English welsh scottish railway holdings ltd ews marcroft holdings ltd
Download
1 / 19

English Welsh Scottish Railway Holdings Ltd EWS - PowerPoint PPT Presentation


  • 176 Views
  • Uploaded on

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

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'English Welsh Scottish Railway Holdings Ltd EWS ' - essien


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
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


Slide2 l.jpg

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


Slide3 l.jpg

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


Slide4 l.jpg

A customer of Marcroft Holdings Ltd

Marcroft

  • 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.





Slide8 l.jpg

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.


Market structure including self supply l.jpg
Market structure, including self-supply Marcroft Holdings Ltd

Marcroft

Other

3rd

party

Maintenance services

Haulage services

End-customers


Market definition l.jpg
Market definition Marcroft Holdings Ltd

  • Product market: Wagon maintenance services

  • Geographic market: Great Britain

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


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

Post-merger

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


Should self supply be in the market l.jpg
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


Little horizontal effect in 3 rd party maintenance l.jpg
Little horizontal effect in 3 Marcroft Holdings Ltdrd party maintenance

Marcroft

Other 3rd party

maintenance

Pre-merger

Post-merger

Other 3rd party

maintenance


But possible vertical effect arises l.jpg

Marcroft Marcroft Holdings Ltd

Other

maint

Other 3rd party

maintenance

…but possible vertical effect arises

3rd-party maintenance services

Haulage services


Theory of harm raising rivals costs l.jpg
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


Application of rrc theory to this case l.jpg
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.


Conclusions on vertical theory of harm l.jpg
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


Remedies l.jpg
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


Reflections l.jpg
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


ad