Sponsored Entry

Some mergers materially reduce the choice of suppliers available to customers. When this happens, how much weight should competition authorities give to the potential for customers to sponsor new entry? Two recent cases investigated by the UK Competition Commission (CC) give an insight into the circumstances in which sponsored entry arguments are likely to be successful. In one case, it was concluded that the threat of customers sponsoring a new entrant was so potent that the merged firm would have no incentive to raise prices. In the other, customers were found to have shifted significant volumes to alternative suppliers following a completed transaction which raised substantial competition concerns. The CC cleared both deals without conditions.