office clears paper dealer merger despite high combined market shares

On July 2, 2019, the Federal Cartel Office (“FCO”) cleared the acquisition of paper dealer Papyrus (part of OptiGroup) by Papier Union (Inapa group) in second phase, with a combined market share of 40-50% in the printing paper market (see press release in German here).

Even though the shares triggered the presumption of single dominance under German law (40%, Section 18 GWB), the FCO did not expect the creation of single dominance, given that the largest competitor Igepa has an even slightly higher share.  The FCO additionally relied on the following:  the printing plants as customers operate multi-sourcing, can swiftly and easily switch suppliers, and competitors have sufficient capacity to satisfy additional demand.  Finally, the FCO considered direct paper supplies by one paper manufacturer (Sappi) as relative competitive constraint to limit the merging parties’ scope of conduct.

The merging parties’ combined market shares and Igepa also exceed the presumption of collective dominance under German law (more than 2/3).  The FCO found that it was not possible to show the creation of coordinated effects with the necessary likelihood, even though the planned merger would render the company and market structure more symmetric, which could facilitate implicit coordination.  Pursuant to the FCO, the changing market conditions, the declining overall market size and the outside competition through direct supplies by Sappi spoke against coordinated effects.  This shows that despite the collective dominance presumption, the FCO applies a significant evidentiary test in its review.

That the FCO considered the direct supplies, which it viewed as belonging to a separate product market, as a significant competitive constraint, is also interesting.  This aspect may also be relevant in other distribution markets, in which there are direct supplies by manufacturers next to supplies by dealers.