Turning now to the particular question of remedies in collective dominance cases, the competition concern that has to be dealt with is the likelihood that the structural change brought about by a merger will lead to coordinated behaviour - tacit collusion - by a group of oligopolists, or to more effective such coordination. As discussed at length in Section 2, several necessary conditions have to be met for a tacit collusion mechanism to be implemented and maintained over time. The effects of this coordination in the market can be similar to a single entity acting as a monopolist but in this case the problems arise if the conditions in the market are favourable to coordination. The merger might make coordination more likely but the anti-trust authority will generally not be able to change the conditions in the market. Examples of such unchangeable conditions include the nature of the products, cost structures of firms and the growth and stability of demand.
It was pointed out earlier that the difficulty of dealing with tacit collusion ex-post might justify a tighter ex-ante control of mergers that are likely to result in tacit collusion. Given certain unchangeable market conditions favourable to tacit collusion, the question arises whether the remedy will be able to restore the status quo ante or if it might even improve the status quo ante, for example making the market more competitive by encouraging the entry of a maverick firm. The objective that a remedy should ensure that competition will be at least as effective as before the merger implies that a structural remedy involving divestment will invariably be the most appropriate remedy. As said earlier, the full divestiture of an on-going business is more likely to restore effective competition than a partial divestiture of assets. In certain cases, partial divestment might be the more practical remedy, however.
As in any dominance case, finding a suitable buyer for the divested assets can prove difficult. In collective dominance cases this problem is even more acute. The competition concern arises from the behaviour of the remaining competitors in addition to that of the merger parties. Divestment to one of the other oligopolists has the risk that the purchaser will be content to coordinate his behaviour with that of the other few firms in the market. Therefore an outside buyer seems more desirable. However, in a tight oligopoly with substantial entry barriers – the case in which collective dominance concerns are likely to arise – there might not be an outside party willing or capable of entering the market.
Even if there is a suitable outside buyer, the remedy could be ineffective if the buyer finds it more profitable to “join the club” and coordinate with the existing firms. The chances of that happening decrease with the dissimilarity of the buyer but the more of an outsider the buyer is, the more likely the divestment will fail. Evidence of a higher probability of failure if the buyer has insufficient expertise in the market was found in the FTC study.225 Hence, there is a trade off between the success of the divested business in terms of an on-going and profitable operation and the likelihood of coordination between the entrant and the other firms.
If it is not feasible to divest an on-going business, authorities have the option of remedies designed to encourage entry instead. The divestment of selected assets in combination with
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various other remedies such as licensing or granting access to essential facilities could induce entry by a new firm or aid the expansion of a smaller competitor. In a market conducive to tacit collusion, however, it could prove even more difficult than in the case of single dominance to find an entrant who will not cooperate with the incumbents. Entry into the tight oligopoly would clearly be a risky venture and the entrant could be more vulnerable to predatory behaviour if it is not a large player itself. Instead of establishing itself as an effective competitor and facing potential aggressive behaviour from incumbents, the entrant might seek to coordinate with the incumbents. In addition to strategic reasons for cooperation, there is the risk of a continuing relationship between the merger parties and the purchaser of the divested business or assets due to business related requirements. The more the purchaser depends upon the parties for inputs or know-how to run his business, the less likely that business is to emerge as a truly separate competitive force.226 This point is particularly significant in collective dominance cases where the danger is that the attraction of coordinated, rather than genuinely competitive, conduct will survive any remedies, even divestment, that may be put in place.
Despite these potential problems from continuing coordination, it could still be argued that in the case of divesture to a purchaser that is significantly different from the incumbent group, the new firm could act as a maverick and could destabilise a previously collusive equilibrium in the market. In such a situation, the remedy might even be able to improve the competitiveness of the market compared to the situation before the merger. However, even though this is a possible outcome, it seems achievable only under exceptional circumstances.
Another problem in finding an effective remedy in collective dominance cases is that the divestment process itself may serve to reinforce the oligopolistic tendencies in a market. If the parties to a merger reason that the authorities will accept a divestment commitment of some kind as a remedy for their competition concerns, there will be discussions at some stage, up-front or after a conditional clearance decision has been reached, with potential purchasers where a good deal of useful business information and intelligence will be shared. It is hard to avoid the conclusion that the firms involved may be more likely to look for ways of continuing some kind of cooperation after the event of divestment rather than opting to engage in aggressive competition. Some forms of remedies might make the market conditions even more favourable to coordination. For example divestments involving supply agreements or sharing of essential facilities establish structural links between firms which, as pointed out earlier, makes collusion more likely. Furthermore, divestiture leads to a redistribution of assets which might produce an industry where firms have more symmetrical positions - this too could make collusion more easily sustainable. On the other hand, as part of the conditions for the approval of the merger, it may be possible to obtain commitments that would strike down some features of the market that facilitate coordination; possibilities would include any structural links such as minority shareholdings in competitors, cross-licensing agreements or participation in joint ventures, and information sharing agreements.
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The FTC study found evidence that continuing relationships between buyers and sellers of divested assets reduces the probability of success of the remedy. First, this can be due to harmful strategic actions of the seller that are hindering the buyer to establish
Remedies that are directed at coordinated behaviour itself are quite unlikely to be effective. It is as impracticable to require firms not to take account of their interdependence in their decision making after a merger as it is in any other situation. It is true that such behavioural remedies as price caps can be contemplated as a way of reducing the welfare loss from the exercise of market power, whether collectively or individually. A price cap on the merger parties may well constrain the general level of prices in the market. But price caps do nothing to deal with the underlying structural problem and are more a short-term palliative than a long-term remedy. They have been used by the UK authorities but only in the case of a completed merger where the conclusion was that divestment would be too draconian a remedy for the perceived adverse effects of the merger. Clearly, there are no easy answers to the question of what would be an effective remedy in collective dominance cases.