Counterfactual analysis in merger reviews

The recent Australian Competition and Consumer Commission v Metcash Trading Ltd decision in Australia has left uncertain the correct approach to assessing whether a proposed merger or business acquisition has the likely effect of substantially lessening competition in a market in breach of s 50 of the Australian Competition and Consumer Act 2010 (Cth) or s 47 of the New Zealand Commerce Act 1986. In this article we review the Australian and New Zealand jurisprudence and in summary take the view that assessing whether a merger will result in the likely effect of a substantial lessening of competition in a market requires a consideration of whether there is a real chance, or a real and substantial risk, of such a substantial lessening of competition. part of the assessment of whether there is such a real chance of a substantial lessening of competition is to consider whether in the absence of the proposed merger, there is a real chance of a counterfactual scenario arising under which there would be a materially greater level of competition than if the merger took place. it is not necessary for that purpose to establish that a particular counterfactual scenario is more likely than not to occur or to establish that a substantial lessening of competition is more likely than not to occur. in assessing whether there is a real chance of a counterfactual scenario occurring, the court or regulator should not take account of merely speculative possibilities. however, the court or regulator should not be too ready to dismiss the prospect of a more competitive counterfactual scenario occurring as "speculative" in a situation where the merger participants have a strong incentive to pursue a merger transaction and to argue to the court/regulator that there is no feasible procompetitive alternative to the transaction.