The European Commission’s (the Commission) decision to prohibit Booking.com’s acquisition of eTraveli marks an important development in competition enforcement, with potentially significant ramifications for non-horizontal merger control in Europe. As the Commission’s first prohibition decision based purely on “ecosystem” concerns, it signals a willingness to depart from the existing merger guidelines, and well-established economic principles, in pursuit of novel theories of harm; and suggests a very low bar for intervention on such theories. This decision risks reversing twenty years’ progress towards an effects based approach, and returning EU merger control to the days of GE/Honeywell.
Conglomerate merger
The acquisition would have combined Booking.com’s online travel agency (OTA) activities in accommodation with the flight OTA business of eTraveli. This is a conglomerate merger, combining two firms providing complementary products to partially overlapping customer bases. As such, the transaction falls squarely within the framework for analysis set out in the Commission’s non-horizontal merger guidelines. This framework acknowledges that conglomerate mergers tend to be benign or pro-competitive other than where they harm consumers through anti-competitive foreclosure. Given this scope for consumer benefits, a robust case for intervention requires careful analysis of a conglomerate merger’s impact on competition.
In the case of Booking/eTraveli, the competition concern was non-standard. The issue was not the prospect of leveraging from accommodation OTA, where Booking.com holds a leading position, to foreclose rival providers of flight OTA services but rather the reverse: whether eTraveli’s relatively modest position in flight OTA could be leveraged to strengthen Booking.com’s position in accommodation OTA.
It is notable that the UK Competition and Markets Authority (the CMA) considered the same theory of harm, clearing the transaction in Phase 1 in September 2022 on the grounds that any potential accommodation OTA growth post-merger would not represent a lessening of competition. In contrast, the Commission appears to have taken the position that any potential expansion of Booking.com’s accommodation OTA business would amount to a strengthening of a dominant position and thereby constitute a significant impediment to effective competition. While the Commission characterised this as an ecosystem concern, the CMA identified the same potential ecosystem issues but, in very similar circumstances, found they were not supported by the market evidence.
Implications
The Commission’s approach to this case raises two important concerns. First, in departing from the non-horizontal merger guidelines it suggests a very low bar for intervening against conglomerate concerns where one party may be deemed to have a dominant position. Second, and relatedly, it potentially marks a return of the “efficiency offence” concept. This describes theories of harm that seek to justify intervention where the cause of growth for a leading player is offering better products, as opposed to foreclosing rivals. If so, this would be disappointing: competition authorities should encourage, rather than discourage, pro-consumer efficiencies and product improvements, even if they place increased competitive pressure on rivals.
Recent cases such as Google/Fitbit and Microsoft/Activision have demonstrated that non-horizontal mergers in the digital sphere can be assessed within the economic frameworks espoused in merger guidelines. Moreover, while digital and dynamic markets can raise difficult issues not seen in more traditional industries, this places more, not less, emphasis on the need for identifying and rigorously testing a clear and coherent theory of harm. The complexity of the modern economy does not justify abandoning careful analysis for structural presumptions unsupported by a proper assessment of competitive effects.
RBB's team, led by Daniel Gore
Daniel GorePartner and supported by Paul Stoddart
Paul StoddartPrincipal and Mihael Raveggi
Mihael RaveggiAssociate Principal, advised Booking Holdings throughout the UK and EU merger notifications.
