Under what conditions are just two firms sufficient for vigorous competition? Sweden’s highest competition court, the Patent and Market Court of Appeal (PMÖD), recently offered an answer – clearing a 3-to-2 merger between dose dispensing market leader Apotekstjänst and Svensk dos. The ruling overturned earlier decisions by the Swedish Competition Authority (the SCA) and the Patent and Market Court (the PMD), which had blocked the merger.
The PMÖD’s reasoning rested on economics. It found that procurement in Sweden’s dose dispensing market involves lumpy, winner-takes-all contracts, with competition starting afresh at each re-tender. In such markets, rivalry can remain fierce even with only two active bidders. The evidence supported that conclusion. Pre-merger rivalry was intense. Incumbents typically did not win re-tenders; capacity could be expanded quickly; and entry remained a credible threat. The result was a market that already behaved much like textbook price competition with undifferentiated products, such that even after the merger, competitive outcomes could be expected (as the highest court found).
This Brief explains the underlying theory and evidence which led to this 3-to-2 merger ultimately being cleared.
