On February 25, 1992, the Swiss company Nestlé ( active in many sectors of
nutrition) notified to EEC Commission a public bid for 100% shares of Perrier
SA a French company which is mainly active in the manufacture and distribution
of bottled waters, in order to get the authorization foreseen by the Council
Regulation No 4064/89 relative to the control of concentrations between
Article 2 (3) of the Merger Regulation stipulates: A concentration which creates
or strengthens a dominant position as a result of which effective competition .
would be significantly impeded in the common market or in a substantial part of
it shall be declared incompatible with the common market . Which are the affected markets?
Relevant product market the relevant product market is that of bottled source
water Nestlé has submitted in its notification that there is no separate market for
bottled source water, and that the relevant market to asses the proposed
concentration should be that of nonalcoholic refreshment beverages , including both
bottled source water and soft drinks.
Three main factors indicate that it cannot be reasonably expected that an appreciable
nontransitory increase in the price of source waters compared with that of soft
drinks would lead to a significant shift of demand from source waters to soft
drinks for reasons of price only:
– Substantial price difference in absolute terms between bottled water and soft
drinks (still mineral watersbetween FF 2,49 and 2,56 and soft drinksbetween FF
6,1 and 9,4
– The reduction in real prices of soft drinks contrasts with the evolution of real
prices for mineral waters.
– Real price correlation among soft drinks marketed by different companies is
often positive and relatively high, among different brands of waters ranges
between a minimum of 0,85 and1, between each soft drink and bottled water is in
most cases negative, or when positive, very low.
The third major supplier on the French source water market is BSNWhich are the affected markets?
Relevant geographic market the French market. Nestlé has argued that if excessive prices
were to be applied in the French market, parallel imports into France would develop. The mere
threat of parallel imports would put at risk any dominant position in the French market according
The Commission concludes that the relevant geographic market is France because:
• Bottled source water is a relatively inexpensive and bulky merchandise with a high impact of
transport costs. It is not likely that a parallel importer could move throughout the various
Member States the large volumes required to earn significant revenue and profits.
• There are strong barriers to entry into the French market of bottled source water.
mineral and spring waters have to be bottled at the source and therefore can be produced only at
one specific location.
transport cost disadvantage to export to Franceabsence of imports
the French market is a mature market in terms of the number of brands and range of products
the French water market is characterized by the predominance of brands. The combined
advertising budget of the three national French suppliers Nestlé, Perrier and BSN amounted to
over FF 680 million in 1991.
the high degree of concentration in the French source water market, with three companies holding
82 % of the market share by value, constitutes an additional barrier to entry and increases the
risks associated with new entry
consumers in general return to the wellknown national brands in the short or medium termCOMPATIBILITY WITH THE COMMON MARKET
Market shares NILkindicator of market power
Capacities and portfolio of sources distribution of capacities,collusion
Competition from local water suppliers
Impact on the maintenance or development of effective competitionMarket shares
• The market shares in value terms better reflect the real market
strength than the market shares in volume because the French water
market is composed of two categories of products which are very different in
terms of price the nationally distributed mineral waters and the local waters,
which are mainly spring waters (gap between FF 1,24 and 1,30).
• The market shares in value provided by Nestl é show that the three
national suppliers hold a market share of 82,3% of the total French
bottled water market and that the local suppliers have a market share
of only 17,7 %.
• Market shares (in terms of volume) in French bottled water market at the
time of merger
Nestlé 17,1% (900 mln liters)
Perrier 35,9 % (1.885 mln liters)
BSN 23 % (1.207 mln liters)
Others 24 % (1.258 mln liters)
Total annual volume of French bottled water market 5.25 bln litersEconometric analyze of market power
level of oligopolistic equilibrium on the market.
• HerfindahlHirschman Indexindex of concentration, used by
antitrust policy of USA, is a measure of the size of firms in
relationship to the industry and an indicator of the amount of
competition among them.. Decreases in the Herfindahl index
generally indicate a loss of pricing power and an increase in
competition, whereas increases imply the opposite.
• The new indicator LindaNILk, (indicators of market power on
monoduoand oligopolistic markets.)developed by R.Linda,
taking into account the new antitrust policy of the Commission and
the regulation 4064/89 –and reflect the degree of disequilibrium
between the first 2,3,4… enterprises which dominate the market.Econometric indicators
I. Herfindahl HHI=(x1. 100)²+(x2.100)²+(x3.100)²= 2306
HHI<1000non concentrated market structure
HHI>1800very rated, non authorized merger
II. The indicator NILk
fC=C3=x1+x2+x3=78% ratio of concentration
2L=x1 / x2 =170% 3L= (x1 / x2+x3 / 2 + x1+x2 / 2 / x3):2= 197%
NIL2=(C3. 100)²/10 . 2L=1034
NIL3 =(C3. 100) ²/10 . 3L=1199
French market Cumulative Individual Linda
of mineral concentration parts indicators2L, 3L
water X1, X2, X3C3 NIL2, NIL3
BSN 78% 23% 2L=170% NIL2=1034
Nestlé 16% 3L=197% NIL3=1199The indicator NILk
NIL3 < 500 : relatively equilibrated oligopolistic structure, probably compatible
with European antitrust norms.
500 ≤ NIL3 ≤1000 : relatively disequilibrated and concentrated oligopolistic
structure, require the examination of the Commission before to authorize the
1000< NIL3 <3000 : oligopolistic structure very close to duomonopolization,
probably incompatible with regulation 4064/89.
NIL3 >3000 : oligopolistic structure incompatible with the regulation.
This analyze proves the existence of a dominant position (NIL3 >1000),
tending to duopolistic structure . Background.
Anticipating European Commission’s argument that the merger would create
a dominant position for the merging parties, Nestl é and Perrier agreed to
transfer Volvic (a major still mineral source of Perrier) to BSN, which would
create a balanced duopoly instead of a dominant firm.
Nestlé+PerrierVolvic = BSN + Volvic = (2 bln liters) 38%
The European Commission tried to expand the scope of EU merger control
Not only against single dominance but also against oligopolistic dominance .
According to the Commission, “ competition had been weak on the bottled
water market even before the merger and it would become even weaker