Antitrust Commission rejects acquisition in the gas station market

1.    Background

The National Commission for the Defence of Competition (the “Commission”) explained that the gas station, the target of the operation, was engaged in the commercialization of gasoline, diesel gasoline and compressed natural gas (Gas Natural Comprimido, “GNC”). Each one of these products was considered as an individual relevant market.

The Commission argued that the geographical relevant market should be defined according to the influence of the gas station, and taking into account the distance that the consumers were willing to travel in order to obtain the products. Following previous decisions, the Commission considered that the geographical market included the gas stations located within a range of 1500 meters from the gas station in question.

The Commission understood that in the cases of gasoline and diesel gasoline, although the increase of YPF’s market share would be low, the notified acquisition would amount to the elimination of an effective competitor in the relevant market. In the case of GNC, the Commission found that the levels of concentration reached as a consequence of the acquisition were too high from an antitrust point of view.

In order to define GNC as a unique relevant market, the Commission explained that GNC was an alternative considerably less expensive than gasoline and diesel gasoline, even considering the cost of the conversion that has to be made to a vehicle in order to adapt it. The Commission stated that, given the current price of gasoline and diesel gasoline, it would be profitable for a hypothetical monopolist to increase the price of GNC, since such a monopolist would not have to deal with a movement in the demand for gasoline or fuel gasoline.

It should be pointed out that sucha price difference between gasoline, diesel gasoline and GNC is a consequence of a differential tax treatment granted by the regulations in force.

Furthermore, the Commission considered that there were a number of obstacles and high barriers to entry into the GNC market and it stated that it was not likely that new competitors could enter.

Finally, the Commission explained that the transaction did not show foreseeable efficiency gains capable of sufficiently challenging the probability of an increase in the market power and preventing harm to the general economic interest.

2.    Comment

This is the first time that the Commission has rejected an acquisition of a the going concern of a gas station. The rejection was based on:

(i) the elimination of a competitor in the market;

(ii) the strong market power that the acquirer would have in the GNC market;

(iii) the high barriers to entry into the GNC market; and

(iv) the absence of efficiency profits.

The Commission defined the GNC market as an individual relevant market, basically on account of the price variables.

The decision in this case is surprising as the Commission has not rejected cases for the last 5 years. It clearly demonstrates that the Secretary and the Commission follow a local trend to narrow the definition of the relevant market, even though there were no economic evidences which support their analysis, with the goal of increasing controls on merger and acquisitions, jointly with a tough price control policy.