The Italian Competition Authority opens a Phase II merger control investigation into a joint venture in the publishing sector

By the decision made on 22 October 2014 the Italian Competition Authority (ICA) has opened a Phase II merger control investigation into a joint venture agreement concluded by two major Italian publishers, Messaggerie and Feltrinelli (Case C-7222, Emmelibri/Effe 2005). By the planned joint venture Messaggerie and Feltrinelli intended to put in common their book distribution businesses. Pursuant to Article 5 of the Italian Competition Act, the ICA qualified the notified transaction as a full function joint venture and, accordingly, its competition impact had to assessed under the merger control regime.

Messaggerie and Feltrinelli were vertically integrated firms that traded in the downstream book publishing market and in the upstream book retailing markets. For this reason the ICA found that the relevant markets affected by the proposed concentration were not only the joint venture market for books distribution but also the above referred downstream and upstream markets.

The ICA took the view that the concentration was likely to result in the creation of a dominant position in the market for the book distribution, having negative horizontal and vertical effects on competition. The ICA concerns on the anticompetitive horizontal effects were based on Messaggerie and Feltrinelli being the next competitors in the market for the provision of book distribution services to non integrated publishers and booksellers. The parties jointly held 55-60% of this segment of book distribution market and their collective market shares were much higher than those of their competitors. What the ICA feared was that with the implementation of the concentration the parties, which were the two major providers of book distribution services to outsiders, would come together. As a result, the entity resulting from the concentration might increase prices and impose worse economic conditions on customers. Publishers and booksellers might not shift to other providers. Indeed, no current or potential competitors would not constitute reliable alternatives to Messaggerie and Feltrinelli.

In addition, the ICA believed that the concentration might have unilateral restrictive effects on competition in the shape of the risk of foreclosing non integrated small publishers and booksellers. Such risk might arise because of the high market shares of the parties in the joint venture market and also due to the fact the parties were vertically integrated groups operating in upstream and downstream markets of book publishing and retailing.

Finally, the ICA took into consideration the defensive argument submitted by the parties that the on line distribution channels could exert a reliable competition pressure on joint venture. The extent to which on line players could effectively compete with the parties, however, depended on whether exclusivity clauses are inserted in book distribution agreements. The ICA believed that such clauses are very often relied on by book distributors. Had it be the case, Messaggerie and Feltrinelli would have the exclusive rights to resell books to on line players as well. And the latter could not constitute a valid alternative to the joint venture.