State of play coming up to eightteen months in force
REASONS, CONTRIBUTION AND OBJECTIVES
Roughly eighteen months ago, on June 14, 2021, Law 31112 came into force, which introduced merger control definitively in Peru, applicable across all the country's sectors of economic activity and markets; because until then it only existed for the electricity industry.
The Peruvian merger control regime is led by INDECOPI, and the components of its regulatory framework are Law 31112 and its Regulations, approved by Supreme Decree 039-2021-PCM, as well as the Guidelines for Calculating the Notification Thresholds and others that the Antitrust Commission will continue issuing to provide better guidance to users.
The Spanish Chamber of Commerce, in conjunction with Garrigues, has drawn up this executive report to provide a straightforward and user-friendly description of the regime and of the state of play after its first steps.
WHAT ARE THE OVERALL OBJECTIVES OF MERGER CONTROL?
Although a large majority of mergers between businesses usually take place to achieve business growth and have positive effects on the economy, it is also a fact that these types of transactions can sometimes affect the efficiency of the markets if they have the effect of reducing competition significantly.
The easiest way to understand this last option is to imagine a scenario in which a market has only two competitors, A and B. A merger between these companies could create company C which would have a monopoly.
Naturally, a company which obtains a monopoly or acquires a significant size in the market, as a result of a merger, may have the ability, and the incentives, to increase its prices, reduce its production volume or even cease to feel market pressure to improve its services, introduce innovations or new varieties of products or services.
This all has an adverse effect on the efficient functioning of the market and may be harmful to consumer wellbeing.
A merger control regime allows an authority to assess certain economically large-scale transactions, to determine whether they are expected to generate a significant restrictive effect on competition, principally due to acquisition of, or increase in, dominant power in the market of the companies involved.
MERGER CONTROL AND ANTICOMPETITIVE PRACTICES CONTROL: SUPPLEMENTARY TOOLS
What is the point of having merger control if anticompetitive practices control already exists?
In Peru anticompetitive practices control is governed by Legislative Decree 1034, the Law on Containment of Anticompetitive Practices, which is aimed at preventing business strategies that could generate adverse effects on competition and the end consumer, along with levying penalties on business players who become involved in them.
The targeted practices mainly fall into either of two types: a) collusive practices, and b) abuse of a dominant position.
Collusive practices are widely known as concerted practices or cartels, which can either occur between direct competitors (horizontal collusion), or between players at different stages of the chain (vertical collusion). The most serious and damaging types of collusion are agreements to fix prices, limit production, or allocate customers or territories, or engaging in collusive tendering.
In relation to abuse of dominant position, in Peru the law only targets practices by companies with dominant positions which are able to block the entry of new competitors or shut them out of the market (exclusionary effects),although it does not target the exercise of market power, meaning a company’s ability to materially increase its prices above its costs (exploitative effects).
Merger control allows the antitrust authority to assess whether following the merger, prices could rise due to weaker competitive dynamics, or whether the merger might be expected to create scenarios in which companies may develop strategies that will affect competition. In other words, merger control can prevent the unilateral exercise of market power, something that anticompetitive practices control cannot do.
For that reason, it is widely accepted that merger control (control of structures), which implies an ex ante assessment exercise, is supplementary to anti-competitive practices control, a tool that is used ex post, when the practice has already occurred.
WHAT DOES PERU’S MERGER CONTROL REGIME SEEK TO ACHIEVE?
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See also "Approval of the Guidelines for the Qualification and Analysis of Business merger Transactions" (SNI, February 2023, in Spanish)
Source:
This document was prepared with the participation of members of the Antitrust, Economic Regulation and Intellectual Property Department at the Garrigues office in Peru: Ivo Gagliuffi and Javier Coronado, project leaders, along with María Isabel Alvarado, Regina de la Cruz, Eduardo Ubaldo, Andrea Ho and Marcello Otárola. It was also reviewed by, and received contributions and validation from, the Official Chamber of Commerce of Spain in Peru.