Joint ventures can have many different objectives, and have different implications for competition. Telecommunications joint ventures raise three broad types of competition concern:
- The potential for collusion among the parties in the joint venture,
- A loss of potential competition, and
- The potential for market exclusion and access discrimination.
Joint ventures with the purpose of fixing prices, restricting output, or allocating markets between firms reduce competition, and generally should not be permitted. Regulators or competition authorities should consider whether the joint venture will increase market power sufficiently to cause a substantial lessening of competition. Will the joint venture lead to an increase in prices or a reduction in output?
Box 2.14: Collusion in Spain and Portugal
The EU prohibits agreements and concerted practices which may affect trade and have as their object or effect the prevention or restriction of competition (Article 101) – in Europe. Telefónica and Portugal Telecom concluded a co-operation agreement in 1997 concerning markets outside the EU, which was notified to the Commission at the time.
In 2010, Telefónica acquired of sole control over the Brazilian mobile operator Vivo from Portugal Telecom. That agreement suggests that Telefónica and Portugal Telecom will not compete with each other in their respective home markets. The Commission has a copy of the agreement and of the non-compete clause, which runs from September 2010 to the end of 2011.
In January 2011, the European Commission opened an investigation into this agreement including the scope and effects of the co-operation between the parties in Spain and Portugal prior to the 2010 Vivo transaction.
Although the parties ended their non-compete agreement in February 2011, the Commission said on 25th October 2011 that is was pursuing the fact that such an agreement had been made.
Source: EU Commission, Press Release, 24 January 2011 http://europa.eu/rapid/pressReleasesAction.do?reference=IP/11/58&format=HTML&aged=0&language=EN&guiLanguage=en
In some cases joint ventures include an agreement for the parties to acquire assets or voting rights in their respective firms. This type of arrangement is more durable than a conventional joint venture, and so requires additional scrutiny. The investigation should consider factors such as:
- The level of competition in the relevant market
- The number and power of competitors in the relevant market,
- The market power of the parties in the joint venture,
- The background of, and the relationship among, the parties in the joint venture,
- The setting in which the joint venture was created,
- The relationship between the lines of commerce of the joint venture and of the individual parties in the joint venture.
Ultimately, regardless of the benefits they produce for the collaborating parties, joint ventures must deliver consumer benefits and limited (in both duration and scope) integration in order to enhance the public interest.