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English Welsh & Scottish Railway Holdings Ltd (“EWS”)/ Marcroft Holdings Ltd. Adam Land Director of Remedies and Business Analysis Usual disclaimer: Personal views, not to be taken to indicate Competition Commission endorsement. The acquirer. EWS

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English welsh scottish railway holdings ltd ews marcroft holdings ltd l.jpg

English Welsh & Scottish Railway Holdings Ltd (“EWS”)/ Marcroft Holdings Ltd

Adam Land

Director of Remedies and Business Analysis

Usual disclaimer: Personal views, not to be taken to indicate Competition Commission endorsement

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The acquirer Marcroft Holdings Ltd

  • EWS

  • Largest provider of rail freight haulage in Great Britain (market share ~ 70%).

  • Turnover 2005: £497.5m, profit before tax £35m

  • Carries out own in-house freight wagon maintenance

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The acquired Marcroft Holdings Ltd

  • Marcroft Engineering Limited

  • Largest provider of wagon maintenance services to third parties in Great Britain.

  • Turnover 2004 £12.7 million, loss before tax £1.5 million

  • Specialist maintainer of wagons: no haulage business, no passenger coach maintenance

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A customer of Marcroft Holdings Ltd


  • Freightliner

  • Second largest rail haulage company after EWS

  • Created by privatisation of BR container business, entered heavy haul market in 2005

  • Carried out some of its own maintenance, but all heavy haul maintenance contracted to Marcroft.

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The merger Marcroft Holdings Ltd

  • Agreement for EWS to acquire Marcroft announced 4 November 2005, merger completed on 1 February 2006

  • OFT referred the merger to the CC on 6 February 2006;

  • Interim undertakings accepted by CC on 13 March 2006 to prevent further integration.

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Market structure, including self-supply Marcroft Holdings Ltd





Maintenance services

Haulage services


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Market definition Marcroft Holdings Ltd

  • Product market: Wagon maintenance services

  • Geographic market: Great Britain

  • Is self-supply in the same market as third-party?

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The significance of self-supply for market shares Marcroft Holdings Ltd


Source: EWS figures for light in-field maintenance quoted in CC Report page 10

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Should self-supply be in the market? Marcroft Holdings Ltd

  • Yes:

    • EWS already supplies some 3rd party maintenance. Could it do more?

    • In-house represents capacity available for potential competition acting as a constraint, even if limited presence in 3rd-party

    • Conceptual argument that ‘bundle’ of maintenance and freight services provides an indirect competitive constraint between EWS self-supply maintenance and 3rd-party maintenance (eg Inderst and Valetti).

  • No:

    • Detailed examination of the activities and future plans for EWS maintenance business

    • Uncompetitive EWS cost structure

    • No evidence of historical effect of EWS in limited number of bids

    • Capacity and indirect arguments regarded as “speculative”

  • CC concluded that self-supply was not in the market

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Little horizontal effect in 3 Marcroft Holdings Ltdrd party maintenance


Other 3rd party




Other 3rd party


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Marcroft Marcroft Holdings Ltd



Other 3rd party


…but possible vertical effect arises

3rd-party maintenance services

Haulage services

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Theory of harm: raising rivals’ costs Marcroft Holdings Ltd

  • From Church report. A vertical merger:

  • Eliminates double marginalisation

  • But creates an incentive to supply less upstream

  • Complete foreclosure possible (if commitment credible) if gains downstream exceed losses upstream

  • Downstream rivals have incentive to counter-merge

  • Welfare effects depend on credibility of foreclosure, and the impact of double marginalisation

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Application of RRC theory to this case Marcroft Holdings Ltd

  • EWS ~70% market share in downstream haulage market, vertically integrates with Marcroft ~60% market share in upstream 3rd-party maintenance market

  • No elimination of double marginalisation. 3rd-party maintenance market is solely used by EWS’s competitors, and EWS is already vertically integrated pre-merger

  • Incentive for EWS/Marcroft to reduce service quality or increases price to rivals. This would strengthen EWS position in downstream haulage markets.

  • Alternative supply available to downstream competitors only at higher prices or lower quality. Also risk of alternative supplier acquiring market power as ‘residual monopolist’

  • Benefits of softer competition in £800m haulage market seem likely to exceed losses in smaller maintenance market. But no formal modeling.

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Conclusions on vertical theory of harm Marcroft Holdings Ltd

  • EWS already had market power in rail haulage (supported after report by finding of abuse of dominant position)

  • Merged entity would have market power in 3rd party maintenance

  • Cost/benefit trade-off of foreclosure was good for EWS/Marcroft: reduced quality significantly diminishes competition downstream for little financial loss upstream

  • No benefit from elimination of double-marginalisation

  • CC considered that competition law (eg Article 82 EC) would make it less likely that EWS/Marcroft would foreclose, but not so much as to overcome incentive and ability

  • Substantial Lessening of Competition finding, leading to remedies

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Remedies Marcroft Holdings Ltd

  • Behavioural remedies

    • Offered but not considered effective

    • How could you prevent a fall in service quality?

  • Structural remedies

    • No need to divest workshop

    • Full divestment of outstation business would be effective;

    • Partial divestment of outstation business could also be effective.

  • Challenges for partial divestment

    • Purchaser risks (eg competition problems, capability)

    • Composition risk (is a viable business being sold?)

  • A partial divestment was (eventually) made to Davis, a small competitor in 3rd party maintenance

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Reflections Marcroft Holdings Ltd

  • Role of market definition in framing theories of harm:

    • If narrow 3rd party maintenance market, concerns about vertical Raising Rivals Costs theory

    • If wider maintenance market, potential concerns about horizontal concentration

  • Indirect constraint argument – when should it apply?

  • Vertical theories difficult for non-economist decision-makers and advisors (Church report = 382 pages)

  • Vertical theories of harm can create requirements for assessment of other markets (eg haulage)

  • Challenges of remedying completed mergers