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  • Thomas Cook/Co-operative Group/ Midlands Co-operative merger inquiry A report on the anticipated travel business joint venture between Thomas Cook Group plc, the Co-operative Group Limited and the Midlands Co-operative Society Limited

    16 August 2011

  •  Competition Commission 2011

    Website: www.competition-commission.org.uk

    http://www.competition-commission.org.uk/�

  • Members of the Competition Commission who conducted this inquiry

    Laura Carstensen (Chairman of the Group)

    John Cubbin

    Roger Finbow

    Robin Mason

    Jonathan Whittaker

    Chief Executive and Secretary of the Competition Commission

    David Saunders

    The Competition Commission has excluded from this published version of the final report information which the Inquiry Group considers should be excluded having regard to the three considerations set out in section 244 of the Enterprise Act 2002 (specified

    information: considerations relevant to disclosure). The omissions are indicated by []. Non-sensitive wording is indicated in square brackets. Some numbers have been

    replaced by a range. These are shown in square brackets.

  • 1

    Contents Page

    Summary .............................................................................................................................. 3 Findings ................................................................................................................................ 7 1. The reference .................................................................................................................. 7 2. The companies ................................................................................................................ 7

    Thomas Cook .................................................................................................................. 7 CGL ................................................................................................................................ 8 Midlands ........................................................................................................................ 10

    3. The anticipated joint venture ......................................................................................... 10 Outline of the transaction .............................................................................................. 11 Rationale for the transaction .......................................................................................... 11

    4. Jurisdiction .................................................................................................................... 12 5. Industry background ...................................................................................................... 14

    Overall demand for travel .............................................................................................. 14 The industry structure .................................................................................................... 16

    Holiday distribution .................................................................................................. 17 Tour operations ....................................................................................................... 19 Competitors ............................................................................................................. 20 Buying groups ......................................................................................................... 21

    6. The counterfactual ........................................................................................................ 21 Context.......................................................................................................................... 22 The counterfactual for each of the main parties ............................................................. 22

    Thomas Cook .......................................................................................................... 22 CGL ......................................................................................................................... 23 Midlands .................................................................................................................. 23

    Assessment .................................................................................................................. 24 Analysing the joint venture in the context of the counterfactual ..................................... 24

    7. The relevant markets ..................................................................................................... 25 Product markets for holidays ......................................................................................... 25 Geographic markets for holidays ................................................................................... 28

    8. Theories of harm ........................................................................................................... 29 9. Horizontal theories of harm ........................................................................................... 29

    Introduction ................................................................................................................... 29 Nature of overlap between the joint venture parties ....................................................... 30 Analyses ....................................................................................................................... 31 Customer survey ........................................................................................................... 33 Local effects .................................................................................................................. 35

    Documentary evidence and parties’ submissions .................................................... 35 Customer survey results and aspects of the main parties’ submissions relevant to

    the rivalry between stores and the Internet ............................................................ 36 Third party evidence on rivalry between travel agencies .......................................... 37 Effects of local competitive factors on the main parties’ retail offer .......................... 37 Use of margins and diversion ratios ......................................................................... 41 Assessment ............................................................................................................. 44

    National or regional effects ............................................................................................ 48 National effects ........................................................................................................ 49 Regional effects ....................................................................................................... 52

    Competitive effects due to the main parties’ increased buyer power ............................. 53 10. Vertical theories of harm ............................................................................................... 54

    Customer foreclosure .................................................................................................... 55 Introduction ............................................................................................................. 55 The main parties’ view ............................................................................................. 56 Incentive for total customer foreclosure ................................................................... 57 Incentive for partial customer foreclosure ................................................................ 57

  • 2

    Comparison of incentives for total and partial foreclosure ........................................ 58 Ability to foreclose ................................................................................................... 59 Effect of customer foreclosure ................................................................................. 61 Cruise holidays ........................................................................................................ 62 Example from MyTravel merger ............................................................................... 62 Conclusion on customer foreclosure ........................................................................ 63

    Input foreclosure ........................................................................................................... 63 Total input foreclosure ............................................................................................. 64 Partial input foreclosure ........................................................................................... 64 The main parties’ view ............................................................................................. 64 Incentive for total input foreclosure .......................................................................... 65 Incentive for partial input foreclosure ....................................................................... 66 Merger-specific incentives for input foreclosure ....................................................... 68 Conclusion on incentive to foreclose ....................................................................... 70

    Ability to foreclose .....................................................................................................