Case No COMP/M.

1672 –
Volvo/Scania

Only the English text is available and authentic.

REGULATION (EEC) No 4064/89

MERGER PROCEDURE

Article 8(3)
Date: 15/03/2000
 This text is made available for information purposes only and does not constitute an
official publication.

The official text of the decision will be published in the Official Journal of the
European Communities.

Commission Decision

of 14.03.2000

declaring a concentration to be incompatible with the common market

and the functioning of the EEA Agreement

(Case No COMP/M. 1672 Volvo/Scania)

Council Regulation (EEC) No 4064/89

(Only the English text is authentic)

(Text with EEA relevance)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community,

Having regard to the Agreement on the European Economic Area, and in particular Article
57 thereof,

Having regard to Council Regulation (EEC) No 4064/89 of 21 December 1989 on the

control of concentrations between undertakings1, as amended by Regulation (EC) No
1310/972, and in particular Article 8(3) thereof,

1 OJ L 395, 30.12.1989, p. 1; corrected version OJ L 257, 21.9.1990, p. 13.

2 OJ L 180, 9.7.1997, p. 1, corrigendum in OJ L 40, 13.2.1998, p. 17.

Rue de la Loi 200, B-1049 Bruxelles/Wetstraat 200, B-1049 Brussel - Belgium

Telephone: exchange 299.11.11
Telex: COMEU B 21877. Telegraphic address: COMEUR Brussels.
This text is made available for information purposes only and does not constitute an official publication.

Having regard to the Commission Decision of 25 October 1999 to initiate proceedings in

this case,

Having given the undertakings concerned the opportunity to make known their views on the
objections raised by the Commission,

Having regard to the opinion of the Advisory Committee on Concentrations3,

WHEREAS :

1. On 22 September 1999, the Commission received notification of a proposed

concentration pursuant to Article 4 of Council Regulation (EEC) No 4064/89
("Merger Regulation") by which AB Volvo ("Volvo") proposes to acquire control of
the whole of Scania AB ("Scania") by way of purchase of shares, within the meaning
of Article 3(1)(b) of the Merger Regulation.

2. After examining the notification, the Commission concluded that the notified
operation falls within the scope of the Merger Regulation and raises serious doubts
as to its compatibility with the common market, because it could create or
strengthen a dominant position as a result of which effective competition would be
significantly impeded in the common market or in a substantial part of it and in the
territory covered by the EEA Agreement. Therefore, on 25 October 1999, the
Commission decided to initiate proceedings pursuant to Article 6(1)(c) of the
Merger Regulation.

3. On 9 December 1999, the Commission adopted decisions pursuant to Article 11(5)

of the Merger Regulation, because Volvo and Scania had failed to reply with the
period fixed to a request for information relating to their competitive position on the
markets for heavy trucks and buses. They had been asked to supply that information
by 7 December 1999. The parties supplied the requested information on 20
December 1999. Therefore, pursuant to Article 9 of Commission Regulation (EC)
No 447/98 of 1 March 1998 on the notifications, time limits and hearings provided
for in Council Regulation (EEC) No 4064/89 on the control of concentrations
between undertakings4, the time periods referred to in Article 10(1) and (3) of the
Merger Regulation were suspended for a total of 13 days.

I THE PARTIES

4. Volvo is registered in Sweden. Through its shareholdings in companies in the Volvo

group, Volvo is primarily active in the manufacture and sale of trucks, buses,
construction equipment, marine and industrial engines, as well as aerospace
components. Volvo's principal business units include (a) trucks (manufacture of
heavy trucks weighing more than 16 tonnes as well as medium-heavy trucks,
between 7 and 16 tonnes, and a range of related services and financing); (b) buses
(manufacture of buses and bus chassis for city, inter-city, and tourist purposes); (c)

3 OJ C ...,...2000, p....

4 OJ L 61, 2.3.1998, p. 1; corrigendum OJ L 66, 6.3.1998, p. 25.

3
This text is made available for information purposes only and does not constitute an official publication.

marine and industrial engines (through Volvo Penta corporation - a wholly-owned

subsidiary- Volvo develops, manufactures, and markets drive systems for marine
and industrial applications); (d) construction equipment (manufacture and sale of a
variety of construction equipment); (e) aero (development, production and
maintenance of military aircraft, primarily for the Swedish Air Force, as well as
production of components).

5. Scania is a Swedish company that, through its shareholdings of shares in companies

in the Scania group, is mainly active in the manufacture and sale of heavy trucks,
buses, and marine and industrial engines. Scania also holds 50% of Svenska
Volkswagen AB, which imports, markets, and distributes passenger cars and light
commercial vehicles in Sweden. Scania also owns the Swedish passenger car dealer
Din Bil, which accounts for 40% of Svenska Volkswagen's deliveries.

6. On 1 March 1999, Ford Motor Co. signed an agreement to acquire Volvo's

automobile business, which accounted for about 52% of Volvo's total 1997 turnover.
Volvo's decision to sell the automobile division reflects Volvo's determination to
concentrate on its trucks, buses and engines businesses. According to Volvo, the
proposed acquisition is particularly important for Volvo's efforts to compete in
large, emerging markets for heavy trucks and buses in Asia, central Europe, the
former Soviet Republics, and in South America. As a result of the sale of its
automobile business, Volvo's truck business represents 57% of Volvo's turnover, the
bus business approximately 13% and the marine and industrial engines sector
approximately 4%. For Scania, trucks represent 60% of its 1998 total sales revenues,
buses 8%, industrial and marine engines 1%.

7. Volvo has explained that the rationale for the proposed concentration is to support
Volvo's efforts to compete in large, emerging markets for heavy trucks and buses in
Asia, Central Europe, the former Soviet Republics, and in South America.
According to Volvo, substantial investments will be required to take advantage of
opportunities in these regions. Volvo's ability to expand in those emerging markets
is stated to be a critical requirement if it is to operate efficiently and remain
competitive with the world's leading truck and bus manufacturers, and, particularly,
with DaimlerChrysler and the large North American engine producers.

II THE OPERATION AND THE CONCENTRATION

8. The proposed concentration involves the acquisition by Volvo of a controlling stake

in Scania. On 6 August 1999, Volvo reached an agreement to acquire all of Investor
AB's shares in Scania. Concurrently, the Volvo Board of Directors decided to make
a public offer for all remaining shares in Scania.

9. The agreement between Volvo and Investor AB provides that the latter will receive
payment either solely in cash or a combination of cash and newly issued Volvo
shares. Investor AB currently owns 54,061,380 Series A shares and 1,508,693 Series
B shares in Scania. Investor AB will receive a cash payment of SEK 315 per share
for 60% of its holding. For the remaining 40%, Investor AB will receive, at its
discretion, either SEK 315 in cash per share or newly issued shares in Volvo in the
proportion of six Volvo shares for each five Scania shares. If Investor AB chooses to
receive solely a cash payment, it has stated its intention to acquire Volvo shares on
the market for an amount corresponding to 40% of the payment received. Currently,
4
This text is made available for information purposes only and does not constitute an official publication.

Volvo owns 25,290,660 Series A shares and 60,993,759 Series B shares in Scania.
After the acquisition of Investor AB's shares in Scania, Volvo will own 79,352,040
A shares and 62,502,452 B shares in Scania, which corresponds to 77.8% of the
voting rights and 70.9% of the share capital.

10. On the basis of the foregoing, the Commission concludes that the proposed
acquisition, whereby Volvo would acquire sole control over Scania, constitutes a
concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

III COMMUNITY DIMENSION

11. Volvo and Scania had a combined aggregate worldwide turnover in excess of EUR
5,000 million in 1998 (Volvo, EUR 12.9 billion; and Scania, EUR 5.1 billion). Each
of them had a Community-wide turnover in excess of EUR 250 million in 1998
(Volvo, EUR 6.4 billion; and Scania, EUR 3.1 billion), but they do not achieve more
than two-thirds of their aggregate Community-wide turnover within one and the
same Member State. The operation constitutes a co-operation case with the EFTA
Surveillance Authority under Article 57 of the EEA Agreement in conjunction with
Article 2(1)(c) of Protocol 24 to that Agreement.

IV COMPATIBILITY WITH THE COMMON MARKET

12. The proposed operation would affect two main areas: trucks (heavy trucks in
particular) and buses (city buses, inter-city buses and touring coaches). The
investigation has confirmed that the proposed concentration would not lead to the
creation or strengthening of a dominant position in the field of diesel engines
(industrial and marine). Consequently, the markets for diesel engines will not be
further discussed in this decision.

(i) Trucks

A Relevant product market

13. The proposed concentration would create Europe's largest producer of heavy trucks
(over 16 tonnes).

14. The notifying party relies on a previous Commission Decision (Case No IV/M.004
Renault/Volvo) to identify three market segments according to the truck's gross
vehicle weight: the light-duty segment (below 5 tonnes), the medium-duty segment
(5-16 tonnes), and the heavy-duty segment (above 16 tonnes).

Heavy-duty trucks versus medium-duty and light-duty trucks

15. The market investigation carried out by the Commission in this respect broadly
confirms the submission of the notifying party. Indeed, both competitors and
customers have indicated that the distinction in paragraph 14 is correct and
corresponds to the industry standard. In addition, a number of elements suggest that
that distinction is appropriate.

16. The technical configuration of trucks of tonnage lower than 16 tonnes and trucks
above 16 tonnes (the upper range) is very different as regards the key components such
as the type of engine and the number of axles in particular. The technical aspects of the
5
This text is made available for information purposes only and does not constitute an official publication.

upper range are more sophisticated because the requirements of durability (length of
life) and operating costs are greater than for the other ranges. Trucks above 16 tonnes
are vehicles, which are used in transport of considerable weight. The type of transport
can be regional or long distance.

17. In addition, the marketing of trucks is influenced by these technical differences which
are of great importance for the buyer. Therefore, the technical boundary between the
two product groups corresponds to a commercial distinction, which makes it possible
to differentiate between two groups of customers. Upper range trucks are not normally
considered by customers to be interchangeable with or substitutable for trucks
belonging to the intermediate and lower range. The three categories of trucks thus
constitute separate relevant product market.

18. Furthermore, this distinction appears to reflect the fact that different production lines
are used to produce trucks belonging to the different categories and that
manufacturers can concentrate their production on one range with no presence or
with a relatively weaker presence in another range. (For example, as far as Volvo
and Scania are concerned, Volvo has a presence in the segment for trucks between 7
and 16 tonnes, while Scania has no production of trucks falling within this segment.
Neither party produces trucks below 7 tonnes. Both parties are active in respect of
trucks over 16 tonnes).

Heavy-duty trucks (Above 16 tonnes)

Information provided by Volvo in the notification

19. As the proposed transaction more specifically concerns the market segment of trucks
above 16 tonnes, or heavy trucks, the present assessment will, in particular, focus on
this segment of the market.

20. In the notification, Volvo indicated that there are generally two model categories for
heavy trucks: long-haul and regional/local. However, Volvo indicates that chassis
for trucks over 16 tonnes are essentially the same for all models. Differentiation only
occurs in respect of the cab and the body or configuration for specific applications
(for example, cement mixing, city delivery, long haul transport).

21. In addition to these categories, Volvo notes that in Sweden and in Finland, longer
trucks (25.25 metres) with higher maximum load capacities (60 tonnes) are
commonly used. This special type of truck is not normally allowed in other Member
States.

22. The notifying party claims that any major truck manufacturer would be in a position
to easily modify one of its standard models for a specific application (like, for
example, the longer trucks used in Sweden and Finland).

23. On the basis of the foregoing, Volvo therefore concludes that trucks above 16 tonnes
belong to the same relevant product market.

The results of the market investigation

24. The extensive market investigation carried out in this case has shown that the
reality, from the customer's point of view, is quite complex. In particular, the market
6
This text is made available for information purposes only and does not constitute an official publication.

investigation has revealed that, from the customer's point of view, there are a
number of criteria, which are relevant for the choice of a given type of heavy truck
over another.

25. A main distinction in the overall category of "heavy-duty trucks" can be drawn
between the so-called "rigid trucks" on the one hand and "tractor heavy trucks" on
the other. Rigid trucks are integrated trucks, in the sense that they constitute a single
body, from which no semi-trailer can be detached. "Tractor heavy trucks", on the
other hand, are "detachable", in the sense that a semi-trailer is added to the top back
of the cabin. On the basis of their transportation needs and personal preferences, the
customers will choose a tractor or a rigid truck. As a matter of fact, the geographic
location of the customer will strongly influence its choice for a tractor type or a rigid
type of truck. As will be indicated in paragraph 52, customers in the northern part of
Europe typically purchase rigid heavy trucks. There are some indications that from
the point of view of demand, rigids and tractors may not be fully substitutable.
However, this question can be left open, as it does not materially affect the
assessment of the notified concentration.

26. Besides this basic distinction, the market investigation has revealed that there are
three main criteria according to which customers will choose to purchase a certain
heavy truck (applicable to both rigids and tractors). The first criterion relates to the
engine, and in particular, to its power (hp). The power of the engine is important in
view of the weight to be transported and the topography in the geographic area of
intended use. The second criterion is the number of axles of which the truck is
composed: according to the investigation, there is a standard combination of axles
(4X2), which is the most common combination in Europe. Other combinations,
consisting of a higher number of axles (like for example 6X2 and 6X4) are more
customised to meet specific customer preferences, which are, in turn, at least
partially linked to topography and weather considerations. The third criterion relates
to the cabin of the truck, which can be low, high or very high depending on the level
of comfort required.

27. A rather substantial number of options can and will then be chosen by the customer
in relation to its specific needs and the type of transport it is involved in. However,
in general, all heavy truck manufacturers will be able to offer a truck including any
of the key elements which are decisive from the customer's point of view, as well as
from the manufacturer's point of view (for example, when deciding whether to offer
a price for a truck comparable to that offered by a competing manufacturer).

28. Furthermore, in view of specific customers’ requirements and the specific national
regulations applicable, the customer will be in a position, in Sweden and in Finland,
to purchase longer trucks (25.25 metres) with higher maximum load capacities (60
tonnes).

29. From the point of view of supply, it would appear that any major European truck
manufacturer is in a position to offer a complete range of different types of heavy
trucks. To offer specific trucks for certain European areas would certainly represent
a supplementary cost for such manufacturers. The cost would then have to be
compared to the attractiveness of the market under consideration. However, with
specific reference to the question of product market definition, it is considered that
the costs related to switching from the production of one type of heavy truck to
7
This text is made available for information purposes only and does not constitute an official publication.

another would not, per se, be considered substantial. Therefore, it is considered that
the different types of heavy trucks do not constitute separate product markets.

30. On the basis of the foregoing it is therefore concluded that the category of heavy
trucks (more than 16 tonnes) can be considered to be a single relevant product
market, for the purposes of this assessment.

B Relevant geographic market

31. In a previous case5 the Commission indicated that "It is not necessary to determine
whether or not the geographic market for trucks is a Community market or is still
composed of several national markets", as the question was not essential for the
purposes of that specific case. The investigation in this case has focused on Northern
Europe, in particular four Nordic countries, Denmark, Finland, Norway and Sweden,
and Ireland. Since, even on a national market definition, the operation does not lead
to a dominant position in other parts of the Community, it is still not necessary to
determine the exact scope of the geographic market outside the Nordic countries and
Ireland.

32. The investigation has, however, shown that for these five countries the relevant
geographic markets for heavy trucks are still national in scope. The reasons for
reaching this conclusion will be explained below; the starting point will be the
arguments put forward by Volvo in the notification.

Arguments put forward by the notifying party

33. In the notification, Volvo relied on the Commission’s findings in the Renault/Iveco
case6. In that decision, the Commission concluded that the relevant market for
touring buses was the EEA, basically because of the high levels of imports and
exports. The Commission also recognised that purchasers of touring buses are
private operators that are price sensitive and have little regard for considerations of
brand loyalty to national manufacturers7.

34. In the notification, Volvo submitted that the analysis that applies to touring coaches
is equally applicable to heavy trucks. In addition, the parties refer to the following
elements, which they claim to be conclusive in the determination of the relevant
geographic market:

(a) Price levels: according to Volvo, "… price differences between Member States
are not substantial. In particular, with the exception of France, Member State price
level variations for Volvo's heavy trucks, for example, are within a ±10% range"
(see page 39 of the notification).

5 See case No. IV/M.004 - Renault/Volvo, Decision 7 November 1990.

6 See case No. IV/M.1202 - Renault/Iveco, Decision of 22 October 1998.

7 The relevance of this finding for the affected bus markets will be discussed in the section concerning
buses and coaches.

8
This text is made available for information purposes only and does not constitute an official publication.

(b) Manufacturers are already active EEA-wide and imports within the EEA
are increasing: according to Volvo, "… the seven largest heavy truck
manufacturers (DaimlerChrysler, Volvo, Scania, MAN, RVI, Iveco and
DAF/Paccar), which account for approximately 97% of the European market, are
present in almost all Member States and all make substantial export sales. For
Volvo and Scania, sales outside Sweden accounted for 90% and 80% of their total
turnover in 1998 respectively. Imports represented about 30% of sales of heavy
trucks in the Nordic countries. While some manufacturers continue to maintain
relatively large market shares in their home countries, this is largely an historical
phenomenon. Imports are continuing to increase" (see pages 39-40 of the
notification).

(c) The emergence of large, private, trans-border purchasers: according to

Volvo, deregulation in the truck industry has led to a "significant change in
customer profile and purchasing habits. In particular, it has resulted in the
emergence of large, multinational fleet operators such as GPE Lyonnaise and
Geodis/B Montreuil in France and the Netherlands with fleets that number between
5000 and 10000 trucks. Whereas in the past, most of Volvo's customers were small
or medium sized fleet owners, the majority of Volvo's customers are now large
owners having fleets of at least 20to 25 trucks. These large operators are present in
several Member States and many of them either use competitive bids or tenders to
purchase trucks from a central location or take advantage of their knowledge of
prices and competitive conditions in other Member States when negotiating with
distributors" (see page 46 of the notification).

(d) Emergence of Dual Sourcing: Volvo argues that the trend towards large and
multinational customers has also contributed to increasing dual (or multiple)
sourcing. "To ensure independence from any single manufacturer when negotiating
purchases, fleet owners with more than 20 to 25 trucks typically carry at least two
different makes in their fleets" (see page 47 of the notification).

(e) Product Standardisation: According to Volvo, "While in the past, weight and
length restrictions presented barriers to the development of EC-wide truck models,
the process of harmonisation that began in 1985 with Council Directive 85/3/EEC
and most recently included Council Directive 96/53/EC has led to a situation
whereby the same basic truck in terms of weight and dimensions can be sold and
used throughout Europe" (see page 47 of the notification).

(f) Absence of entry barriers for non-domestic producers: according to Volvo,

"While in the past the need to establish dealer and after-sales networks may have
been considered a barrier to entry, it no longer prevents non-domestic truck
manufacturers from competing in a given Member State" (see page 48 of the
notification).

35. In its reply to the Commission's Statement of Objections pursuant to Article 18 of

Regulation (EEC) No 4064/89 (hereinafter "the Reply"), Volvo submits that the
Commission should not base its assessment of the relevant geographic market on
non-price factors which were set out in Volvo's notification, as these are not relevant
to the definition of the relevant geographic market. Instead, Volvo submits that the
decisive factor for defining the relevant geographic market is whether suppliers
actually price discriminate across markets. Volvo has submitted two reports (the
9
This text is made available for information purposes only and does not constitute an official publication.

Lexecon and Neven reports), which, in its view, show that prices for comparable
heavy trucks are within a 5% to 15% band throughout the Community, with the
exception of Sweden, and that there are therefore no significant price differences
between the other Member States.

36. In its Reply Volvo also submits some new evidence relating to parallel trade in
heavy trucks and factors related to the deregulation of the downstream transport
industry which, in Volvo's view, provide further support for its contention of an
EEA (minus Sweden) market for heavy trucks. All of these arguments will be
assessed below.

The Commission's assessment of the relevant geographic market

37. In its Reply, Volvo submits a number of new arguments in support of its contention
as to the scope of the relevant geographic market. Although the Reply seems to
indicate that the company no longer considers the non-price factors indicated in its
notification to be useful for the definition of the geographic market, these factors are
nonetheless assessed, as they constitute useful elements in the overall market
definition assessment. The main change of approach is that Volvo now believes that
the primary focus of the assessment should be on suppliers' ability to price
discriminate across markets. Contrary to the assertion in the Reply, the evidence
available to the Commission shows that Volvo and the other suppliers of heavy
trucks have applied significantly different prices and margins for comparable
products in different Member States. This, as well as the relevant non-price
evidence, which shows that conditions of competition in the heavy truck market
differ from one Member State to the other, is considered in the following
paragraphs.

Price levels differ significantly across Member States

38. Purchasing of heavy trucks is still largely done on a national level, for a number of
reasons. This is reflected by the fact that significant price variations can be
observed even between neighbouring countries. As indicated above, Volvo has
argued both in its notification and in its Reply that price differences between
Member States are not substantial and concludes that there exists an EEA market for
heavy trucks.

39. In the notification, Volvo considered that the insignificance of price differences was
shown by information (on page 122) according to which, with the exception of
France, Member State price level variations for Volvo's heavy trucks would be
within a ±10% range. This information (relating to [a commonly sold Volvo
model]*), however, showed the existence of national price variations as high as
20%. According to the notification, Volvo's price for that model is approximately
[10-20%] higher in Finland than in Denmark, approximately [10-20%] higher in
Sweden than in France, [0-10%] higher in Germany than in the Netherlands, [0-
10%] higher in Germany than in Denmark and [0-10%] higher in the United
Kingdom than in France. If the comparison is made with reference to the [a more

* Parts of this text have been edited to ensure that confidential information is not disclosed; those parts
are enclosed in square brackets.

10
This text is made available for information purposes only and does not constitute an official publication.

commonly sold model in the Nordic countries]), Volvo's price is approximately [10-
20%] lower in Denmark than in Sweden, [10-20%] lower in Denmark than in
Germany and [20-30%] lower in Denmark than in Finland. The notification did not
provide price indications for Norway and Ireland. In the course of the proceedings
the Commission also collected list prices for the most commonly sold models of
heavy trucks for each manufacturer in each Member State. These data largely
confirm the price variations indicated above. Furthermore, they show that Volvo's
prices are significantly lower in Ireland than in the neighbouring United Kingdom.
The indicated prices in 1998 for the most commonly sold rigid and tractor trucks
([….]) were thus more than 40% higher in the United Kingdom than in Ireland.
Whilst transaction prices may differ from list prices, such differences do not support
Volvo's contention that these markets are not national. The mere fact that price lists
differ significantly from country to country is indeed an indication that the
conditions of competition differ and will have the effect of making price
comparisons more difficult for purchasers of heavy trucks. In general, pricing
figures provided by competitors confirm that there are substantial national price
differences going in the same direction as those indicated for Volvo. For example,
none of the competitors indicate a higher price in Denmark than in Germany. On the
contrary, it appears that the indicated prices are normally at least 5% to 10% higher
in Germany. This is consistent with a table contained in Volvo's notification, which
was prepared for internal purposes prior to the transaction and gives actual dealer
net prices adjusted for specifications. The indicated average price is 8% lower in
Denmark than in Germany.

40. Volvo has argued that a price comparison based on the figures provided in the
notification is not meaningful for the definition of geographical markets in this case.
The reason for this is that the indicated price differences are, in Volvo's view, due to
variations in the equipment supplied with the heavy truck and/or the customer
structure (and therefore the purchasing power) in different countries. In its Reply
Volvo therefore stated that price discrimination should be defined as earning
different margins on the sale of the same good to different consumers.

41. In its Reply, Volvo submits, in support of its argument, reports by Lexecon and
Neven, which suggest that with the exception of Sweden, price divergences between
Member States are limited. The methodology used in these studies is to compare the
sales of two of Volvo's heavy truck models (the [a commonly sold model] tractor
and the [a commonly sold model] rigid) across twelve EU countries and Norway8.
The starting point for the comparison was the average net prices charged to dealers
in each country. In the reports, these average net prices are then adjusted for
specification. Following these adjustments, the reports conclude that Volvo's prices
for the tractor model fall within a ±5% band in all countries, except Sweden ([+0-
10%]), France ([-0-10%]) and Norway ([-0-10%]). For the rigid model, the reports
conclude that the adjusted prices fall within a ±6% band in all countries, except
Sweden ([+10-20%]) and Denmark ([-0-10%]). The reports furthermore attempt to
adjust for customer mix which, it is claimed, would lead to a further reduction in the
spread in the order of 2% to 4.2%.

8 In the studies, Greece was omitted owing to the low number of vehicles sold, Luxembourg is included
in Belgium and Ireland is included in the United Kingdom.

11
This text is made available for information purposes only and does not constitute an official publication.

42. On closer examination, the Commission cannot agree that the Lexecon and Neven
reports constitute a reliable source of evidence to support the existence of an EEA
wide market for heavy trucks. The reports rely on average net prices charged to
dealers. Volvo has throughout the investigation questioned the validity of using this
type of data. Furthermore, the adjustments use data from one year only (1998). It is
therefore questionable how much weight can be given to the proposed conclusions
of these reports, especially when several other factors point to national market
definitions.

43. The Commission has examined the data used in the reports and some data, which
were not used in the reports. Based on these data provided by Volvo the
Commission has made its own calculations for some of the truck types that are not
analysed in the Lexecon and Neven reports. Instead of taking averages over different
engine types, as is done in the reports, the Commission made direct comparisons
between the prices for the exact same engine type in various countries while using
the methodology of the reports for correcting for differences in specifications. These
comparisons are given below for the [a commonly sold model], which, of the
models for which data are provided, is the most frequently sold engine in several
countries (Belgium, Finland, France, the Netherlands, Portugal, Sweden and the
United Kingdom). The (adjusted) price is then [10-20%] higher in the United
Kingdom than in France and [10-20%] higher in Belgium than in France. The
(adjusted) price in Sweden is [10-20%] higher than in Denmark, [10-20%] higher
than in Norway and [0-10%] higher than in Finland. The (adjusted) price in Finland
is [10-20%] higher than in Norway and [0-10%] higher than in Denmark. These
large differences in adjusted prices - using the methodology suggested by the reports
- clearly do not support the finding of an EEA-wide geographic market or a regional
geographic market in the Nordic region.

44. The Commission has furthermore examined the corrections for customer mix made
in the reports. It notes that the calculations are based on very limited data,
particularly outside France, and that some of the countries where Volvo claims that
large fleets are present but prices are still relatively high (for instance, the
Netherlands) are not included in the calculations. This could bias the results towards
finding a narrower spread. The reports also seem to favour the hypothesis that fleet
discounts are particularly high in France. This is contradicted by a report from [a
reputable market research company] to Volvo dated January 1999 which stated that
"Analysis on samples in the United Kingdom shows that the average price for a
specific truck type is down [10-20] percent for large customers (fleets owning more
than 30 trucks) compared to small fleets (less than 5 trucks). The corresponding
figures for new truck sales for Germany and France are [10-20] percent and [10-20]
percent lower". The Commission is therefore of the view that the correction for
customer mix applied in the reports has several shortcomings. Furthermore, it would
in any case only offer insights for a limited number of countries. For instance,
Norway, Ireland and the United Kingdom are not included.

45. As to the conclusions of the Lexecon and Neven reports, the Commission cannot
accept that the existence of price differences within a ±5% (or ±6%) band9 should be

9 It should also be recalled that the reports, for the purposes of narrowing the difference between the
adjusted prices, had to exclude Sweden, France and Norway for tractors, and Sweden and Denmark
from rigids.
12
This text is made available for information purposes only and does not constitute an official publication.

disregarded for the purposes of market definition, as this would suggest that a
hypothetical monopolist in one area could impose a price increase in some cases as
large as 10% (or 12%) without being restricted from doing so by conditions of
competition in neighbouring areas.

46. Secondly, and even more importantly, the proposed conclusion of these reports is
incompatible with other available sources of information. This includes not only the
price comparison submitted by Volvo in the notification, but also the pricing
information subsequently submitted during the Commission's investigation (which
includes national price lists and transaction prices for the same truck model and
show that price variations are as important as those contained in the notification),
and pricing comparisons contained in internal Volvo documents provided at the
Commission's request (for example a table called "transaction price comparisons,
Q1 1999", which indicates prices for 1-3 truck deals regarding specific truck
models, for Volvo, Scania and DaimlerChrysler). It is clear from Volvo's internal
data that the price comparison was made taking detailed specifications into account.
For Volvo, this table included the [a commonly sold model] tractor, and it shows
that this model was sold at a price, which was [10-20%] higher in the United
Kingdom than in France. The largest price difference indicated for this Volvo model
is a [20-30%] higher price in Belgium than in France. The table shows that the
selected, comparable Scania and DaimlerChrysler trucks follow the same price
pattern between in the countries indicated as the Volvo model. Consequently, both
of the latter types of evidence indicate national price differences of the same order as
those indicated in the notification. Therefore, in order to accept the findings of the
Lexecon and Neven reports it would be necessary not only to overlook the
shortcomings identified above but also to conclude that both the price comparisons
provided by Volvo to the Commission and the price comparisons used internally by
Volvo are equally flawed.

47. Volvo suggests, in its Reply, that the definition of relevant geographic markets
should be based on whether there is price discrimination, defined as the heavy truck
producers earning different margins on the sale of the same good to consumers in
different countries. It is therefore interesting to note that the figures on margin
developments submitted by Volvo in the course of the proceedings clearly indicate
that such price discrimination has taken place10. As examples, Volvo's net profit
margin in 1998 for its [a commonly sold model] rigid was [10-20%] in Sweden
versus [0-10%] in Denmark (measured at the level of gross profit margin it was [20-
30%] in Sweden and [10-20%] in Denmark). For the [a commonly sold model] rigid
the margin was [10-20%] in Finland versus [-0-10%] in Norway (measured at the
level of gross profit margin it was [20-30%] in Finland and [10-20%] in Norway).
The information provided by Volvo also indicates similar differences in the margins
between other countries, such as between Denmark, Ireland and Belgium for the [a
commonly sold model] tractor.

48. In conclusion, Volvo suggests in its Reply that the main question for the definition
of the relevant geographic market should be whether price or margin discrimination

10 The information provided by Volvo indicates the margins for the three most popular models in a
number of countries. However, as the most popular model varies between countries and since Volvo
has not provided this data for all countries, no complete comparison can be made.

13
This text is made available for information purposes only and does not constitute an official publication.

is possible between different areas. Volvo has provided numerous examples

indicating that it has indeed been able not only to uphold substantial price
differences between neighbouring countries, but also to apply significantly different
margins11. It therefore must be concluded that the available evidence on prices and
margins is incompatible with Volvo's contention that the Nordic countries (Sweden,
Denmark, Finland and Norway), the United Kingdom and Ireland should not each be
regarded as separate geographic markets.

49. Indeed, if the markets were wider than national, it would be reasonable to assume
that buyers of heavy trucks would take advantage of the existing price differences
and buy their vehicles in a neighbouring country and/or that arbitrageurs would take
advantage of the opportunities created by these differences and buy vehicles from
Volvo in the countries where its margins are the lowest and sell them to customers
in the countries where the margins are high. Some of the reasons for the absence of
such customer behaviour and arbitrage will be indicated in the following paragraphs.
This will be done in the context of the non-price evidence that was included in the
notification, despite Volvo's statement in its Reply that this material is not useful for
the definition of relevant markets.

Customer Preferences

50. It is clear from the market investigation that, although truck manufacturers are in a
position to supply a range of different models of heavy trucks (although the
adaptation for specific regulations existing in certain Member States does certainly
represent a supplementary cost constituting a disincentive to penetrate certain
markets), customer requirements are such that the models and technical
configurations of heavy trucks sold in different Member States present considerable
variations.

51. This conclusion is substantiated having regard to the most commonly sold truck
models of major truck manufacturers in different Member States. While it is
observed that major differences may exist even in the basic characteristics of the
heavy trucks sold in the different Member States (even when the models of the same
manufacturer are compared), these differences are significantly less marked if one
compares the most commonly sold models for the different truck manufacturers
within a single Member State.

52. As a point of reference, the table below summarises the details of Volvo's three best
selling models in each country along with the percentage of the total sales volume
represented by these three models. The picture would be largely the same with
regard to the other truck manufacturers.

Tractor Engine HP Axles Cabin % of Total

/ (litres) (wheels/ Comfort Sales
Rigid traction) Level
Austria T 12-16 420-520 4x2 2-3 […..**]

11 It should be recalled that even the Lexecon and Neven reports, which went into considerable efforts to
adjust the existing price data, despite omitting a number of countries where larger price differences
were found, concluded that prices vary by 12%.

** [Business secret, the national figures range from 19 to 60%, with an average of 43%]
14
This text is made available for information purposes only and does not constitute an official publication.

Belgium T 12 380-420 4x2 2-3 […..]

Denmark T 12 380-420 4x2 2-3 […..]
Finland R 12-16 420-520 6x2-6x4 1-2 […..]
France T 12 380-420 4x2 1-2 […..]
Germany T 12 380-420 4x2 2-3 […..]
United T 10-12 360-380 4x2-6x2 1 […..]
Greece T-R 12-16 420-520 4x2-6x2 1-3 […..]
Italy T 12 380-420 4x2 1-2 […..]
The T 12 380-420 4x2 2-3 […..]
Norway R 12 420-520 6x2 1-2 […..]
Portugal T 12 380-420 4x2 1-2 […..]
Spain T 12 380-420 4x2 1-3 […..]
Sweden T-R 12 380-420 4x2-6x2 1-2 […..]

53. As it can be seen from the table in paragraph 52, the types of basic characteristics,
considered as key elements, of heavy duty trucks tend to change according to the
Member State where the trucks are sold. Customers in Finland, Greece, Norway and
Sweden have a stronger preference for rigid trucks than customers in other
countries. At the same time customers in Austria, Finland, Greece and Norway
require larger and more powerful engines, whereas customers in the United
Kingdom tend to require smaller engines. There are similar differences in the
preferences for the axle configuration. Finally, the cabin comfort level tends to be of
lesser importance in Finland, France, the United Kingdom, Italy, Norway, Portugal
and Sweden. Furthermore, with particular reference to the Nordic countries, it is
evident that the basic specifications required vary substantially, not only if compared
to those required in other Member States, but even among the Nordic countries, with
Danish customers preferring tractor-type vehicles, whereas customers in the other
three countries generally prefer rigid trucks and have lower requirements for cabin
comfort. Moreover, customers in Norway, and in particular Finland, appear to
require engines with higher horse-power than those in Sweden and Denmark.

54. In addition to the differences in the basic characteristics, it appears that customers’
requirements may vary for a number of options, which can be applied to heavy truck
models (for example, the gearbox and the number of cylinders in the engine).

55. It appears that customers in three of the Nordic countries (Norway, Finland and
Sweden) generally purchase heavy trucks of the rigid type (integrated) having an
engine of higher power than engines sold in other Member States and with a higher
number of axles. These purchasing habits are linked to the topography and the
climatic conditions prevailing in all these countries, as well as to the specific
regulations applicable in terms of allowed tonnage. Given these conditions, truck
operators will need to use trucks, which are actually able to provide the service
required.

Technical Requirements vary between Member States

56. The market investigation has revealed that, despite a certain degree of harmonisation
achieved at the European level (in particular Council Directive 85/3/EEC which
harmonised weight requirements and dimensions for international traffic within the
Union), there are still a number of technical requirements for heavy trucks which
vary from country to country. This conclusion is particularly valid for the United
Kingdom, Ireland and some of the Nordic countries. As far as the United Kingdom
15
This text is made available for information purposes only and does not constitute an official publication.

and Ireland are concerned, the fact that all vehicles must be adapted for right-hand
drive severely restricts the possibility to importing vehicles intended for Continental
Europe. Furthermore, the Commission's attention has been drawn to the fact that the
specification of the vehicles of the same model would be different in Ireland to that
in the United Kingdom. Indeed, Scania, Volvo and Iveco all operate a heavier
specification (in terms of running gear, driveline, suspensions, tyres and springs) on
the Irish market owing to the adverse road conditions in this country. For some of
the Nordic countries, it is noted that whole vehicle type approval (i.e. complete
harmonisation of technical regulations) in the heavy truck sector is not expected to
take place within the next 2-3 years. Different regulations still apply for example in
Sweden and Finland as concerns permitted total transported tonnage and maximum
length of the trucks. Higher tonnage and longer trucks are allowed in these two
countries (60 tonnes and 25.25 meters) than in the rest of Europe. This gives, in
general, Volvo and Scania an advantage since their trucks are traditionally produced
to meet the requirements (e.g. engine and axle configuration) of longer and heavier
vehicles.

57. In Sweden, there is also a specific regulatory barrier to entry. Under Swedish law, a
specific homologation known as the "cab crash test" is required. A competitor
described the effect of this test to the Commission in the following way: "A
technical barrier to enter the Swedish market is, already mentioned, the Swedish cab
test. This has amongst others effectively stopped (name of competitor) from selling
its top of the range (name of models) and important models in its light line range.
These models are homologated for sale in Europe and are in fact sold elsewhere in
high quantities. The costs of passing the test outweighs the revenues that would be
derived from the additional sales through the current network". At the oral hearing,
Volvo admitted that the cab crash test constitutes a barrier to entry for non-Swedish
producers of heavy trucks. Volvo estimated that DaimlerChrysler in Germany ask an
additional DM 7.850 to customers who want a Swedish safety cab.

Purchasing is done on a national basis

58. In view of the above described specificity of the truck market relating to customer
preferences, technical requirements and price differences, and the need for dealer
support, it is not surprising that the market investigation has shown that purchasers
of heavy trucks very rarely turn to dealers established outside their country of
operation. Even when the purchaser is a so-called "fleet customer" with international
transport activity and operations located in various countries, it appears from the
market investigation that trucks are bought nationally and buying decisions are taken
on the basis of dealer support and pricing in that particular country. This is a fortiori
true when the customer is a small-to medium-sized transport company. As a matter
of fact, the majority of heavy truck purchasers in the Nordic countries are small and
medium-size companies who buy nationally and do not consider taking advantage of
prices differences in view of the need for after-sales and service support, the risk of
a reduced second-hand value of privately imported trucks and the different types of
technical characteristics prevailing in other Member States.

59. Furthermore, it has been brought to the Commission's attention that dealers see the
sale of a new truck as a source of future income from service and spare parts sales,
on which the dealer typically has significantly higher margins than on the sale of the
new truck. Data submitted by Volvo confirm that the major part of a dealer's
16
This text is made available for information purposes only and does not constitute an official publication.

revenue comes from service and the sale of spare parts. Therefore, a dealer who
knows that the sale of a truck to a specific customer will not generate after-sale
income will be less inclined to offer an attractive price to this customer. Hence,
customers trying to import trucks privately from other Member States (for instance,
Danish truck customers wishing to buy in Germany) may well find that they will
have to pay higher prices than locally based customers. It has also been brought to
the Commission's attention that the various problems (service, guarantees, etc.)
involved in importing privately from a neighbouring country would mean that a
price difference of up to ten percent would be necessary before buying trucks in that
neighbouring country would become profitable, and even then only for customers
buying a certain number of trucks.

60. Another issue that influences whether a truck customer finds it attractive to import
trucks privately or buy from a parallel importer is the possibility of being partly or
fully reimbursed for problems with a truck after the warranty period has expired.
The decision to give such a reimbursement is, however, typically made by the
importer which of course would have little incentive to give such a reimbursement
for a truck not imported via the official importer.

Distribution and Service Network

61. The market investigation has revealed another point, which needs to be taken into
account when determining the geographic dimension of the relevant market.
Although some market operators refer to the heavy truck market as a "European
market", they invariably indicate that a key factor in the decision relating to the
purchase of trucks is the after-sales network (maintenance, ordinary and
extraordinary, as well as supply of spare parts) which can be offered by a given truck
manufacturer. Replies from truck customers invariably indicate that an effective and
well-spread after-sales and maintenance service is essential for a truck operator. As
a matter of fact, the market investigation has made clear that the decision of a truck
operator to purchase a certain type of truck will depend on a number of variables,
each being essential for the purchasing decision: the most important elements are
price, after-sale services, second-hand value and warranty conditions (all these
elements being reflected in a brand name, as it will be seen later). It therefore
follows that the choice of a truck operator relating to the purchase of a certain brand
of truck will heavily depend on the possibility for this specific truck manufacturer to
offer effective after-sale assistance. This connection between the desirability of a
heavy truck supplier and its available after-sales service network could explain why
most customers (despite being in Volvo's terms "professional buyers") do not take
advantage of the existing price differences. For the same reason, it is likely that
arbitrageurs would find it difficult to convince truck customers in a certain country
to buy parallel imported vehicles12. It should be noted that, although warranties

12 In its Reply, Volvo refers to the existence of trade in second-hand heavy trucks as evidence that
national markets are inter-related. In this context it should be noted, first that the buyer of a second-
hand vehicle is typically not buying a package of a truck, a maintenance contract and possibly
financing, as is the case for new trucks. Secondly, in its notification Volvo did not indicate that second-
hand trucks were on the same market as new trucks (indeed, it provided no information about the sales
of second-hand vehicles). Thirdly, Volvo has not provided information to show that parallel trade of
new trucks is at the same level as trade in second hand vehicles.

17
This text is made available for information purposes only and does not constitute an official publication.

offered by manufacturers typically are valid throughout Europe, these cover only
manufacturing defects. Normal maintenance and servicing of the vehicle is not
covered by the warranty but will typically be done locally, often on the basis of a
service contract with the dealer which sold the vehicle.

62. As will be further indicated in the assessment, especially in all Nordic countries, the
situation is such that the other European truck companies have significantly smaller
and less well-spread after-sales networks, and that the existing alternative networks
primarily are intended to cater partly for the needs of international heavy truck
companies (requiring emergency repair service across Europe), and partly to the
servicing of cars and vans. The market investigation has indicated than an adaptation
of the competitor's networks to the level of those of Volvo and Scania, in order to
meet the requirements of customers with wide-spread operations in the Nordic
countries, would require substantial investments (which, of course, would have to be
compared to the economic attractiveness of the market).

63. In the course of the market investigation, competitors have indicated that the
decision relating to the establishment or the development of a service network is
linked to a "critical mass" of vehicles sold in any particular country. It has been
suggested that this may be in the order of 10%, depending on a number of factors
linked to the costs and opportunities offered by the market in question. For the
Nordic countries, with their relatively small market sizes and the additional costs
relating to technical requirements, it has been stated that a market share of 10% to
15% would be the minimum necessary to justify the decision to incur these
supplementary costs. It has also been brought to the Commission´s attention that the
relatively small size of the Nordic countries may not provide a sufficient incentive to
penetrate the markets, even in the case of a price increase of 5% to 10%.

64. For the purposes of definition of the relevant geographic market it is sufficient to
note that the importance of distribution and service networks is likely to be one of
the main elements restricting customers from buying outside their country of
establishment and also in limiting the ability of arbitrageurs to take advantage of
existing price discrimination between Member States.

Market share variations

65. Furthermore, Volvo's contention as to an EEA-wide market for heavy trucks is not
supported by the facts concerning its sales across that area, as indicated in the
notification. It has been indicated that Volvo has a market share of 15,2% in the
EEA. However, its market share is significantly higher in a number of individual
Member States (45% in Sweden, 34% in Finland, 29% in Denmark, 38% in Norway,
between 22% and 25% in Ireland, Belgium, the Netherlands, Portugal and Greece).
At the same time, its market shares in a number of countries are significantly below
this EEA average (12% in Austria, 8% in Germany, 13% in Spain, 12% in Italy and
11% in Luxembourg). As indicated in the following table, similar national
deviations from the average EEA market share can be observed for Scania and all
other heavy truck manufacturers. Even between neighbouring Member States with
somewhat similar topography such as Denmark and Germany there are large
variations in the market shares of the main manufacturers. Apart from vague
references to historical reasons, Volvo has not provided any explanation as to how,

18
This text is made available for information purposes only and does not constitute an official publication.

in its view, such differences in market shares between Member States could be
compatible with its contention that the heavy truck market is EEA-wide.

Volvo Scania Daimler MAN RVI Iveco DAF

EEA average 15,2 15,6 20,5 12,6 11,9 10,6 10,5
Sweden 45 46 6 0 1 0 2
Finland 34 31 10 3 18 4 0
Denmark 29 30 18 10 3 7 4
United Kingdom 18 19 9 7 6 9 18
Ireland 22 27 9 6 3 8 13
Germany 8 9 42 26 2 6 5
Austria 12 16 18 34 4 6 9
France 14 9 16 5 38 8 8
Belgium 23 17 18 11 8 6 17
Luxembourg 11 15 28 14 10 8 15
The Netherlands 16 23 12 9 3 3 33
Italy 12 12 16 6 9 41 4
Spain 13 16 19 8 19 20 9
Portugal 25 19 12 6 17 7 14
Greece 24 17 36 12 3 2 3
Norway 38 32 9 12 1 2 4
Source: Notification (based on official registration figures)

Conclusion on relevant geographic markets for heavy trucks

Sweden

66. The Commission considers that Sweden constitutes a separate relevant geographic
market for heavy trucks. First, the market investigation has shown that purchasing of
heavy trucks is done on a national basis and that the distribution and service
networks constitute a barrier to import penetration to manufacturers who do not
have a well-developed local network. This applies in particular to MAN and Iveco,
which have no market share for heavy trucks in Sweden. The national purchasing
pattern was confirmed by the investigation conducted by the Swedish Competition
Authority showing that truck customers overwhelmingly tend to purchase heavy
trucks on a national level, perhaps even locally. Secondly, as described above, prices
in Sweden are different from those in its neighbouring countries. For instance, the
(adjusted) price in Sweden for [a commonly sold model] is [10-20%] higher than in
Denmark, [10-20%] higher than in Norway and [0-10%] higher than in Finland.
Thirdly, Volvo's profit margins in Sweden are different from those in the other
Nordic countries. For example, Volvo's net profit margin in 1998 for its [a
commonly sold model] was […..*] in Sweden versus […..] in Denmark, […..] in
Finland and [……] in Norway. Fourthly, technical specifications are different in
Sweden than in the rest of Europe as higher tonnage and longer trucks are allowed in
Sweden. Moreover, the Swedish cab crash test has been identified as a specific
regulatory barrier to entry, which has meant that some truck models are not presently
for sale in Sweden. Finally, RVI only has 1% market share in Sweden while in
neighbouring Finland the "national" brand RVI/Sisu has 18%. For the above
reasons, the conditions of competition in the market for heavy trucks in Sweden are

* [Business secret, figure is highest in Sweden, followed by Finland, Denmark and Norway, in that order]

19
This text is made available for information purposes only and does not constitute an official publication.

different from those of its neighbouring countries and Sweden thus constitutes a
separate relevant geographic market.

Denmark

67. The Commission considers that there are strong indications that Denmark
constitutes a separate relevant geographic market for heavy trucks. First, the market
investigation has shown that purchasing of heavy trucks is done on a national basis
and that the distribution and service networks constitute a barrier to import
penetration to manufacturers who do not have a well-developed local network.
Secondly, as described above, prices in Denmark are different from those in its
neighbouring countries. For instance, the (adjusted) price for the [a commonly sold
model] is [10-20%] higher in Sweden than in Denmark. Furthermore, the dealer net
prices adjusted for specifications for the [a commonly sold model], which are given
in the notification, indicate an average price, which is [0-10%] lower in Denmark
than in Germany. Thirdly, Volvo's profit margins in Denmark are different from
those in the other neighbouring countries. For example, Volvo's net profit margin in
1998 for its [a commonly sold model] was […..] in Denmark versus [……] in
Sweden, […..] in Finland and [……] in Norway. Fourthly, the three most sold
Volvo heavy truck models in Denmark have different specifications from the
preferred models in the other Nordic countries. Finally, the fact that Volvo has a
market share of 29% in Denmark but only 8% in Germany, Scania 30% in Denmark
but only 9% in Germany, DaimlerChrysler 42% in Germany but only 18% in
Denmark, and MAN 26% in Germany but only 10% in Denmark tends to confirm
that Denmark and Germany do not belong to the same relevant geographic market.
The above reasons constitute strong indications that the conditions of competition in
the market for heavy trucks in Denmark are different from those of its neighbouring
countries and Denmark therefore constitutes a separate relevant geographic market.
As shown below, if Denmark were to be considered as a separate geographical
market the operation would lead to the creation of a dominant position on this
market. However, given the fact that, as explained below, the notified transaction
would, in any event, be incompatible with the common market even if it would not
create a dominant position on the Danish heavy truck market, this question does not
have to be settled in the context of the present proceedings.

Norway

68. The Commission considers that Norway constitutes a separate relevant geographic
market for heavy trucks. First, the market investigation has shown that purchasing of
heavy trucks is done on a national basis and that the distribution and service
networks constitute a barrier to import penetration to manufacturers who do not
have a well-developed local network. Secondly, as described above, prices in
Norway are different from those in its neighbouring countries. For instance, the
(adjusted) price for the [a commonly sold model] is [10-20%] higher in Sweden than
in Norway and [10-20%] higher in Finland than in Norway. Thirdly, Volvo's profit
margins in Norway are different from those in the other Nordic countries. For
example, Volvo's net profit margin in 1998 for its [a commonly sold model] was
[……] in Norway versus [……] in Sweden, […..] in Denmark and […..] in Finland.
Fourthly, the three most sold Volvo heavy truck models in Norway have different
specifications from the most preferred models in Denmark. Finally, market shares
differ between Norway and Sweden in that MAN has 12% in Norway and none in
20
This text is made available for information purposes only and does not constitute an official publication.

Sweden, while Volvo and Scania have 38% and 32%, respectively, in Norway, and
45% and 46% in Sweden. Furthermore, RVI only has 1% market share in Norway
while in Finland the "national" brand RVI/Sisu has 18%; in Denmark
DaimlerChrysler has 18% and only 9% in Norway. For the above reasons, the
conditions of competition in the market for heavy trucks in Norway are different
from those of its neighbouring countries and Norway thus constitutes a separate
relevant geographic market.

Finland

69. The Commission considers that Finland constitutes a separate relevant geographic
market for heavy trucks. First, the market investigation has shown that purchasing of
heavy trucks is done on a national basis and that the distribution and service
networks constitute a barrier to import penetration to manufacturers who do not
have a well-developed local network. Secondly, as described above, prices in
Finland are different from those in its neighbouring countries. For example, the
(adjusted) price for the [a commonly sold model] is [10-20%] higher in Finland than
in Norway and [0-10%] higher in Sweden than in Finland. Thirdly, Volvo's profit
margins in Finland are different from those in the other Nordic countries. For
example, Volvo's net profit margin in 1998 for its [a commonly sold model] was
[…..] in Finland versus [……] in Sweden, […..] in Denmark and [……] in Norway.
Fourthly, higher tonnage and longer trucks are allowed in Finland than in the rest of
Europe except for Sweden. Finally, the "national" brand RVI/Sisu has a market
share of 18% in Finland while it only has a share of 1% in Sweden and Norway and
3% in Denmark. For the above reasons, the conditions of competition in the market
for heavy trucks in Finland are different from those of its neighbouring countries
and Finland thus constitutes a separate relevant geographic market.

Ireland

70. The Commission considers that Ireland constitutes a separate relevant geographic
market for heavy trucks. First, the market investigation has shown that purchasing of
heavy trucks is done on a national basis and that the distribution and service
networks constitute a barrier to import penetration to manufacturers who do not
have a well-developed local network. Secondly, list price data provided by Volvo
for the most sold rigid and tractor trucks are considerably lower ([40-50%]) in the
United Kingdom than in Ireland. Thirdly, technical requirements in Ireland are
different from other Member States. The right-hand drive severely restricts the
possibility of imports of vehicles intended for Continental Europe. Furthermore, the
specification of the vehicles of the same model is heavier in Ireland than in the
United Kingdom due to the adverse road conditions in Ireland. Finally, the market
shares of the main manufacturers in Ireland differ significantly from those in most of
the rest of Europe. Although the difference to the United Kingdom is less
pronounced, the combined market share of Volvo and Scania is 49% in Ireland but
only 37% in the United Kingdom. For the above reasons, the conditions of
competition in the market for heavy trucks in Ireland are different from those of its
neighbouring countries and Ireland thus constitutes a separate relevant geographic
market.

C Assessment

21
This text is made available for information purposes only and does not constitute an official publication.

71. Article 2 of the Merger Regulation requires an assessment of proposed

concentrations with a view to establishing whether or not they are compatible with
the common market. The key question in making this assessment is whether the
proposed operation will lead to the creation or the strengthening of a dominant
position. One of the key parameters involved in this assessment relates to the market
position of the undertakings concerned and their economic and financial power.
From an economic viewpoint the effects of a merger on market conditions may be
measured in a number of different ways. Traditionally, the market power of merging
parties has been measured by way of proxy, using criteria such as the market shares
of the merging parties on the relevant markets and those of the remaining
competitors. This analysis is normally supplemented with an assessment of the
possible purchasing power of the customers, the likelihood of new entry etc. The
Commission has conducted this type of analysis in this case, and has come to the
conclusion that the proposed concentration would be incompatible with the common
market.

72. The Commission has also requested an econometric study from Professors Ivaldi
and Verboven in order to attempt to measure directly what the effects of the merger
could be on the prices charged by heavy truck producers in the various national
markets. The results of such econometric studies can be a valuable supplement to
the way the Commission has traditionally measured market power. This can, in
particular, be the case when the customer base for a product is very fragmented so
that reaching a satisfying segment of customers through survey based methods is
difficult. As there are many thousands of truck owners in each country, many having
only one truck, a study was seen to be useful in this case.

73. The study is based on a so-called nested logit model where certain parameters
relating to the pricing decisions of firms and to the buying decisions of customers
are estimated from prices, market shares and other variables. In this case, the model
was applied using data for two years for two types of truck for each of the seven
major truck manufacturers in each of the Member States and Norway. The results
from this estimation were then used to simulate the effects of the merger on the
prices of both the combined entity (“New Volvo”) and its competitors.

74. The results of the study point to serious competition problems, in particular in the
Nordic countries and Ireland, where the present decision finds that the merger will
lead to the creation of a dominant position.

75. The Commission recognises that using this type of study is a relatively new
development in European merger control. Furthermore, in its Reply Volvo contested
the validity of the study, claiming that the analysis was seriously flawed and that the
results cannot be relied on. Although Professors Ivaldi and Verboven have provided
answers to these criticisms, Volvo still contests some of the fundamental elements
of the study. Given the novelty of the approach and the level of disagreement, the
Commission will not base its assessment on the results of the study.

Current structure of the European heavy truck market

76. According to tables reporting European ranking for producers of heavy duty trucks
in 1998 provided by Volvo in the notification, DaimlerChrysler is the European
leader with 20.6% of the EEA market, Scania ranks second with 15.6%, Volvo third
22
This text is made available for information purposes only and does not constitute an official publication.

with 15.2%, and then four producers (MAN, Paccar/DAF, RVI and Iveco) have
EEA-level market shares between 10.4% and 12.6%13.

77. Therefore, before the implementation of the proposed operation, the European heavy
truck market was characterised by the presence of seven producers. The strongest
producers in Europe, also in view of their worldwide market presence, are
respectively DaimlerChrysler, Volvo and Scania.

78. In addition, when having regard to the respective market position in the EEA of each
of these manufacturers, it appears that it is only DaimlerChrysler, Volvo and Scania
that have a significant presence throughout the whole of Europe. The other
manufacturers tend to be more geographically specialised. Although even
DaimlerChrysler, Volvo and Scania are stronger in their "home" or "natural"
markets, only these three companies are well represented throughout Europe.
DaimlerChrysler's market share ranges between 6.2% and 17.7% in Northern Europe
(Nordic countries and Ireland), from 12% to 42% in the rest of Europe. Volvo's and
Scania's profile is very similar, since their position is very strong in the whole of
Northern Europe (Nordic countries and Ireland) and rather equally distributed
through the rest of Europe, with market shares ranging from 8% to 9% in Germany
to 16% to23% in the Netherlands.

79. The other European truck manufacturers have a relatively strong position in their
"home" or "natural" market (RVI 38% in France, Iveco 41% in Italy, Paccar/DAF
33% in the Netherlands and MAN 26% in Germany and 34% in Austria), but they
are quite weak or virtually not present in some areas of Europe.

80. Furthermore, before the proposed transaction, Volvo and Scania appeared to be each
other's closest competitors pursuing similar market strategies. Both Volvo and
Scania are Swedish makes and are generally perceived as the expression of quality
products, offering globally a reliable service. An examination of Volvo's and
Scania's respective market shares clearly shows their essentially parallel positions
throughout the whole of Europe (1998 figures)

Market Volvo Scania

Sweden 44.7 46.1
Finland 34.3 30.8
Denmark 28.7 30.2
United Kingdom 18.3 18.6
Ireland 22.0 27.1
Germany 7.7 8.9
Austria 12.3 16.5
France 14.5 9.4
Belgium 23.4 17.4
Luxembourg 11.1 14.7
Netherlands 15.9 22.8
Italy 12.0 12.0
Spain 13.0 16.0

13 Volvo's market share figures are based on registration volumes for all heavy trucks. The data submitted
largely correspond to the sales figures collected by the Commission in the course of the investigation
(including those broken down between rigid and tractor heavy trucks).

23
This text is made available for information purposes only and does not constitute an official publication.

Portugal 25.1 19.1

Greece 24.1 16.6
Norway 38.0 32.2

81. These figures relate to 1998 only. However, even considering the existing variations
in market shares that can be observed with respect to previous years, the overall
impression is that there is, to a significant extent, symmetry between the market
position of the two companies. This is consistent with the observations by third
parties, that Scania has been Volvo's most direct competitor.

82. In addition, when examining the situation in the Nordic countries, it is clear that
over a long period of time (1989-1998) the average market position of Volvo and
Scania has not only remained relatively stable, but that in addition most variations in
the market share of one of the two companies (say, Volvo) correspond to a variation
(in the opposite direction) of the other one (Scania).

Volvo Volvo
S we de n D enmark Scania
Scani a
Mer cedes Mer cedes
60
DAF MAN
40
50
35
40 30
25
30
20
20 15
10
10
5
0 0
89 90 91 92 93 94 95 96 97 98 89 90 91 92 93 94 95 96 97 98

24
This text is made available for information purposes only and does not constitute an official publication.

Vol vo Vol vo
F inla nd Scani a N o rwa y Scani a
Mer cedes
Mer cedes
50 MAN
Si su/ Toyota
40
35 40

30
25 30

20
20
15
10
10
5
0 0

89 90 91 92 93 94 95 96 97 98 89 90 91 92 93 94 95 96 97 98

These graphs show not only that Volvo and Scania have similar market positions,
but are also indicative of the fact that they are each other's closest substitutes.

83. In addition to sales, the presence of a truck producer in a certain area can also be
measured by the number of sales and service points that it has in that area.
According to figures provided by Volvo, about [70-80%] of a heavy truck dealer's
total turnover is from service and sales of spare parts, whereas the remaining [20-
30%] is from sales of new vehicles. The table below indicates the total number of
sales/service points in the relevant markets, as indicated by the main heavy truck
suppliers. It should be noted that a dealer can have one or several sales points. The
table below is intended to give an idea of the capillarity of each manufacturer's
network, and consequently indicates the total number of sales points. The table is
indicative of the merged entity's advantage over competing suppliers in the relevant
markets, in particular as all of the Volvo and Scania sales and service points are
largely dedicated to heavy trucks, whereas several of the competitors' sales and
service points are used for medium and light trucks, cars and vans and not for heavy
trucks. Whilst some service points intended for servicing medium trucks may also
be able to service heavy trucks, it should be noted that the investigation has
indicated that medium trucks are largely used only in urban areas.14 Competitors
have, however, indicated that heavy trucks need service points throughout any given
country and that purchasers of heavy trucks will not be persuaded to buy the trucks
of competitors who only have a presence in the main cities. For the heavy truck
market the table below therefore tends to overstate the extent and the quality of the
networks of New Volvo’s competitors.

Volvo Scania Volvo+ Daimler MAN RVI Iveco DAF*

Scania
Sweden 71/116 67/105 138/221 34/38 0/9 4/20 13/34 Na/60
Finland 22/31 23/34 45/65 37/37 0/25 16/45 3/26 Na/2
Denmark 16/30 15/28 31/58 35/42 7/19 5/10 19/40 Na/20
Ireland 5/5 8/8 13/13 8/8 0/0 1/1 7/7 Na/11
Norway 42/65 45/50 87/115 24/24 6/23 13/13 16/23 Na/33
* Figures supplied by Volvo

14 It has been brought to the Commission's attention that the costs of extending the capability of a
light/medium truck network to cover also heavy trucks are 50% of the costs of an entirely new heavy
truck network (see, for example, paragraph 141).

25
This text is made available for information purposes only and does not constitute an official publication.

Structure of the market at Member State level - current structure and effects of
the proposed operation

84. In its Reply, Volvo makes two general comments concerning the analysis of the
competitive effects of the merger in individual Member States. Firstly, it argues that
customers do not display an undue level of concern about the proposed
concentration. Secondly, it argues that price discrimination between large and small
customers is not possible in the heavy truck markets. The Commission has
considered these general remarks carefully and come to the conclusion that neither is
conclusively supported by the available facts. Prior to analysing the results in the
individual Member States, the reasons for this conclusion will be set out below.

Customer concerns

85. When assessing Volvo's argument that customers are not concerned, it is necessary
to keep in mind that the truck industry has an extremely fragmented customer
structure. To give an illustration, there are, according to Volvo's figures, more than
23 000 owners of heavy trucks in Sweden alone. Less than 5% of these operate a
fleet of more than 10 trucks. The situation is largely similar in other Member States
(and also for the bus markets, in particular for tourist coaches).

86. In a market with such a fragmented demand structure, it would be unreasonable to

expect that the majority of such customers would be in a position to provide a
sophisticated legal analysis of the proposed merger. This means that it is not
possible, as Volvo suggests, to consider that customers who, for unknown reasons,
have not participated actively in the proceedings are all unconcerned. Instead, the
responsibility of the competition authority to look carefully at the effects of a merger
in such a market is particularly strong.

87. Thus, the Commission cannot accept Volvo's view that the question of whether
significant concerns exist in a certain market can be answered by reference to the
responses from a limited sample, such as the 20 largest buyers in a country. This
approach would certainly raise a question as to how representative the views of
these buyers are of the effects of the merger on smaller customers. There is evidence
from Volvo's own documentation that price discrimination takes place in these
markets.

88. However, even on the basis of a limited sample, the Commission finds that there is
strong cause for concern in the countries indicated below. In this context it must be
stressed that the relevant question is not, as claimed by Volvo, the number of
"complaints" that have been submitted. Instead, a qualitative analysis must be made
of the answers provided. In this context it is clear that a competition authority has
strong grounds to be concerned when, as in this case, a not insignificant proportion
of the largest customers indicates, inter alia, that the parties will become dominant,
that Scania is the only alternative to Volvo, that other brands are unable to fulfil
their technical requirements or have insufficient service networks, and that they
would have to accept a price increase of 5% to 10%15. Even while admitting that a

15 As explained above, the Commission does not consider it meaningful to provide statistics based on an
unrepresentative sample. However, it is worth noting that, although the number of respondents
26
This text is made available for information purposes only and does not constitute an official publication.

number of customers have not expressed concerns about the proposed concentration,
the Commission is therefore unable to accept Volvo's argument that no concerns
exist.

89. The same argument also applies to the 12 surveys conducted by GfK on behalf of
Volvo for its Reply (hereinafter referred to as "the GfK surveys"). These surveys
were conducted by telephone with a sample of "large" customers in each of the four
Nordic countries, the United Kingdom, Ireland, Belgium and Portugal. In each of the
Nordic countries an additional survey was made for "small" customers. The
Commission cannot agree with Volvo's contention that the GfK surveys demonstrate
the absence of concerns. The reasons for this are two-fold. First, from a
methodological viewpoint, there are a number of questions regarding the way in
which the questions were formulated (for example, the respondents were not asked
how they would react if both Volvo and Scania were to raise their prices after the
merger). Such methodological question marks inevitably reduce the evidential value
that can be attributed to the GfK-survey.

90. Second, even assuming that the methodological question marks could be answered
satisfactorily, it is difficult to follow Volvo's argument that the GfK-surveys
demonstrate that the proposed merger would not lead to competition concerns. One
of the questions asked in the surveys was whether the respondent would switch
supplier in response to a 5% price increase by Volvo or Scania. While the indicated
result of each survey shows that some respondents would switch (less than half of
the respondents to each survey), it is unlikely that New Volvo would adopt a
strategy to impose an across-the-board price increase. Indeed, information provided
by Volvo shows that it applies a strategy of individual pricing for each transaction
and that large price differences are applied to different customers. There is also
strong evidence that Volvo is able to price discriminate between small and large
customers. It is also worthy of note that the surveys show that the respondents' most
common answer as to the company to which they would switch is actually Volvo
and Scania. It therefore appears that, when stating their likelihood to switch in
response to a 5% price increase, respondents have been allowed to assume that their
pre-merger ability to switch from Volvo to Scania (or vice versa) will be unchanged
after the implementation of the proposed merger. It would therefore seem likely that
the already low proportion of customers who indicated that they would switch in
response to a 5% price increase would have been even lower if they had been
instructed to assume that their post-merger ability to switch from Volvo to Scania
(or vice versa) will be decided by Volvo's marketing strategy for the two brands.

Price discrimination

91. In its Reply, Volvo argues that it would be extremely difficult to engage in
successful price discrimination in the heavy truck market and that the risks
associated with losing sales to customers who are not prepared to pay a higher price
would outweigh the potential gains from such behaviour. In addition, at the oral
hearing, Volvo presented the results of an analysis of its sales to Swedish and
Danish customers in 1998. After having made various adjustments for specification

expressing concerns varies from country to country, in all of them some made one or more of the
comments indicated in paragraph 88.

27
This text is made available for information purposes only and does not constitute an official publication.

of the vehicle and fleet size the analysis concludes that the price differential is small
[0-10%] lower prices to large customers (defined as those buying at least 30 trucks)
- and does not constitute significant price discrimination. It should, however, be
noted that this analysis of Volvo's sales to Swedish and Danish customers in 1998
does not contain any reference to its margins on the sales to the different customer
groups. As will be recalled from the section on relevant geographic markets, Volvo
have submitted that price discrimination should be defined as earning different
margins on the sale of the same product to different consumers.

92. Furthermore, it should be noted that Volvo's contention as to the absence of price
discrimination is in sharp contrast with its own internal documents supplied to the
Commission in the course of the proceedings. At the Commission's request Volvo
has submitted information indicating its prices, profits and margins on sales to
small, medium and large buyers of the [a commonly sold model] truck with three
different engine sizes16. For the most commonly sold engine size ([….]), this
information shows that a small customer will pay a price that is [20-30%] higher
than a large customer or [0-10%] higher than a medium sized customer. Even more
significantly, it is apparent that Volvo's profit margin on sales of this model to the
small customer is [10-20%], whereas the profit margin on sales to large and medium
sized customers is [0-10%] and [10-20%] respectively. Thus, it follows that a
relatively modest price difference such as the [0-10%] difference between a small
and a medium sized customer translates into a difference of [30-40%] in the profit
margin achieved. At the same time the profit margin achieved from the small
customer is [0-10] times as high as that achieved from large customers (the margin
on sales to medium sized customers are more than [0-10] times that achieved from
large customers).

93. In view of the foregoing, it must be concluded that this pre-existing internal Volvo
document constitutes a strong indication that the company has actually been able to
price discriminate between sales to different customer groups, and that this evidence
must take precedence over the above-mentioned arguments developed for the
purposes of the Reply and the oral hearing.

Assessment at Member State level

94. The prominent market positions of Volvo and Scania in the Nordic countries and
Ireland will now be assessed separately.

SWEDEN

Current Structure of the Market

Market Shares

95. The current structure of the Swedish market for heavy trucks is represented and
summarised by the following table:

16 Volvo supplied this information relating to its sales in France, stating that it was not able to provide
such a break-down for other countries.

28
This text is made available for information purposes only and does not constitute an official publication.

Company 1998 Market Share

Volvo 44.7%
Scania 46.1%
DaimlerChrysler 6.2%
MAN -
RVI 0.8%
Iveco 0.2%
Paccar/DAF 1.9%

96. The table in paragraph 95 shows that currently Volvo and Scania are the only
significant competitors in the Swedish market. Both Volvo and Scania have a
market position, which is seven times higher than that of the next competitor,
DaimlerChrysler. All other manufacturers are either not present in the Swedish
market or have a totally insignificant presence.

97. In addition, as it is further substantiated by the graphs shown in paragraph 82, Volvo
and Scania are in direct competition with each other. That is shown by the fact that
any market share variation of one of the two companies is closely correlated to an
opposite market share variation of the other one.

Brand

98. Both Volvo and Scania are Swedish high-value brands. The strength of the
respective brands lies in their perception as high-quality products having effective
and very-well spread after-sales networks. According to the supporting
documentation submitted by Volvo, both parties present the second-hand value of
their vehicles as part of their brand-image. All these elements make these two
brands "the brands" in the whole of the Nordic countries and Sweden in particular.
The market investigation indicates that demand in the heavy truck market is quite
inelastic, in the sense that the purchase price is only one of the elements, which
determine the choice of a certain type of heavy truck. The reason for this is that
purchasers of heavy trucks typically have regard to the whole life cost of the vehicle,
which means they will have regard to initial purchase price, financing, after-sales
network, warranties and second-hand value (including "trade-in" of used trucks). As
is clearly demonstrated by the market shares, only Volvo and Scania have up to now
been able to offer a sufficiently good package, including a good balance of all these
elements.

99. This is further confirmed by the fact that price information in the possession of the
Commission shows that the parties' pricing for heavy trucks in Sweden is invariably
higher, for comparable models, than pricing applied by other potential competitors.
This is proof that a typical truck purchaser in Sweden will not have regard only to
the initial price paid for the purchase of the heavy truck, but will consider a number
of elements, namely the quality of the product, the after-sales network and the
second-hand value, which will offset the higher price paid for the initial purchase.

100. In view of this, Volvo and Scania have over time built up loyalty in the whole of the
Nordic countries, and in Sweden in particular, vis-à-vis their own respective brands.
In this market brand loyalty means that market participants consider that Volvo and
Scania over a long period have provided high quality products, good service to
customers and high second-hand value and that this reputation makes customers
inclined to continue to buy these brands. This loyalty is expressed at least at two
29
This text is made available for information purposes only and does not constitute an official publication.

levels: at the level of the final purchaser, the truck operator, and at the level of the
dealer.

Brand loyalty, service network

101. The market investigation has provided indications that in the heavy truck market a
well-spread and effective after-sales network is crucial for any truck manufacturer to
penetrate a market. Both Volvo and Scania have an extensive dealer and after-sales
network in Sweden, most of which are exclusive. The strength of a network is
represented by its density, by the technical capability of a given dealer/service point
to serve the truck operator, and by the contacts existing between the dealer/service
points and the truck operator. This last element translates itself, after a number of
years, into relationships of trust between the dealer/service point and the truck
operator. This relationship of trust is part of the reputation of the brand, and its
accumulated value is significant (which is reflected in the fact that a substantial
proportion of the price that Volvo has offered to pay for Scania relates to goodwill).

102. The investigation has shown that dealers/service points in Sweden tend to be loyal to
Volvo and Scania, and will therefore show resistance in changing supplier. Owing,
in particular, to the large installed base of Volvo and Scania vehicles, these
companies are in a position to ensure a better and more secure return on investment
to the dealer/service point.

Brand loyalty; final customer

103. The market investigation has also provided indications that final purchasers of heavy
trucks tend to be loyal to the national brands, Volvo and Scania. This is the case
essentially for the reasons mentioned above; these two manufacturers are in a
position to offer customers the best package in terms of whole life cost. In addition,
as far as Northern Europe and the Nordic countries in particular are concerned,
Volvo and Scania are perceived to be the best placed to provide a product that
satisfies customers' specific transport needs. In this context, factors such as the
suitability for climatic and road conditions and satisfying all technical requirements,
including national legislation, have been mentioned. It should be underlined, and
this factor will be further elaborated below, that the vast majority of Swedish truck
purchasers are not, as claimed by Volvo, fleet customers with a large number of
trucks, but rather operators with 1or 2 trucks. This type of customer will typically be
more sensitive to brand loyalty considerations than customers with a large number
of trucks in their fleets.

104. In the Reply, Volvo disputes the conclusion that road and climatic conditions in the
Nordic countries amount to a substantial barrier to entry. To support its view, Volvo
refers to a specialised truck magazine in the United Kingdom that chose a MAN
truck as the best vehicle (ahead of both Volvo and Scania) in a test of trucks of
various manufacturers in arctic conditions. It is noticeable that this test was
organised by Scandinavian magazines and that Volvo has not submitted the
assessment made by the other magazines that participated in the test. Furthermore, it
must be noted that customers’ purchasing behaviour and preferences may be based
on the perceived quality of a product.

Effects of the proposed operation on the Swedish heavy truck market

30
This text is made available for information purposes only and does not constitute an official publication.

Market shares-market structure

105. The proposed acquisition of Scania by Volvo would result in a New Volvo whose
combined market share in Sweden would be equal to 90.8 % of the market,
according to 1998 figures. The next competitor to the New Volvo would be
DaimlerChrysler with a market share of 6.2%. The other European truck
manufacturers are virtually absent from the market (Paccar/DAF: 1.9%, RVI: 0.8%,
Iveco: 0.2%, MAN: no sales).

106. Therefore, the proposed operation results in a significant overlap between the parties'
activities. Moreover, the proposed concentration would significantly increase the gap
between the market share held by New Volvo and that of its closest competitor in each
of the Nordic countries, and in Sweden in particular. Prior to the concentration the
closest remaining competitor in Sweden (DaimlerChrysler) had a market share that
was about 7.5 times smaller than that of the market leader. Following the
implementation of the concentration this competitor would have a market share 14.5
times smaller than that of the new entity.

107. Furthermore, the information provided by Volvo (further corroborated by the graphs
in paragraph 82) as well as the Commission's investigation, clearly supports a finding
that, prior to the proposed concentration, Volvo and Scania have been each other's
main competitors. As a result of the proposed concentration, this competition would
be lost, and the advantage that New Volvo would hold over the remaining competitors
would increase significantly.

108. The situation is further aggravated by the fact that the very strong market position of
each of the parties to the concentration is not a recent phenomenon or the result of
strong market share variations. It is therefore not likely that other truck
manufacturers will exercise a significant competitive pressure on the parties. Indeed,
an evaluation of the respective market shares of the parties in Sweden, illustrated by
the graphs in paragraph 82 above, shows that the respective market positions of
Volvo and Scania have remained relatively stable over a very long period of time
(10 years). Furthermore, the market investigation has corroborated this view.

Dealer and customer loyalty

109. New Volvo will be in a position to act on a market, the heavy truck market in
Sweden, where it will have the benefit of specific strengths. In the first place, it will
benefit from a traditional dealer and customer loyalty. In the course of the market
investigation, it has been explained that competitors of Volvo and Scania face
significant difficulties in finding efficient and reliable dealers/service points in this
area. This is essentially because dealers/service points are traditionally linked to
their national suppliers, who can offer the highest volume of business and therefore
a better return on the dealer's investment.

Customer structure

110. Furthermore, given the customer structure of heavy truck purchasers in Sweden, the
new entity will be in a position to profit from their loyalty and therefore be in a
position to raise prices. In addition, Volvo's five major customers of heavy trucks in
Sweden represent only [0-10%] of Volvo's total sales in that country. The situation

31
This text is made available for information purposes only and does not constitute an official publication.

is similar for Scania. The proportion of sales to the five largest customers of the
merged entity would be even lower.

111. This is further corroborated by Volvo's own estimates (see page 5 of submission
dated 25 November 1999) concerning its sales of a specific model of heavy truck
([….]), which is a commonly sold model in Sweden. This information shows that
[80-90%] of these trucks sold in Sweden are sold as single unit sales. Volvo has
indicated that this is a useful proxy for fleet size.

112. In addition, according to a table provided by Volvo in a fax of 13 December 1999,

out of a total Swedish fleet population of more than 61,000 heavy trucks, [20-30%]
are owned by a person or company owning just that one truck. Moreover, [40-50%]
of the total Swedish heavy truck fleet are owned by persons or companies that have
between 2 and 10 trucks in their fleet. This means that a large majority ([60-70%])
of the Swedish heavy truck population is owned by very small operators. According
to the same source, out of a total of more than 23,000 Swedish heavy truck owners,
only [10-20] have fleets consisting of more than 100 trucks, and only [50-60] have
between 51 and 100 trucks.

Customer structure and dual sourcing

113. Volvo has argued that many of their truck customers in the Nordic countries (and
elsewhere) are sophisticated professional buyers with a policy of dual-sourcing.
According to Volvo, these customers currently pursue a policy of double-sourcing or
multi-sourcing, in order not to be dependent on a single truck manufacturer.

114. According to information provided by Volvo in the table mentioned in paragraph

112, there are [>30.000] trucks in mixed fleets in Sweden, of which [>14.000] are
Volvo trucks. This means that 50% of all Swedish heavy trucks are in mixed fleets
and that just under half of those are Volvos. It should, however be noted that
Volvo's definition of a mixed fleet includes any proportion of mix, for example a
fleet of 50 Volvo's and one Scania is a mixed fleet according to this definition.
Moreover, it is doubtful whether, based on this definition, and considering that
heavy trucks are durable goods, the prevalence of mixed fleets provides any
significant insight into the future development of the market, or the reaction of
customers with a policy of on-going dual-sourcing. On the other hand, there is a
total of more than 23,000 owners of heavy trucks in Sweden. Only [<5.000], that is
less than 18% of them have a mixed fleet. This means that more than 80% of all
Swedish heavy truck owners do not have more than one brand in their fleet. Under
these circumstances, the value of the arguments relating to dual-sourcing should not
be overstated.

115. In addition, the market investigation has revealed that, especially as concerns
smaller truck operators, there is a strong economic interest in concentrating the fleet
to one brand. This is due to the possibilities that this type of strategy can offer, in
terms of reducing costs for maintenance and training of personnel (primarily, the
drivers).

Customer structure and shrinkage effect

116. In mergers with horizontal overlaps in industrial markets where there is some dual
sourcing, merging parties often present calculations of a certain loss of market share
32
This text is made available for information purposes only and does not constitute an official publication.

resulting from customers switching supplier. These calculations are often motivated
in part by the fact that the management wants to be cautious vis-à-vis its
shareholders. The calculations are therefore often more like worst-case scenarios
than actual predictions. The Commission therefore has to evaluate carefully the
assumptions behind the calculations and the likelihood that the losses will actually
materialise. Only if this evaluation results in a finding that a certain merger can be
safely predicted to lead to market share losses that will significantly change the
competitive situation, will these losses be taken into account in the competitive
assessment. In this particular case Volvo has not, for the reasons set out below,
been able to sufficiently substantiate its claims that the merged entity will suffer
such losses of sales as to support changing the competitive situation in the relevant
markets.

117. According to Volvo, the proposed operation will inevitably result in a shrinkage
effect, i.e. in current Volvo and Scania heavy truck customers switching to other
makes. To support this view, Volvo has provided the Commission with the final
results of a study carried out by JP Morgan on behalf of Volvo. According to these
results, the proposed operation would result in a loss of customers corresponding, in
percentage of market share, to [10-20%] in Sweden and Finland and [10-20%] in
Denmark and Norway. As to this contention the following is noted.

118. According to Volvo, the best source for evaluating the likelihood of a post-merger
reduction in market shares should be the above-indicated financial reports prepared
by stock market analysts for the purpose of assessing the proposed concentration. It
may, however, be necessary to approach these reports with a certain degree of
caution. First, it is obvious that these reports have not been produced to evaluate the
proposed concentration's effects on competition. Instead, the aim of such reports is
to evaluate the value of the shares in the companies involved, should the
concentration be approved. The fact that analysts may be overly cautious or
optimistic in their presentation, in order to fit the long or short-term
recommendation they wish to make can therefore not be excluded. Indeed, in a
submission of 21 October 1999 Volvo stated that "if the valuation of the acquisition
was overly optimistic because total gains were exaggerated or losses under-
estimated, then Volvo could suffer serious negative consequences in the form of the
capital markets selling Volvo shares and reducing the total capital value of the
company". Second, the way in which analysts present their recommendations do not
have to follow any specific systematic approach, such as that imposed by the Merger
Regulation, where each relevant market has to be assessed separately. Third, Volvo
has made known that the financial reports, to which it has referred, have been based
only on information provided by Volvo itself.

119. Volvo has indicated that a number of analysts other than JP Morgan have expressed
their views on combined market share loss, and a number of them have confirmed
the views of JP Morgan. It is however noted that these predictions were all made
around the moment of the announcement of the operation and in any event before
the date of notification to the Commission. It cannot be excluded that most of these
early reports were based on the same material as that provided to JP Morgan by
Volvo. Furthermore, the market share losses mentioned in these reports are often
not estimates in the proper sense of the word, but rather scenarios used for
quantifying the downside risk of the share price of New Volvo after the acquisition.

33
This text is made available for information purposes only and does not constitute an official publication.

120. In its Reply Volvo relies on some of these estimates of market share losses. Several
of them are so high that they clearly cannot refer to what Volvo has described as a
shrinkage effect. For instance, Volvo reports that Handelsbanken Markets has
projected a long term Volvo/Scania market share of 46 % in Sweden. This implies a
market share loss of 45 %, equivalent to the entire market share addition. According
to Volvo, both Den Danske Bank (8 August 1999) and Enskilda Securities (9
August 1999) estimate a long-term market share loss of 31.5 %. Again, this figure is
so high that it clearly cannot refer to what Volvo calls the shrinkage effect.

121. It is, however, useful to consider the two most recent predictions of possible
shrinkage effects, made by two other analysts (Salomon Smith Barney, London, 4
October 1999, and Alfred Berg ABN Amro, 6 October 1999). The latter, in
particular, is clearly made having considered the predictions of all the early reports.
These later reports are much more conservative about the loss of market share than
those expressed earlier by other analysts.

122. For example, Alfred Berg Research of ABN Amro, in its report of 6 October 1999,
indicates: "Short term, doubts on EU clearance of the Scania deal and synergies,
could hold back the stock, but we are convinced that Volvo has a good chance of
delivering on synergies and defending market shares". And: "Based on our research
and talking to customers, we believe that the overall market share risk in Western
Europe could be more limited than many seem to fear". Alfred Berg's scenarios of
market share loss in Western Europe are of a global loss between 0% and 3%.

123. In view of these weaknesses, and in order to assess the likelihood of the proposed
"shrinkage-effect", the Commission has contacted a number of important customers
to assess the impact that the proposed concentration is likely to have on their future
purchasing decisions. In addition the Swedish Competition Authority has, on the
Commission's behalf, made a similar enquiry with smaller customers in Sweden. It
follows from these investigations that Volvo, which has consistently announced in
its market communications that it intends to keep the Volvo and Scania
organisations and brands separate, may have been relatively successful in this
strategy. An important number of heavy truck customers have referred to the fact
that the two units will remain separate, and that the proposed concentration will not
necessarily have an important impact on their future purchasing decisions.

124. In order to evaluate the impact of Volvo's decision to keep brands and marketing
organisations separate, the Alfred Berg report also provides comparisons with
previous mergers in which a similar decision was taken. Two operations are
considered: (1) Iveco-Pegaso; and (2) Freightliner-Ford (Sterling). It is appropriate
to cite these past cases because Volvo also relies on the experience in the
Freightliner case in order to assess the likelihood of loss of market share.

Iveco - Pegaso

125. When Iveco acquired Pegaso in 1990, the combined market share was 14%, which
had fallen to 10% last year. According to the report, "A key difference, we believe,
(with the present operation) is the strength of those brands compared to Volvo and
Scania. Merging two weak brands such as Pegaso and Iveco does not necessarily
create a strong player". This comparison therefore appears to be inappropriate.

Freightliner – Ford (Sterling)

34
This text is made available for information purposes only and does not constitute an official publication.

126. The Alfred Berg report indicates: "When Freightliner announced its acquisition of
Ford's heavy truck operations in January 1997, Ford's market shares had been on a
declining trend for many years. As the Ford name and products were dropped and
the new Sterling products were not introduced until a year later, market shares fell,
but have started to recover less than a year after the Sterling products reached the
market. We believe this has a very limited comparability with Volvo/Scania, as the
Volvo and Scania names are strong and no brands will be dropped".

127. Finally, it is worth mentioning that the Commission's conclusions, reached inter alia
in the light of the market investigation amongst customers, are further substantiated
by research carried out in the context of the econometric study. Alfred Berg
indicates: "The decisive factor as to whether a parallel branding strategy will be
successful is clearly what the customers say. We have interviewed a number of the
largest European hauliers to get their initial thoughts on the proposed merger.
Judging from interviews with purchasing managers at small, medium and large fleet
hauliers, there seems little to suggest that market shares should drop drastically in
the short to medium term, given that the organisations maintain separate channels
and management is kept intact". The main factors relevant for this conclusion are the
following: a) Separate distribution channels are a credible offer ("Most hauliers
seem to be of the opinion that, as long as dealer networks are separate, they will
continue to view both Volvo and Scania as separate offers in any truck tender"); b)
Service Networks reduce short-term risk ("The importance of the service networks
reduces the risk of a massive fall in combined market shares in the short term, as
competitors' networks, particularly in the Nordic countries, are relatively weak"; c)
No significant push from competitors ("Competitors naturally aim at moving their
positions forward at the expense of Volvo and Scania. Amongst the hauliers we
have talked to, none had, up to this point, noticed any increased marketing activity
from any of the competitors").

128. In the Reply Volvo claims that the results of the GfK surveys support Volvo's
analysis of the shrinkage effect. For instance, the Reply states that in Sweden 15%
of the top 20 customers of Volvo and Scania indicate that they will switch to a
competitor as response to a merger "in any event". The corresponding figure in the
small customer survey is 9%. However, there is no reason to believe that these
customers would eliminate Volvo and Scania completely from their fleets. Hence,
even if 15% of the large customers would introduce a new supplier this would not
correspond to a 15% market share loss among the large customers. If, for instance,
the customers switch to competitors to substitute half of the Volvo and Scania trucks
previously in the fleet, the market share loss among the large customers would only
be 7.5%. Similarly, among the small customers the market share loss would be
4.5%. This clearly illustrates that the GfK surveys indicate that a shrinkage effect of
15% in Sweden is not realistic, especially when taking into consideration the relative
number of small and large customers. Similar calculations can be made for the other
Nordic countries and the United Kingdom where the same type of survey has been
made. Hence, the conclusion must be that the GfK survey does not support Volvo's
claim of shrinkage effects of [10-20%] in Sweden and Norway and [10-20%] in
Denmark and Finland.

35
This text is made available for information purposes only and does not constitute an official publication.

129. Volvo also claims that the evidence from the Mercedes-Benz/Kässbohrer17 merger
supports Volvo's calculation of a large shrinkage effect in the Nordic countries.
After the oral hearing Volvo presented data that show a shrinkage effect over four
years after the Mercedes-Benz/Kässbohrer merger of 3% in inter-city buses and 5%
in touring coaches. Firstly, such figures do not in themselves support Volvo's claims
about the magnitude of possible shrinkage effects in the heavy truck markets in the
Nordic countries. Second, it is doubtful that effects which only materialise after four
years can be defined as "immediate", which is what Volvo contends in this case.
Furthermore, it is evident that possible shrinkage effects have to be analysed in light
of the specific circumstances of the markets in question, and in this context it may
be noted that the Mercedes-Benz/Kässbohrer merger concerned the German
markets, which are significantly larger and therefore potentially more attractive to
new entrants than any of the Nordic markets, and that even after the Mercedes-
Benz/Kässbohrer merger, there remained two independent German bus and coach
suppliers (namely MAN and Neoplan), whereas this would not be the case in the
Nordic countries.

130. Finally, Volvo presents in its Reply a figure called "Effect of Merger Activities, Daf
& Leyland, UK - impact on heavy duty market shares in home markets" and claims
that it shows post-merger shrinkage after DAF's acquisition of Leyland in 1985. It is,
however, not clear how the evolution of market shares over such a long time period
should be interpreted in relation to the shrinkage effect. In particular, the details of
the market situation at the time of the merger, including the level of dual sourcing,
the previous evolution of market shares, etc., would need to be analysed before any
conclusions could be drawn. Volvo has not provided any such information in its
Reply. Finally, it is surprising that Volvo has chosen not to provide details of the
evolution of its own market shares in the United Kingdom and Irish bus markets
after it acquired Leyland buses (around the same time as DAF's acquisition of the
Leyland truck division). Presumably, detailed information about any relevant
shrinkage effect resulting from this operation is available to Volvo.

131. In conclusion, Volvo has not been able to substantiate its claims of a large market
share loss as an immediate effect of this merger. Although there might be a certain
shrinkage effect, the Commission considers that it may be of a much smaller size
than that claimed by Volvo, and that in any event, Volvo has not shown that its
effects will be such as to change the competitive assessment.

Barriers to entry and absence of potential competition

132. As is apparent from the foregoing, in Sweden there is virtually no competitor to

Volvo and Scania, with the exception of DaimlerChrysler, which has a very weak
position corresponding to approximately 6% of the market. This market structure
has been broadly similar for a very large number of years. For the following reasons
the Commission considers that other truck manufacturers will not exert a
competitive pressure on New Volvo in Sweden.

17 See case No. IV/M.477 - Mercedes-Benz/Kässbohrer, Decision 14 February 1995, OJ L 211, 6.9.1995,
p. 1.

36
This text is made available for information purposes only and does not constitute an official publication.

133. In particular, based on the assumption that, following the operation New Volvo
would increase its prices by a small but significant amount, this price increase would
not be sufficient for companies not present or having a very limited presence in
Sweden to significantly penetrate the market or expand their presence in the market,
given the following considerations.

134. The results of the market investigation indicate that the so-called cab crash test
(described in the section on geographic market) constitutes a significant barrier to
entry into the Swedish market for heavy trucks. Moreover, it strongly indicates that a
strong presence on the service network level is essential for any truck manufacturer
to become truly competitive and that Volvo and Scania have an additional advantage
based on their well-spread service network in Sweden. The notion that such a
network is available is essential to transport companies when they consider which
truck brand to purchase. In the course of the market investigation, the difficulties in
establishing a geographically well-spread after-sales network has been described as
one of the main reasons for the very limited market entry by non-domestic
producers. Especially for small- and medium-sized truck operators, there is a high
risk that a break-down, which cannot be repaired immediately, will result in a direct
loss of revenue (as such an operator may not have a replacement vehicle at its
disposal).

135. In addition, it appears from the market investigation that it is only when the number
of trucks of the new entrant will exceed a certain number, that the costs associated
with the establishment/adaptation of a service network will be financially rewarding.
During the initial period of establishment, until a sufficient installed base has been
achieved, a new entrant may therefore have to run the service network at a loss. The
establishment of a sufficient installed base is therefore a significant entry cost. For
these reasons, an essential parameter for a new entrant will be the absolute
attractiveness of the market, i.e. the number of trucks than it can expect to sell
within a reasonable period in a given country.

136. According to information in the possession of the Commission, in terms of time, a

new entrant on the market would need at least five years to establish a sufficiently
large network. The costs for the establishment of such a network in Sweden have
been stated to be approximately EUR 20 million. This calculation is based on the
hypothesis of a total network, in Sweden, of 5 dealers, 14 branches and 92 service
points, which would appear to constitute the very minimum target for Sweden18.

137. Other costs would have to be incurred by the new entrant to effectively penetrate the
market, when referring to the establishment of a service network (and bearing in
mind the need to achieve a minimum market share, which would appear to be at
least 10% in the Nordic countries). The most important investments would include
training for salesmen and workshop technicians (EUR 1,500,000), demo vehicles
and demo drivers (EUR 1.500.000), "seed vehicles" given in trial to important
customers (EUR 1,000,000), local advertising (EUR 1,000,000).

18 As Scania and Volvo have, respectively 106 and 103 service points in Sweden, these figures appear
plausible for a company that would want to put itself in a position to be equally attractive to Swedish
truck operators as Volvo and Scania (before the proposed concentration). However, the indicated
number of dealerships is significantly lower than those of Volvo and Scania (each about 30).

37
This text is made available for information purposes only and does not constitute an official publication.

138. Although in absolute terms the above costs may not seem extremely high,
competitors have stated that they are not willing to make them unless they can be
properly amortised. Seen in the context of the economic size of the market in
question, it is submitted that it is highly unlikely that any truck manufacturer will
decide to penetrate the Nordic heavy truck market, and the Swedish market in
particular, in a way that would seriously challenge the position of New Volvo.

139. Volvo has argued that a potential source of competition would come from
DaimlerChrysler, since this company, although virtually absent from the heavy truck
market, is well-placed in the medium-duty truck market in Sweden in particular,
where it has approximately 31% market share. According to Volvo,
DaimlerChrysler would be in a position to easily adapt its network currently
dedicated to medium-duty trucks in order to service heavy-duty trucks.

140. As to this argument the following is noted. In the first place, the fact that
DaimlerChrysler has not been in a position to gain a significant market share over a
very long period of time is in itself a strong indication that market penetration is not
easily achievable, even for a company enjoying a relatively strong position in
medium-duty trucks. This consideration is further enhanced having regard to the
high margins achieved by Volvo on its sales of heavy trucks in Sweden.

141. In addition, the market investigation has revealed that, although market penetration
in the heavy truck market by a truck manufacturer with a certain presence in the
medium-duty segment may be easier, this penetration in any event involves costs
which are such as to constitute a sufficient deterrent for market expansion.
According to information collected on the market, to extend the capability of a
light/medium trucks network would require at least two years. In addition, the
company in question would have to bear costs equal to 50% of the costs indicated
above, that is to say at least EUR 2,500,000.

142. These costs have to be compared to the total size of the market, which is relatively
small for all Nordic countries. Therefore, in view of the time and costs associated
with the need to establish a comprehensive dealer and service network in each of the
Nordic countries, it is unlikely that any of the smaller competitors in those countries
would, in the short to medium term, be able to match the current establishments of
Scania, and thereby compensate for the loss of actual competition resulting from the
proposed concentration.

143. The conclusion that significant barriers to entry and/or expansion exist in the Nordic
markets for heavy trucks is further strengthened by the fact that these countries are
large but sparsely populated areas. Therefore, the Nordic markets may not be the
prime targets for future investments by the DaimlerChrysler and the other suppliers
that so far have only made limited inroads into the Nordic market, concentrating
mainly on the most densely populated areas. Indeed, it would appear more likely that
these competitors will focus their investments on Eastern Europe and other markets
where the growth prospects are better (as, indeed, Volvo itself intends to do).
Consequently, it cannot be presumed that even the more sophisticated customers,
who may want to increase their purchases from alternative suppliers, will necessarily
be able to find an alternative supplier who is able to provide the type of services that
Scania has provided in competition with Volvo prior to the concentration.

38
This text is made available for information purposes only and does not constitute an official publication.

Conclusion

144. On the basis of the foregoing it is concluded that it will be highly unlikely that actual
or potential competition or purchasing power among customers will be sufficient to
restrict New Volvo from exercising its increased market power resulting from the
acquisition of its only significant competitor and the resulting market share of over
90%. In addition, Volvo's margins in Sweden, as indicated by Volvo itself for three
chosen vehicle models, are high both in absolute terms and in relative terms when
compared to margins obtained in some other Member States, especially outside the
Nordic area.

145. It is therefore considered that the proposed operation would result in the creation of
a dominant position in Sweden.

DENMARK

Current structure of the market

Market shares

146. The current structure of the Danish market for heavy trucks is represented and
summarised in the following table:

Company 1998 Market Share

Volvo 28.7%
Scania 30.2%
DaimlerChrysler 17.7%
MAN 9.7%
RVI 3.3%
IVECO 6.8%
Paccar/DAF 3.8%

147. The table in paragraph 146 shows that currently only Volvo and Scania enjoy
prominent market positions in Denmark. Although other truck manufacturers are
better represented in Denmark than in the other Nordic countries, their presence
remains relatively limited. Furthermore an analysis of the market shares of the
different truck manufacturers over the years shows that the respective market
presence of all relevant truck manufacturers has largely remained stable over time.

148. Furthermore, as already noted for Sweden (and, in fact, the same is true for all
Nordic countries), graphs provided by Volvo relating to the evolution of market
shares of Volvo and Scania over a long-term period (10 years) show a direct
correlation between the respective market position of the two companies. This is a
strong indication that Volvo and Scania are currently each other's closest
competitors, and have been for a very long time.

149. Most of the factual elements relating to the importance of the brand and brand
loyalty, which have been analysed with regard to Sweden, also apply to Denmark.

150. A distinguishing feature of the Danish market is the similarities it shares with other
continental countries; its geographic location, customer preference for tractor-type
heavy trucks, the somewhat higher proportion of fleet customers (which to a certain
39
This text is made available for information purposes only and does not constitute an official publication.

extent is a consequence of the first element, as Denmark appears to have a relatively

higher proportion of international traffic than the other Nordic countries).
Nevertheless, Volvo's own price data shows that the price in Denmark is
significantly lower than in neighbouring Germany (about [0-10%]). This means that
the potential for Danish customers to resort to imports from Germany would be
limited if there was a price increase after the implementation of the proposed
concentration. It is, however, stressed that the number of fleet customers in
Denmark is still relatively limited when compared to that of other Member States,
such as in particular, the Netherlands, France and, to a lesser extent, the United
Kingdom. It is, however, stressed that the market investigation has revealed that this
type of customer also appears to be sensitive to Volvo's announcement of its
intention to keep brands and marketing organisations separate, thereby implying that
even for a relatively larger customer of heavy trucks, especially in the Nordic
countries, Volvo and Scania brands are "the brands", and are the closest competitors.
Many of these customers believe that a decision not to keep brands separate would
be detrimental to competition.

151. It is furthermore noted that some of these Danish fleet customers are in fact not
truck operators themselves, but rather rental companies, whose activity is to rent
single trucks or a number of trucks to, generally, small truck operators. This type of
customer will in fact be dependent, as far as the demand for heavy trucks is
concerned, on the requirements of the final customers, that are generally very small
operators, and often sensitive to brand considerations. During the market
investigation it has been thus submitted that the marketing of Mercedes trucks even
at a rebated price (5% to 15%) has proved difficult.

152. Furthermore, Volvo has provided information relating to the percentage of a certain
type of truck model ([a commonly sold model]) sold as single unit sales in different
Member States. This information shows that more than half of these sales ([50-
60%]) were made as single unit sales, which indicates that a significant proportion
of the Danish market is represented by sales to small operators.

Effects of the proposed operation on the Danish heavy truck market

Market shares - market structure

153. The proposed acquisition of Scania by Volvo would result in a New Volvo with a
combined market share of approximately 60% (28.7% plus 30.2%) in the Danish
heavy truck market. The next competitor would be DaimlerChrysler, with a market
share of 17.7%, followed by MAN (9.7%), RVI (4.2%), Iveco (6.8%) and
Paccar/DAF (3.8%).

154. Following the implementation of the proposed operation, the gap to the largest
remaining competitor would increase from a ratio of 2:1 to more than 3:1. The
proposed operation would result in the two main competitors on the Danish market
joining forces. Furthermore, as in relation to Sweden, the proposed operation would
result in the elimination of Volvo's closest competitor on the Danish heavy truck
market.

Brand loyalty

40
This text is made available for information purposes only and does not constitute an official publication.

155. Also in Denmark both Volvo and Scania enjoy the reputation of very strong brands,
ensuring for truck customers the best package in terms of whole life cost, and for
dealers large installed bases, on which the dealer has a better chance of making a
good return on its investment. All the arguments put forward in this decision as to
the effects of the proposed operation in Sweden are largely applicable in Denmark.
As in Sweden, in Denmark New Volvo will have specific strengths relating to the
reputation of the brands, suitability of the trucks, second-hand value, and service
network. Furthermore, the same arguments as to the alleged shrinkage effect that
would result from the implementation of the proposed operation, apply for the
Danish market.

Price discrimination

156. As has already been mentioned, the vast majority of the Swedish demand for heavy
trucks is composed of small to very small truck operators. Volvo has suggested that
a comparatively larger part of the Danish market is composed of so-called fleet
customers, and that these customers are less sensitive to considerations linked solely
to brand loyalty, and are in a better position to negotiate favourable conditions vis-à-
vis a number of truck manufacturers. However, it appears from the notification that
Volvo's five major customers of heavy trucks in Denmark do not represent more
than [0-10%] of Volvo's total sales of heavy trucks in that country. The importance
of these largest buyers, as a proportion of the merged entity's sales, would decrease
even further. Consequently, very few Danish truck customers will be in a strong
position vis-à-vis New Volvo, and the potential impact of the fleet owners on the
merged entity's behaviour should not be exaggerated. In addition, there are
indications that even for this category of customers (which, includes rental
companies), New Volvo may be in a position to raise prices, without being restricted
from doing so by other truck manufacturers, given the strength of New Volvo, in
terms of, inter alia, product suitability, second-hand value and after-sales services.
As already stated, Volvo's decision to retain a dual brand policy appears to have had
the intended effect on customers.

157. However, even assuming that New Volvo would not be in a position to raise prices
vis-à-vis the largest customers, there is evidence that it would be able to price
discriminate smaller customers against larger customers, that is raise prices to
smaller customers, who are less likely to switch to other truck manufacturers, and
apply more favourable conditions to larger customers. As a matter of fact, the
market investigation has made clear that the range of discounts granted by the truck
manufacturer to customers can vary enormously depending, specifically, on the size
of the customer and of the order at stake.

Barriers to entry and potential competition

158. The arguments set out above as to barriers to entry and unlikely entry/expansion on
the market by other truck manufacturers are also true for Denmark, which, although
being a bigger market than each of the other Nordic countries, remains, in absolute
terms a very small market when compared to the larger Member States.

159. As regards the specific costs to be incurred by a truck manufacturer to penetrate the
market, the market investigation has revealed that these costs would amount to EUR
21 million for the establishment of the network plus EUR 1,500,000 for the
41
This text is made available for information purposes only and does not constitute an official publication.

connected expenses (training, demo vehicles, "seed vehicles", local advertising).

The adaptation of an existing network could require up to 50% of this sum.
Although in absolute terms the above costs may not seem extremely high,
competitors have stated that they are not willing to make them unless they can be
properly amortised. The costs must be seen in the light of the economic size of the
market in question.

Conclusion

160. On the basis of the foregoing it is concluded that it is highly unlikely that actual or
potential competition or purchasing power among customers will be sufficient to
restrict New Volvo from exercising its increased market power resulting from the
acquisition of its only significant competitor and the resulting market share of 60%.
It is therefore considered that, if the Danish heavy truck market were to be
considered as constituting a separate geographical market, the proposed operation
would result in the creation of a dominant position in Denmark.

NORWAY

Current structure of the market

Market shares

161. The current structure of the Norwegian market for heavy trucks is represented and
summarised in the following table:

Company 1998 Market Share

Volvo 38.0%
Scania 32.2 %
DaimlerChrysler 9.3 %
MAN 12.5 %
RVI 0.8 %
IVECO 2.0%
Paccar/DAF 4.1%

162. The table in paragraph 161 shows that currently only Volvo and Scania enjoy very
strong market positions in Norway. The next competitor to Volvo and Scania in
Norway is MAN with a market share of about one third of that enjoyed individually
by both Volvo and Scania. Besides MAN, all other truck manufacturers have market
shares well below 10% and, in most cases, below 5%. Furthermore an analysis of
the market shares of the different truck manufacturers over the years shows that the
respective market presence of all relevant truck manufacturers has largely remained
stable over time.

163. Furthermore, as already noted for Sweden and Denmark (and the same is, in fact,
true of all Nordic countries) graphs provided by Volvo relating to the evolution of
market shares of Volvo and Scania over a long-term period (10 years) show a direct
correlation between the respective market position of the two companies. This is a
strong indication that Volvo and Scania are currently each other's closest
competitors, and have been for a very long time.

42
This text is made available for information purposes only and does not constitute an official publication.

164. Most of the factual elements relating to the extreme importance of the brand and
brand loyalty, which have been analysed with regard to Sweden and Denmark, also
apply to Norway.

Effects of the proposed operation on the Norwegian heavy truck market

Market shares - market structure

165. The proposed acquisition of Scania by Volvo would result in a New Volvo with a
combined market share of approximately 70% (Volvo: 38%, Scania: 32.2%) in the
Norwegian heavy truck market. The next competitor would be MAN, with a market
share of 12.5 %, followed by DaimlerChrysler (9.3%), RVI (0.8%), Iveco (2.0%),
Paccar/DAF (4.1%).

166. Following implementation of the proposed operation, the gap to the largest
remaining competitor would increase from a ratio of 3:1 to more than 5:1. The
proposed operation would result in the two main competitors on the Norwegian
market joining forces. With the exception of MAN, all other competitors would
have a market share of less than 10% and most of them of less than 5%.
Furthermore, as noted for Sweden and Denmark, the proposed operation would
result in the elimination of the two closest competitors on the Norwegian heavy
truck market.

Brand loyalty

167. Also in Norway, both Volvo and Scania enjoy the reputation of very strong brands,
ensuring for truck customers the best package in terms of whole life cost, and for
dealers large installed bases, on which the dealer has a better chance of making a
good return on its investment. All the arguments put forward in this decision as to
the effects of the proposed operation in Sweden are equally applicable in Norway.
As is the case in Sweden, in Norway New Volvo will have specific strengths when
compared to all other truck manufacturers, especially having regard to reputation of
the brand, suitability of the trucks, second-hand value, and service network.
Furthermore, the same arguments as to the alleged shrinkage effect that would result
from the implementation of the proposed operation apply for the Norwegian market.

168. It has been brought to the Commission's attention that trucks sold in Norway have to
meet specific technical requirements, given specific conditions due to, inter alia,
temperature, ice, snow and topography. In this context, it is important to note that
Volvo and Scania have the best experience and reputation for selling trucks which
can, in a reliable manner, satisfy the final customer's needs in these conditions.

169. Finally, according to the notification prices for Volvo's most commonly sold models
in Norway are substantially higher than in other countries (indeed, according to
these figures, the company has even managed to price its products in Norway at a
higher level than that applied in Sweden and in Denmark).

Price discrimination

170. Volvo has also suggested that a comparatively larger part of the Norwegian market
is composed of so-called fleet customers. The proportion of such customers in
Norway is, however, even lower than in Denmark. The potential impact of the
43
This text is made available for information purposes only and does not constitute an official publication.

behaviour of such large customers in Norway must therefore be regarded as

relatively insignificant. However, even assuming that New Volvo would not be in a
position to raise prices for the limited number of Norwegian fleet-customers, it is
likely to be able to price discriminate between smaller customers and larger
customers, that is raise prices to smaller customers, who, will not switch to other
truck manufacturers, and apply more favourable conditions to larger customers. As a
matter of fact, the market investigation has made clear that the range of discounts
granted by the truck manufacturer to customers can vary enormously depending,
specifically, on the size of the customer and of the order at stake.

Barriers to entry and potential competition

171. The arguments set out above as to barriers to entry and unlikely entry/expansion on
the market by other truck manufacturers are also true for Norway, which is an even
smaller market than Sweden, and a very small market when compared to the larger
Member States.

172. As regards the specific costs to be incurred by a truck manufacturer to penetrate the
market, the market investigation has revealed that these costs would amount to EUR
15.5 million for the establishment of the network plus EUR 1,200,000 for the
connected expenses (training, demo vehicles, "seed vehicles", local advertising).
The adaptation of an existing network could require up to 50% of this sum.
Although in absolute terms the above costs may not seem extremely high,
competitors have stated that they are not willing to make them unless they can be
properly amortised. The costs must be seen in the light of the economic size of the
market in question.

Conclusion

173. On the basis of the foregoing, the Commission concludes that it is highly unlikely
that actual or potential competition or purchasing power among customers will be
sufficient to restrict New Volvo from exercising its increased market power
resulting from the acquisition of its only significant competitor and the resulting
market share of 70%. The Commission therefore considers that the proposed
operation would result in the creation of a dominant position in Norway.

FINLAND

Current structure of the market

Market shares

174. The current structure of the Finnish market for heavy trucks is represented and
summarised in the following table:

Company Market share 98

Volvo 34%
Scania 31%
Renault/Sisu 18%
DaimlerChrysler 10%
Iveco 4%
MAN 3%
Paccard/DAF <1%
44
This text is made available for information purposes only and does not constitute an official publication.

175. The table in paragraph 174 shows that at present Volvo and Scania are by far the
leading competitors on the Finnish market for heavy trucks. Both Volvo and Scania
have a market share, which is approximately twice that of the closest competitor
Renault, which has an extensive cooperation with the Finnish company Sisu (it
appears that Sisu trucks, which are only sold in Finland, are assembled using mainly
components produced by Renault). For this reason, it appears appropriate for this
assessment to combine the activities of Renault and Sisu. DaimlerChrysler, the clear
market leader in the market for heavy trucks in the EEA, has less than one third of
the market share of either Volvo or Scania in Finland. Iveco, MAN and
Paccard/DAF are present on the Finnish market for heavy trucks only to a limited
extent.

176. As was shown by the graphs in paragraph 82, Volvo and Scania have both retained
high and relatively stable market shares over the last ten year period. The graph also
indicates that they are in direct competition with one another. This is true, in
particular, for the last five years of the period, as the graph shows a strong negative
correlation between the two makes in the sense that an increase in market share by
one of the two companies corresponds to a loss of market share for the other. It
should be noted that there has been a more distinctively negative correlation
between Volvo and Scania in this period, when, as will be indicated below, Sisu has
lost significant market shares.

Brand

177. Both Volvo and Scania are perceived as high-value brands particularly well-adapted
to the Nordic weather and road conditions. The strength of the respective brands is
based on the high quality of the trucks manufactured, their effective and very-well
spread after-sales network in Finland and in the high second-hand value of the
vehicles. All these elements make these two brands the most-favoured brands in
Finland.

178. The market investigation has confirmed the inelasticity of demand in the heavy truck
market. Purchasers of heavy trucks typically have regard for the whole life cost of
the vehicle including the initial purchase price, after-sales network, warranties and
second-hand value. Price is thus only one of the elements, determining the choice
for a heavy truck. In Finland, only Volvo and Scania and to some extent
Renault/Sisu have been able to offer a package including a good balance of all these
elements. However, in the Reply Volvo indicated that Sisu, as late as 1993 had a
market share of 30%, of which close to half was lost in the following five years.

179. Price information in the possession of the Commission further shows that the
parties' pricing for heavy trucks in Finland is consistently higher, for comparable
models, than pricing applied by other potential competitors. It can therefore be
concluded that not only the initial price paid for the purchase of the heavy truck but
also the presence of a number of elements, namely the after-sales network and the
second-hand value, which offsets the higher price paid for the initial purchase, play
an important role in a purchase decision.
45
This text is made available for information purposes only and does not constitute an official publication.

180. Volvo and Scania have been able to build up over time a loyalty vis-à-vis their own
respective brands in Finland. As already explained, the loyalty is expressed at least
at two levels: at the level of the dealer and at the level of the final purchaser, the
truck operator.

Brand loyalty - service network

181. The market investigation has provided indications that in the heavy truck market a
well-spread and effective after-sales network is crucial for any truck manufacturer to
penetrate a market. Both Volvo and Scania have an extensive after-sales network in
Finland. The strength of a service network is represented by its density, by the
technical capability of a given dealer/service point to serve the truck operator, and
by the contacts existing between the dealer/service points and the truck operator.

182. The market investigation indicates that a certain level of truck population is
necessary in order to ensure the dealer/service point an adequate return on
investment. On the basis of their installed base of vehicles in Finland, Volvo and
Scania are clearly in the best position, to attract dealers and service points. This, in
turn, gives them an advantage in terms of having a well-spread and effective after-
sales network in Finland. After a number of years good contacts between the
dealer/service points and the truck operator turn into relationships of trust between
the dealer/service point and the truck operator. This relationship of trust is part of
the reputation of the brand.

Brand loyalty - final customer

183. The market investigation has also provided indications that in Finland final
purchasers of heavy trucks also tend to be loyal to the Volvo and Scania brands.
Volvo and Scania are the only manufacturers (possibly with the addition of
Renault/Sisu, which has a significantly smaller and decreasing market share), which
are in a position to offer customers in Finland the best package in terms of whole
life cost of a truck. According to truck customers contacted, Volvo and Scania are
generally regarded as the best placed manufacturers to provide truck purchasers with
trucks suitable to the climatic conditions in Finland and satisfying the technical
requirements, including national legislation.

184. According to the information obtained from the Finnish Truck Association19 about
its members in 1999, the repartition of the number of trucks owned by truck
companies was as follows:

Number of % of such
trucks/ companies of
Company all truck
companies
1 66%
2 18%

19 Source :«Kuorma-autoliikenne Suomessa 1999 », by Suomen Kuorma-autoliitto, p.16, (« Truck-

transport in Finland 1999, by The Finnish Truck Association), p.16.

46
This text is made available for information purposes only and does not constitute an official publication.

3-4 10%
5-10 5%
11-15 0.5%
16-20 0.1%
21- 0.2%

185. The figures in paragraph 184 include the light, medium-heavy and heavy trucks. The
figures indicate that the vast majority, over 80%, of Finnish truck companies operate
1 to 2 trucks. In comparing the data with the results of the market investigation,
there is nothing to suggest that the repartition of heavy trucks would be considerably
different. In general, small customers will be more sensitive to the brand loyalty
considerations discussed above than customers with a large number of trucks in their
fleets.

Effects of the proposed operation on the Finnish heavy truck market

Market shares

186. The proposed acquisition by Volvo of Scania would result in a New Volvo whose
combined market share in Finland would be equal to 65% of the market according to
1998 figures. The next competitor to the new entity is Renault/Sisu with a current
market share of 18%. It should be noted that Renault's involvement with Sisu does
not appear to have had any significant impact on the company's market position
(indeed, according to Volvo's own figures, Sisu has lost a significant part of its sales
since 1993). The next competitor is DaimlerChrysler with a market share of 10%.
The other European truck manufacturers would continue to have a considerably
smaller share of the market: Iveco: 4%, MAN: 3%, Paccar/DAF: <1%).

187. Therefore, the proposed operation results first, in a significant overlap between the
parties' activities in Finland. The proposed concentration would also significantly
increase the market share gap between New Volvo and its closest competitors. Prior
to the concentration the closest remaining competitor Renault/Sisu had a market
share that was approximately half of that of the market leader. Following the
implementation of the concentration Renault/Sisu would have a market share that is
almost four times smaller than that of the new entity. Similarly, prior to the
concentration DaimlerChrysler, the European market leader in heavy trucks, holds a
market share of one third of that of the market leader in Finland. Following the
proposed acquisition it would have a market share more than six times smaller than
that of New Volvo.

188. Secondly, the information provided by Volvo (further corroborated by the graphs in
paragraph 82), as well as the Commission's investigation, clearly supports a finding
that, prior to the proposed concentration, Volvo and Scania have been each other's
main competitors. The proposed concentration would result in the loss of this
competition and the advantage that New Volvo would have over the remaining
competitors would also increase significantly in Finland.

189. Finally, the situation is further aggravated by the fact that, like in Sweden, the very
strong market position of both Volvo and Scania in Finland is not a recent
phenomenon or the result of strong variations in market shares. It is therefore not
likely that other truck manufacturers will maintain considerable competitive
47
This text is made available for information purposes only and does not constitute an official publication.

pressure on the parties. An evaluation of the respective market shares of the parties
in Finland, illustrated by the graphs found in paragraph 82, indicates that the
respective market position of Volvo and Scania has remained relatively stable over a
long period of time. This is further confirmed by the market investigation.

Dealer and customer loyalty

190. New Volvo will be in a position to operate on the heavy truck market in Finland on
the basis of Volvo's and Scania's combined specific strengths. It will continue to
benefit from a traditional dealer and customer loyalty for both brands. The market
investigation has shown that competitors of Volvo and Scania may face significant
difficulties in establishing a sufficiently dense network of dealers/service points in
Finland, compared to that of Volvo and Scania. This is essentially because such a
network must necessarily rely on a sufficient return on investment based on a
sufficiently large population of trucks in circulation in Finland.

Customer structure

191. Given the market structure on the demand side, namely the large number of small
truck companies in Finland, the new entity will be in a position to profit from the
customer loyalty of both brands and therefore also be in a position to raise prices.
On the basis of the information provided by Volvo in the notification, it appears that
none of Volvo's largest EEA customers by fleet size has activities in Finland. In
addition, Volvo's five major customers for heavy trucks in Finland represent only [0-
10%] of Volvo's total sales in that country and Scania’s sales to its five major
customers [0-10%] of its total sales in Finland.

192. According to supplementary information provided by Volvo at the request of the

Commission, this conclusion is further corroborated by the following elements.
According to Volvo’s own estimates (see page 5 of submission dated 25
November1999), its sales of a specific model of heavy truck ([….]), which is a
commonly sold model in Finland20, show that [70-80%] of the total number of these
trucks sold in Finland are sold as single unit sales and [20-30%] as multi-unit sales.

Customer structure and dual sourcing

193. Volvo maintains that many of their truck customers also in the Nordic countries are
sophisticated professional buyers with a policy of dual-sourcing. According to
Volvo, these customers currently pursue a policy of double-sourcing or multi-
sourcing, in order not to be dependent on a single truck manufacturer. Whereas
some Finnish truck customers submit that they keep two brands (most often Volvo
and Scania) in their truck fleet in order to exert competitive pressure on the other
brand, the smaller truck operators in particular, which, as indicated in paragraph
184, represent the vast majority of Finnish truck companies, have a strong interest in
limiting the fleet to one make. The advantages related to such a strategy (lower costs
for maintenance and training of personnel) that have already been described in
relation to Sweden are equally applicable in Finland.

20 According to Volvo [….] is the highest or 2nd highest volume model in all of the Nordic countries and
in 1998 accounted for [20-30%] of all Volvo heavy trucks sales in the Nordic region.

48
This text is made available for information purposes only and does not constitute an official publication.

Customer structure and shrinkage effect in Finland

194. According to Volvo, the proposed operation will inevitably result in a shrinkage
effect, i.e. in current Volvo and Scania heavy truck customers switching to other
makes. The proposed operation would, in Volvo´s view, result in a loss of
customers, in percentage of market share, corresponding to 15% in Finland. The
Commission’s reasons for not placing as much faith as Volvo on this theory have
been presented in the section concerning Sweden.

Barriers to entry and absence of potential competition

195. As can be concluded from the foregoing, Volvo and Scania are the two main
competitors on the Finnish heavy trucks market, where Renault/Sisu and
DaimlerChrysler have a much weaker position corresponding to approximately 18%
and 10% of the market respectively. The market structure has remained relatively
constant in this respect for at least a decade. It is the view of the Commission that
other truck manufacturers will not be able to exert a significant competitive pressure
to New Volvo in Finland. This conclusion is based on the following reasons.

196. In particular, based on the assumption that following the operation, New Volvo
would increase its prices for heavy trucks by a small but significant amount, this
price increase would not be sufficient to enable companies not present or having a
very limited presence in Finland to sufficiently penetrate the market, or expand their
presence.

197. As already stated, the market investigation indicates that the costs associated with
the establishment/adaptation of a service network will only be financially rewarding
when the number of trucks of the new entrant exceeds a certain level. Establishing
such a network will take several years and require considerable investment from the
manufacturer. In carrying out the calculation, an essential parameter for the new
entrant will be the absolute attractiveness of the market, i.e. the number of trucks
that can be sold in a given country. Adaptation of a service network also comprises
training for salesmen and workshop technicians, demo vehicles, demo drivers, "seed
vehicles" and local advertising.

198. The results of the market investigation clearly indicate that a strong presence on the
service network level is essential for any truck manufacturer to become truly
competitive. Volvo and Scania have both been able to establish a well-spread
service network in Finland. The extent of the service network is an essential factor
for truck companies when considering which truck brand to purchase. According to
the market investigation, the difficulty for, for instance DaimlerChrysler, in
establishing a comparable geographically well-spread after-sales network to Volvo
or Scania for heavy trucks in Finland, is indicative of the so far relatively limited
presence of DaimlerChrysler or of other European truck manufacturers in Finland.
The manufacturers’ inability to repair a truck immediately may, especially for small
operators, result in a direct loss of revenue.

199. With regard to the limited size of the Finnish market, time and costs associated with
the need to establish a comprehensive dealer and service network and the already
much weaker position of competitors of Volvo and Scania in Finland, it appears
unlikely that following the proposed concentration, any of these manufacturers,
including DaimlerChrysler, would be in a position to significantly extend its service
49
This text is made available for information purposes only and does not constitute an official publication.

network or, with regard to a new entrant, efficiently penetrate the heavy truck
market in Finland. Therefore, it is unlikely that any of the smaller competitors will,
in the short to medium term, be able to match the current position of Scania on the
Finnish market, and thereby compensate for the loss of actual competition resulting
from the proposed concentration. Such a loss of actual competition has also been
considered among customers as resulting in a significant deterioration of
competition on the heavy trucks market in Finland.

200. As already discussed in the section concerning the Swedish heavy trucks market,
Nordic markets including Finland may not be the prime targets for future
investments by DaimlerChrysler and the other European manufacturers that have
less presence in Finland, given the already significant barriers to entry and the
relatively small size of the market. Markets in Eastern Europe are more likely to
offer better growth prospects for manufacturers like DaimlerChrysler. Consequently,
even the more sophisticated customers may face difficulties in finding an alternative
supplier able to provide the type of vehicles and services that Volvo and Scania have
provided prior to the concentration in Finland.

Conclusion

201. On the basis of the foregoing the Commission concludes that it is highly unlikely
that actual or potential competition or purchasing power among customers will be
sufficient to restrict New Volvo from exercising its increased market power
resulting from the acquisition of its only significant competitor and the resulting
market share of 65%.

202. For all these reasons, the Commission therefore considers that the proposed
operation would result in the creation of a dominant position in Finland.

IRELAND

Current structure of the market

Market Shares

203. The current structure of the Irish market for heavy trucks is represented and
summarised in the following table:

Company 1998 Market Share

Volvo 22.0%
Scania 27.1 %
DaimlerChrysler 8.6%
MAN 6.2%
RVI 2.7 %
IVECO 8.0%
Paccar/DAF 13.2%

204. The table in paragraph 203 shows that Scania is the market leader in Ireland with
27% market share, and the closest substantial competitor is Volvo with 22% market
share. All other truck manufacturers enjoy much weaker market positions, and, with
the exception of Paccar/DAF which has a market share of approximately 13%, all
other truck manufacturers are quite weak with market shares below (or well below)
10%.
50
This text is made available for information purposes only and does not constitute an official publication.

205. On the basis of the figures in paragraph 203 it therefore follows that before the
proposed operation Volvo and Scania together represent nearly 50% of the Irish
heavy truck market, and that they are the main competitors in that country.

Effects of the proposed operation on the Irish heavy truck market

Market Shares - Market Structure

206. The proposed acquisition of Scania by Volvo would result in a New Volvo with a
combined market share of approximately 50% in the Irish heavy truck market. The
next competitor would be Paccar/DAF, with a market share of 13.2 %, followed by
DaimlerChrysler (8.6%), MAN (6.2%), RVI (2.7%) and Iveco (8.0%).

207. Following implementation of the proposed operation, New Volvo would obtain
nearly 50% market share in Ireland, which leads to the presumption of the existence
of a dominant position.

208. This is compounded by the fact that both parties have enjoyed high and relatively
stable market shares in Ireland over the last three years. According to the
notification, Volvo's market share in 1996 was 23% and its market share in 1997
was 27%. Scania had 29% in 1996 and 27% in 1997. Over the same period,
Paccar/DAF, DaimlerChrysler and MAN have increased their market shares
somewhat, but remain below 10%, with the exception of Paccar/DAF. RVI and, in
particular, Iveco have lost market shares over the last three years. It appears that the
gains by Paccar/DAF, DaimlerChrysler and MAN correspond to the loss of market
share experienced by RVI and Iveco.

209. The proposed operation would result in the combination of the two leading suppliers
on the market. Moreover, the next largest competitor would be far smaller, with a
market share of only 13%, or about one quarter of that of New Volvo. Furthermore,
the market share development over the last three years indicates that the high and
relatively stable combined market share of Volvo and Scania is relatively unaffected
by market share variations within the group of smaller competitors.

Brand loyalty

210. Again, the existing evidence indicates that the proposed concentration would mean
that the two strongest brands would combine their forces. Both Volvo and Scania
have developed a loyalty in Ireland over the years, through offering of competitive
packages to truck operators, including not only the price for the truck, but also
excellent terms of warranty and after-sale service. Their respective market positions
would now be consolidated. The market shares of Volvo and Scania taken together
have not been subject to significant fluctuation over the last three years.

Barriers to entry and potential competition

211. The arguments set out above as to barriers to entry and unlikely entry/expansion on
the market by other truck manufacturers for the Nordic countries also apply in
relation to Ireland. Ireland has many similar features to the Nordic markets, a
dispersed customer structure (where, for example, the five largest Volvo customers
only account for [10-20%] of total Volvo sales and the five largest Scania customers
account for [0-10%] of Scania sales), a small market size and the market is relatively
51
This text is made available for information purposes only and does not constitute an official publication.

unattractive for investments. In fact, the Irish market for heavy trucks is extremely
small. Its annual volume is, for example, approximately half of that of the Danish
heavy truck market. It is therefore unlikely, even in the event of a price increase, that
other heavy truck manufacturers would find it an attractive target for expansion
and/or entry.

Conclusion

212. For these reasons the Commission concludes that the proposed operation will result
in the creation of a dominant position in Ireland.

Overall conclusion on the markets for heavy trucks

213. On the basis of the foregoing, it can be concluded that the proposed concentration
would create a dominant position on the markets for heavy trucks in Sweden,
Norway, Finland, and Ireland. There are strong indications that this would also be
the case in Denmark. However, this question does not have to be settled in the
context of the current proceedings.

(ii) Buses and Coaches

A Relevant product market

214. The proposed operation will also produce a major impact on the bus market. The
operation will create the second largest European bus manufacturer after
DaimlerChrysler.

215. The Commission has already examined the bus and coach markets on several
occasions.21 In the most recent decisions, the Commission has concluded that
although the boundaries between the main different segments of buses and coaches
are not rigid, there are three categories of buses, each corresponding to a separate
product market. The categories are city buses, inter-city buses and touring coaches.

216. In general, buses are typically designed for a specific type of travel service. City buses
are, for example, designed for a type of travel where people typically spend a few
minutes or, at any rate, only a short time on the bus and where easy entry and exit is
important. Touring coaches, on the other hand, are designed for transporting people
over long distances, where people spend hours or even days in the vehicle. The design
of touring coaches emphasizes comfort and storage space rather than ease of entry and
exit.

217. The different requirements of different types of transport service mean that buses are
heterogeneous products. Broadly speaking the market can be described as having, at
one extreme, low-floor city buses with more and/or wider doors for public transport
services in urban areas and at the other extreme, luxurious double-decker touring
coaches for long-distance tourist travel. A large number of different types of buses
exist in between. Furthermore, the various types of buses are available in different

21 See case No. IV/M.477 - Mercedes-Benz/Kässbohrer, Decision of 14 February 1995, OJ L 211,

6.9.1995, p. 1, and case No. IV/M.1202 - Renault/Iveco, Decision of 22 October 1998.

52
This text is made available for information purposes only and does not constitute an official publication.

sizes. Demand is therefore very diverse, since the bus operator will demand a bus
designed specifically for the transport services it expects to provide.

218. In the notification, the relevant market is defined as the overall bus market. In
particular, Volvo notes that: (i) the supply-side factors that would lead to the
assessment of these three segments as a single product market would be particularly
applicable in the case of both Volvo and Scania, as, according to the most recently
submitted figures, they achieve [50-60%] and [20-30%] of their respective EEA sales
by selling chassis only, and since the same chassis is used for different types of buses;
(ii) the major European bus producers are present in all segments and largely occupy
the same relative position in terms of sales share; (iii) the development of an EEA-
wide market for city and inter-city buses significantly diminishes one of the earlier
distinctions between city and inter-city buses, on the one hand, and coaches, on the
other; (iv) the boundaries between city and inter-city buses, on the one hand, and inter-
city buses and touring coaches, on the other, are fluid. In the notification, the notifying
party concludes that this would be particularly true in the Nordic countries where there
are very few large cities with exclusively urban traffic.

219. At the oral hearing, Volvo maintained this position and repeated that there is no
distinct boundary between the three segments of city and inter-city buses and touring
coaches. According to Volvo, low floor city buses are being used for inter-city
operations, whilst low floor or standard floor height inter-city buses are used for city
operations. Likewise, coaches are used for inter-city operations and inter-city buses
for coach operations. The notifying party further contends that, particularly in
Finland and the United Kingdom, so-called midi buses, which are smaller in size
and weight, are used for the same type of travel service as large buses. Also
concerning the chassis components, for example the engine and gearbox, Volvo
maintains that there is a great overlap between the three bus segments. As will be
shown in the following section, despite the fact that boundaries between these three
segments are fluid to some extent, this cannot be taken as the decisive element
establishing the existence of one single product market.

Buses are heterogeneous products with low demand side substitutability

220. The line of reasoning put forward by Volvo, both in the notification and at the oral
hearing, a single relevant market for all buses cannot be accepted. Clearly, there is no
demand-side substitutability between a low-floor city bus with room for a large
number of standing passengers and a double-decker touring coach with toilet, video
and kitchen. There exists between these two extremes a range of different types of
buses, which, on the basis of their design and equipment, are suited for a large number
of different purposes. In general, it may be said that requirements in terms of technical
specifications and equipment, which determine the ride and travelling comfort for
passengers, increase with the distance for which the bus is primarily intended. Thus,
such requirements increase in proportion to the extent to which a given type of bus is
intended more for touring than for scheduled services. Nevertheless, contrary to the
view taken by the notifying party in the notification and at the oral hearing, it cannot
be deduced from this gradual transition to greater comfort and more luxurious
equipment, and from the resulting heterogeneity of buses, that the market for buses
consists of a single relevant market. The difficulty in determining a precise
demarcation of the market within a broad and highly differentiated product range

53
This text is made available for information purposes only and does not constitute an official publication.

cannot be accepted as the basis for dispensing with a market definition altogether
despite the obvious lack of substitutability between particular products.

221. In 1990 and 1991, the Commission took the view in two Decisions22 concerning the
French market that two markets - buses operating in public transport and touring
coaches - would have to be distinguished. In 1995, the Commission adopted a decision
concerning the German market23 and in 1998 a decision relating to the Italian, French
and Spanish markets.24 Whilst both Volvo and Scania are active across the EEA, their
market position is significantly stronger in northern Europe. Consequently, the
Commission's market investigation in the present case is particularly focused on the
Nordic area of Europe (namely, Denmark, Finland, Norway and Sweden) as well as
the United Kingdom and Ireland.

Differences in technical characteristics

222. The Commission's market investigation in this case shows that there is a clear
distinction between, in particular, city/inter-city buses on the one hand and touring
coaches on the other hand. This applies both to the supply- and demand-side of the
market.

223. The supply-side data submitted by Volvo and Scania as well as data obtained from
other suppliers confirms that there are important differences in terms of chassis
characteristics between the various types of buses. Thus, the parties' best selling
chassis model of a city bus is in most countries a low-floor or low-entry, two-axle bus
with a relatively low horsepower engine (typically around 250 HP). The parties' best
selling coach chassis, on the other hand, is a high-floor bus with an engine of around
400 HP. Furthermore, in some countries the best selling coach is a three-axle vehicle.
A typical inter-city bus will generally have a high floor, but a relatively weaker engine
than a touring coach. Inter-city buses may also be longer than city buses and coaches.
Articulated buses are used primarily for inter-city services.

224. From a demand-side point of view, these differences in technical characteristics do not
only necessitate a decision as to the primary intended use of the vehicle, but also result
in important price differences between (chassis for) city-buses, inter-city buses and
coaches.

225. As a reminder, the main features of the three types of buses may be summarized as
follows:

(a) City buses

City buses are designed for public transport in urban areas. They tend to have a low
floor (or low entry) without any steps, as well as more and wider doors than other types

22 See case No. IV/M.004 - Renault/Volvo, Decision of 7 November 1990, point 15; case No IV/M.092 -
Renault/Heuliez, Decision of 3 June 1991, point 5.

23 See case No. IV/M.477 - Mercedes-Benz/Kässbohrer, Decision of 14 February 1995, OJ L 211,

6.9.1995, p. 1.

24 See case No. IV/M.1202 - Renault/Iveco, Decision of 22 October 1998.

54
This text is made available for information purposes only and does not constitute an official publication.

of buses. Only city buses will be designed to have room for standing passengers. The
main feature of city buses is that they are constructed primarily with a view to facilitate
frequent entry and exit. The main customers are municipal and local authorities and, in
countries where public transport has been privatized, private operators which have won
tenders to provide bus transport services on behalf of such municipal and local
authorities.

(b) Inter-city buses

Inter-city buses are designed for public transport in rural districts and public inter-city
travel. In common with city buses, these buses do not normally have particularly
luxurious equipment. From a technical point of view, they are, for the most part, not
low-floor buses and generally have more powerful engines than city buses (but less so
than touring coaches). Due to the nature of the service, features that facilitate entry and
exit are less important than in city buses. The main customers are regional public bus
operators, as well as private companies operating scheduled services. Buyers of inter-
city buses are often also customers for city buses.

(c) Touring coaches

Touring coaches are primarily intended to serve the leisure market, mainly for
long-distance tourist travel. As with inter-city buses, features that facilitate frequent
entry and exit are not prioritized in touring coaches. A touring coach will normally be
equipped with a manual gearbox, whereas the two other types of buses will have
automatic gearboxes. Touring coaches tend to be higher than inter-city buses and are
equipped in a comparatively luxurious manner. They are often equipped with more
luggage space, air conditioning, toilets and television screens, which make such buses
more suitable for long trips. The main customers are private operators of leisure or
charter trips. The market investigation has showed that certain operators, during off-
season periods, may use their touring coach for other purposes, for example inter-city
services. The fact that a touring coach can have a secondary field of application does
not, however, imply that there would be any significant substitutability between these
products and, for example, inter-city buses.

226. The Commission also notes that this division of the overall bus market into three
segments is generally reflected in the sales literature of all the suppliers, and is widely
accepted by suppliers and customers in the market.

Distinct buyer groups

227. A further distinction has to be drawn on the basis of the type of customers. City and
inter-city buses are normally bought by public or private operators in charge of
scheduled public transport services. In this respect, it has been brought to the
Commission's attention that public authorities in charge of public transport continue to
influence demand conditions even in countries where privatization of such services
has taken place, for example, by specifying detailed requirements as to the vehicle
specifications in the request for competitive tenders for the operation of scheduled bus
services. In this respect, it should be noted that, following privatization, the tender
procedure will normally no longer apply to the purchasing of the vehicles as such, as
these purchases will no longer be made by the public authorities. Sales of touring
coaches, on the other hand, are normally not influenced by public authorities, as
touring coaches are bought by private operators and used for leisure transport.
55
This text is made available for information purposes only and does not constitute an official publication.

Therefore, whilst it can be an important competitive parameter for a leisure travel

operator to offer a luxuriously equipped touring coach, this is often not the case for
companies operating public city- and inter-city transport, as, for these services, the
specifications for the vehicle will normally be set by the public authority organizing
the service and the tendering procedure.

228. The market investigation has revealed a second important distinction on the
customer side. Prior to privatisation and liberalisation of the bus transport sector,
most bus companies were only active on a local or regional basis. However, over the
last decade, the liberalisation of public scheduled city- and inter-city bus services
has led to the creation of a number of large national, and in some cases even
international, bus fleet operators. Also the notifying party has emphasised
throughout the procedure the rapid pace of the consolidation process that has taken
place on the part of bus operators in the past decade, whereby the bus customers’
fleet sizes have increased considerably and thus also their buying power vis-à-vis
bus manufacturers. Nevertheless, the market investigation has shown that bus
manufacturers can, and do, discriminate between the price and other conditions
granted to small and large customers, and that purchasing preferences between these
groups can vary significantly. It will therefore be appropriate to consider in the
assessment below, that bus manufacturers are able to price discriminate between
small and large customers.

Supply side substitutability is not effective

229. As regards supply-side substitutability, the market investigation has confirmed Volvo's
contention that all major bus manufacturers in Europe are present in all three
segments. However, contrary to Volvo's contention, the relative positions of these
manufacturers, in terms of sales, differ substantially when comparing, on the one hand,
their sales of the three types of buses, and, on the other hand, each supplier's market
share in each Member State or group of Member States, and in Europe as a whole.
This element will be further examined when considering the geographic dimension of
the markets.

Conclusion on relevant product markets

230. As already stated, there are significant differences between a typical city bus, inter-city
bus and touring coach. Given that the buyer of a bus, in any purchasing situation, will
have a definite idea as to the type of service for which the vehicle is primarily
intended, the substitutability between the various types of buses will necessarily be
low. It is therefore likely that the merged entity would be able to take advantage of this
in the future, if it were to achieve increased market power in one or more of the three
vehicle types as a result of the notified transaction. For these reasons, the Commission
considers it appropriate to assess the competitive impact of the notified transaction on
the basis of separate markets for city buses, inter-city buses and touring coaches.

B Relevant geographic markets

231. In the notification, Volvo submits that the relevant geographic market for touring
coaches, city buses, and inter-city buses is at least the EEA, and claims that this
conclusion is supported by evidence relating to price levels, which have been stated
as generally being, with a few exceptions, within a ±10% range throughout the EEA.

56
This text is made available for information purposes only and does not constitute an official publication.

Furthermore, Volvo considers that there are no national barriers to entry, which is
confirmed by the presence of all the leading producers throughout the EEA.

232. In its Reply and at the oral hearing, Volvo maintained that price discrimination and
import penetration should in general constitute the appropriate focus of the
geographic market definition instead of non-price factors, such as customer
preferences, technical requirements, purchasing habits and market shares. With
reference to the Commission's decision in the Mercedes-Benz/Kässbohrer case,
Volvo claims that price comparisons for buses and coaches are rendered difficult by
differences in the type of bus, in equipment and in determining transaction prices.
Therefore, in its Reply it did not submit any further elements supporting its
contentions as to the price levels remaining within a ±10% range throughout the
EEA. It has, however, submitted evidence relating to market penetration rates for
city buses, inter-city buses and touring coaches. Consequently, the notifying party
bases its definition of the relevant geographic market on the approach adopted by
the Commission in its decision in the Renault/Iveco case, and on the non-price
factors.

233. The Commission agrees that the ability of manufacturers to price discriminate
between different geographic areas is a central element of defining the relevant
geographic market. There are indications that Volvo has been able to charge
substantially different prices in various Member States. Other elements such as
customer preferences, technical requirements, purchasing habits, market shares and
import penetration are relevant for the definition of relevant markets to the extent
that they give indications about the ability of manufacturers to price discriminate.
The Commission's investigation has shown that these elements support the finding
of national geographic markets in the Northern European areas where the impact of
the concentration would be the strongest.

234. The notifying party has in particular pointed out in its notification and Reply that the
decision in the Renault/Iveco case focused on the existing levels of import
penetration when it defined the relevant geographic market for touring coaches as
EEA-wide in scope. In that case, which the Commission approved without opening
a second-phase investigation, the Commission considered that the level of import
penetration of non-national manufacturers of touring coaches in France and Italy
was relatively high on the market for touring coaches (between 65% and 70%).
However, according to information submitted by Volvo, the level of import
penetration in the United Kingdom (40%) and Finland (10%), which are the relevant
Member States in the present case, is significantly lower. Taking into account the
other elements analysed in more detail in the following paragraphs, these figures
cannot be taken as a strong indication of an EEA-wide market.

235. For the reasons set out in detail below, it follows from the market investigation that,
as far as the Nordic region (Sweden, Finland, Norway and Denmark) and the United
Kingdom and Ireland are concerned, Volvo's contention as regards the geographic
market for city buses, inter-city buses and touring coaches cannot be accepted.
Instead, the market investigation has provided indications that the markets in
question are still essentially national in scope. As regards the Finnish market, and in
particular in view of some linguistic, cultural and historical factors, this was also the
view presented by the Finnish Bus and Coach Association at the oral hearing.

57
This text is made available for information purposes only and does not constitute an official publication.

236. For the remaining Member States, the geographic scope of the market can be left
open, as regardless of the definition adopted, the proposed concentration would not
lead to the creation or strengthening of a dominant position. This will be further
elaborated in the section dealing with the competitive analysis.

Touring Coaches

Market shares vary significantly between Member States

237. Volvo's contention as to the existence of an EEA-wide market for touring coaches is
not supported by the facts concerning its sales across that area, as indicated in the
notification. It has been indicated that Volvo has a market share of [10-20%] in the
EEA. Its market share is significantly higher in the Nordic countries, the United
Kingdom and Ireland. At the same time, its market shares in a number of countries
is significantly below this EEA average ([0-10%] in Austria, [0-10%] in Belgium,
[0-10%] in France, [0-10%] in Germany and [0-10%] in Spain). Similar national
deviations from the average EEA market share can be observed for Scania and all
other touring coach manufacturers. Apart from vague references to historical
reasons, Volvo has not provided any explanation as to how, in its view, such
differences in market shares between Member States could be compatible with its
contention that the touring coach market is EEA-wide.

238. The combined market share of Volvo and Scania for 1998 is set out in the table
below.

Member State City buses Inter-city buses Touring coaches

Sweden [80-90%] [80-90%] [20-30%]
Finland [90-100%] [80-90%] [80-90%]
Norway [60-70%] [80-90%] [40-50%]
Denmark [80-90%] [70-80%] [30-40%]
United Kingdom [60-70%] [50-60%]
Ireland [90-100%] [60-70%]25

Purchasing habits are not similar across Member States

239. Furthermore, there are significant variations between Member States as concerns the
purchasing behaviour of touring coach customers. The final user has two main
possibilities to purchase a touring coach. It can either buy a complete touring coach,
or it can buy a chassis from, for example, Volvo and a touring coach body, that is to
say, the complete passenger compartment, from a so-called body-builder. The latter
case may, or may not, involve a contractual arrangement between Volvo and the
body-builder. Measured at the EEA-level, Volvo achieves [40-50%] of its total sales
from selling complete vehicles. The corresponding figure is [70-80%] for Scania.
However, these figures vary significantly for individual Member States. For an
example, all of Volvo's touring coach sales in Sweden, Norway and Finland in 1998
were complete vehicles, as were a majority of Scania's sales. This is largely
explained by the fact that both Volvo and Scania are vertically integrated with the

25 As explained below, the market investigation has shown that this figure is considerably lower than that
submitted by Volvo.

58
This text is made available for information purposes only and does not constitute an official publication.

main body-builders in the Nordic region. On the other hand, in Ireland and Greece
all sales were limited to chassis only, whereas in the United Kingdom approximately
[80-90%] of all sales comprised chassis only.

240. In addition, as stated in the notification, a particular feature of the demand structure
in the United Kingdom and Ireland, when compared to all other Member States, is
that there are no sales of inter-city buses.

Purchasing is done on a national basis

241. The above described national characteristics are consistent with the Commission’s
findings that buyers of touring coaches very rarely turn to dealers established outside
their country. For this reason, a German manufacturer, for example, needs to have
an established sales and distribution system in each of the Nordic countries and in
the United Kingdom and Ireland, if it wants to achieve significant sales in the
country in question. Consequently, as touring coaches are mainly imported into
these countries by the respective manufacturer's national organisations, the
competitive conditions, even in neighbouring countries, appear to have little or no
impact on the selling conditions in any given country.

242. One reason indicated by touring coach customers for their preference for making
their purchases within their country of establishment is that this will provide them
with more reliable access to servicing of the vehicle to the extent such service
cannot be done in-house by the touring coach company. In that respect it must be
emphasised that a significant proportion of the touring coach customers are small-
and medium-sized companies. For these customers, even the existence of significant
price differences would not necessarily justify having to transport the vehicle to a
foreign dealer for the necessary servicing and repairs. Another reason stated by
customers against buying vehicles outside their country is the time, effort and cost
involved in changing the registration of the vehicle. In addition, there is a risk that
the second-hand value of a "privately" imported vehicle is lower and/or that it may
be more difficult to use as a "trade-in" in future transactions with dealers in their
own country. Contrary to what Volvo stated in its Reply and at the oral hearing, a
number of customers have also referred to the perceived quality of the vehicle and
the availability of spare parts and servicing as essential criteria for a purchase
decision. These criteria are strongly associated with the Volvo and Scania brands in
the Member States assessed below.

Technical requirements and preferences vary between Member States

243. In addition, the market investigation has revealed that, despite a certain degree of
harmonisation achieved at the European level, a number of technical requirements
and preferences that are pertinent to touring coaches and other bus types still vary
across Member States.26 One such example is that the maximum permitted length of
the vehicle is 12 metres in France, the Netherlands, Italy and Austria. Denmark has a

26 Volvo in its Reply refers to current discussion about further harmonisation concerning the length and
width of buses and coaches used in international traffic. Volvo estimates that this further harmonisation
will be in effect from 2002. Volvo has, however, not provided any evidence about the market impact of
these new rules, should they be adopted according to the time schedule envisaged by Volvo.

59
This text is made available for information purposes only and does not constitute an official publication.

maximum length limit of 13.7 metres, whereas Finland applies a 14.5 metre limit.
Finally, Belgium, Sweden, Norway and Germany allow lengths up to 15 metres.
Moreover, as concerns the United Kingdom and Ireland, the fact that all vehicles
must be adapted for right-hand drive and that all doors need to be on the left hand
side of the vehicle, severely restricts the possibility of importing vehicles intended
for continental Europe. In 1998, the Office of Fair Trading concluded for similar
reasons that the United Kingdom constituted a relevant geographic market, separate
from that of the rest of Europe27.

244. Finally, as concerns primarily Sweden, Finland and Norway, a number of customers
have indicated that specific adaptations are needed for the vehicle to be suitable for
the climate and road conditions, as well as to meet specific collision protection
requirements concerning the front of the bus. Therefore, a number of customers have
indicated that the models used in continental Europe are less well-suited for use in
the Nordic countries. In the Reply, the notifying party disputes the conclusion that
road and climatic conditions in Finland amount to substantial barrier to entry. To
support its view, Volvo refers to a specialised bus magazine that ranked Mercedes
and Setra brands of DaimlerChrysler ahead of both Volvo and Scania in a test of
buses of various manufacturers in arctic conditions. It should be noted that this
article was published in a German magazine in 1993. Volvo has not submitted any
evidence as to the authority of this particular article, nor has it even suggested that it
is the only article in which such a test has been made over the last seven years.
Consequently, the Commission can attach no value to this information.

245. The notifying party contests, in its Reply, the view of the Commission that the
technical requirements vary between Member States to a significant extent and
maintains that manufacturers are currently in a position to adapt their production to
such differences. Leaving aside the technical capability of manufacturers to adapt
their production processes, the costs related to such adaptation which, according to
an estimation brought to Commission’s attention can amount to at least EUR 5
million, would have to be balanced against the attractiveness and size of the market
in question.

Price levels differ significantly between Member States

246. The fact that purchasing of touring coaches is done at a national level is furthermore
reflected in the fact that significant price variations (excluding taxes) can be
observed even between neighbouring countries. For example, according to the
information contained in the notification, Volvo's price for the same touring coach
model ([a commonly sold model]) is [10-20%] higher in Norway than in Denmark,
[10-20%] higher in Finland than in Sweden and [20-30%] higher in the United
Kingdom than in the Netherlands. Similar differences can be found in pricing
information submitted by Scania and other touring coach manufacturers in the
course of the market investigation. Volvo has acknowledged that, in general, a
manufacturer’s ability to price discriminate between customers in different Member
States is an essential indication for a finding that the market is national in scope.

27 In the context of the examination of a merger between Henleys Group PLC and Dennis Group PLC.

60
This text is made available for information purposes only and does not constitute an official publication.

247. Price differences between neighbouring countries, such as those indicated above, are
generally incompatible with Volvo's contention that the Nordic countries (Sweden,
Finland, Norway and Denmark), the United Kingdom and Ireland should not each be
regarded as separate geographic markets. If the markets were indeed wider than
national, it would be reasonable to assume that buyers of touring coaches would take
advantage of the existing price differences and buy their vehicles in a neighbouring
country.

Conclusion on relevant geographic market for touring coaches

248. In view of the foregoing, the Commission considers it appropriate to assess the
competitive impact of the notified transaction on the market for touring coaches
separately in Finland and the United Kingdom. For the other Member States the
precise delineation of the relevant geographic markets can be left open, as the
operation would not lead to the creation or strengthening of a dominant position.

City Buses and Inter-City Buses

249. The market investigation has shown that in the Nordic countries (Sweden, Finland,
Norway and Denmark), the United Kingdom and Ireland most of the elements
described in relation to touring coaches also apply to city buses and inter-city buses.

Market shares differ significantly between Member States

250. As in the case of touring coaches, Volvo's contention as to an EEA-wide market for
city- and inter-city buses is not supported by the facts concerning its sales across that
area, as stated in the notification. It has been indicated that Volvo's market share for
city buses is [20-30%] in the EEA, whereas its EEA market share for inter-city
buses is stated to be [10-20%]. However, Volvo's market share is significantly
higher in the Nordic countries (city- and inter-city buses), as well as in the United
Kingdom and Ireland (city buses). At the same time, its market shares in a number
of countries are significantly below these EEA averages. For city buses, Volvo has a
market share of between [0-10%] in Austria, Belgium, Germany, Italy and
Luxembourg. For inter-city buses, the company's market share is [0-10%] in
Germany, Greece, Luxembourg and the Netherlands. This means, for instance, that
Volvo's share of the city bus market in Denmark is [50-60%] while less than [0-
10%] in Germany and [30-40%] in Sweden. In Ireland, Volvo has [60-70%] of the
city bus market while Scania has [30-40%]. The equivalent figures for the United
Kingdom are [50-60%] and [10-20%]. Similar, or even greater, national deviations
from the average EEA market share can be observed for Scania and all other
manufacturers. Again, Volvo has not provided sufficient explanation as to how, in
its view, such variations in market shares between Member States could be
compatible with its contention that the city- and inter-city bus markets are EEA-
wide.

Purchasing is done nationally and purchasing habits differ between Member

States

251. Similar variations in the demand structure between Member States as those
described for touring coaches also exist for city- and inter-city buses, in the sense
that customers in certain countries prefer to buy a complete vehicle, whereas

61
This text is made available for information purposes only and does not constitute an official publication.

customers in other countries have a preference for buying the chassis and body
separately.

252. Furthermore, the fact that buyers of touring coaches rarely turn to dealers established
outside their country also applies to city- and inter-city buses. However, in this
respect it is relevant to consider one significant difference between, on the one hand,
the market for touring coaches and on the other, the markets for city- and inter-city
buses. Whilst touring coaches are often sold through the manufacturer's dealers in
each country, city- and inter-city buses are, to a significant extent, sold directly to
the final customer by the manufacturer's national importer.

253. This means that, in theory, it should be comparatively less important for a "foreign"
supplier of city- and inter-city buses to have a well-established national network of
dealers. Consequently, it would be reasonable to expect a higher penetration of
"foreign" suppliers of city- and inter-city buses. However, as indicated in the table in
paragraph 237 above, "foreign" manufacturers have been comparatively less
successful in penetrating the Nordic countries, the United Kingdom and Ireland with
their city- and inter-city buses (the combined market share of Volvo and Scania in
these countries is [60-70%] to [90-100%]). It follows from this that there is no
indication that this theoretical ability of "foreign" manufacturers to sell city- and
inter-city buses directly to the final customer of such vehicles has had any
significant impact on the competitive situation in these countries.

254. The market investigation carried out by the Commission provides some indication of
the reasons for this. First, public authorities play a comparatively greater role in the
markets for city- and inter-city buses, as buyers and/or as the body responsible for
issuing calls for tenders. The market investigation also indicates that these sales
continue to be subject to detailed technical specifications that often go beyond the
national legal requirements. In addition to intangible explanations, such as national
brand loyalty and language difficulties, purely economic reasons may also play a
role. Among such economic reasons is the fact that transaction costs may be higher
if contacts are to be established with suppliers in other countries. Some customers
have pointed out that these vehicles are generally sold with certain warranties and/or
service contracts. Customers have expressed concerns that they would not
necessarily be provided with the same level of after-sales service in their country of
incorporation, even if they had bought the vehicle from the same manufacturer, but
in another country. In addition, to the extent that the buyer operates its own service
and repair shop (for routine servicing and repairs), the costs related to keeping a
stock of spare parts and brand specific tools will, to a certain extent, act as a
disincentive to take on additional brands. Finally, for the same reasons as indicated
for touring coaches, the purchase of city- and inter-city buses in another country is
likely to increase the risk and cost associated with changing the registration of the
vehicle and securing its second-hand value.

Technical requirements vary between Member States

255. The same variation in length restrictions as has been described for touring coaches
also applies to city- and inter-city buses. The same is true for the specifications

62
This text is made available for information purposes only and does not constitute an official publication.

relating to right-hand drive in the United Kingdom and Ireland.28 In addition, it is

recalled that there is no market for inter-city buses in these two countries. In the
course of the market investigation, third parties have submitted that, for the Nordic
markets, low entry, rather than low floor, is generally demanded for city buses, and
that there is also a specific Nordic demand for ethanol powered buses.
Manufacturers, which have not traditionally focused on sales in the Nordic region,
face therefore additional costs in the same way as previously described for touring
coaches.

256. As already indicated, these vehicles are normally bought by public or private operators
in charge of public transport services. It has been brought to the Commission's
attention that public authorities in charge of public transport continue to influence
demand conditions, even where privatization of such services has taken place, by
specifying detailed requirements as to the vehicle specifications in the request for
competitive tenders. One such example is the request for ethanol powered buses.
Therefore, such additional non-regulatory technical requirements will be of significant
importance to any bus service operator that wishes to participate in a tendering
procedure.

Price levels differ significantly across Member States

257. As in the case of touring coaches, the fact that purchasing of city- and inter-city
buses is done on a national level is reflected in significant price variations
(excluding taxes), including between neighbouring countries. For example,
according to information submitted by Volvo, its prices for a similar city- and inter-
city bus model are respectively [10-20%] and [10-20%] higher in Sweden than in
Norway. At the same time, the prices in Finland are respectively [0-10%] and [20-
30%] higher, than the corresponding prices in Denmark. Its price for a city bus in the
United Kingdom is [20-30%] higher than that in Norway. Again, similar price
differences can be found in information submitted by Scania and other city- and
inter-city bus manufacturers. Finally, internal documents of Volvo submitted to the
Commission also indicate price differences between other neighbouring Member
States. According to this information, the market price for a 2-axle low floor city
bus is [20-30%] higher in the Netherlands than in Belgium and the price for an
articulated low floor city bus, [10-20%] higher in Italy than in Austria in 1999.

258. Price differences between neighbouring countries, such as those indicated above, are
generally incompatible with Volvo's contention that the Nordic countries (Sweden,
Finland, Norway and Denmark), the United Kingdom and Ireland should not each be
regarded as separate geographic markets. If the markets were indeed wider than
national, it would be reasonable to assume that buyers of city- and inter-city buses
would take advantage of the existing price differences and buy their vehicles in a
neighbouring country.

28 In 1998, the Office of Fair Trading concluded in the context of the examination of a merger between
Henleys Group PLC and Dennis Group PLC that the United Kingdom constituted a relevant
geographic market, separate from that of the rest of Europe, including Ireland.

63
This text is made available for information purposes only and does not constitute an official publication.

Conclusion on relevant geographic market for city- and inter-city buses

259. For these reasons, the Commission considers it appropriate to assess the competitive
impact of the notified transaction on the markets for city- and inter-city buses
separately in each of the Nordic countries (Sweden, Finland, Norway and Denmark)
and Ireland.

C Assessment

260. Prior to assessing the individual markets for city and inter-city buses and touring
coaches in the above mentioned Members States, two specific issues raised by
Volvo in its Reply and at the oral hearing need to be addressed, namely the results of
the Commission’s market investigation and the issue of shrinkage.

Customer response

261. As to the results of the Commission’s market investigation on the markets for buses
and coaches, Volvo has argued in its Reply and at the oral hearing that customers do
not display an undue level of concern about the proposed concentration. The
Commission has considered this remark carefully and has come to the conclusion
that it is not supported by the facts available. As previously stated for the market on
heavy trucks, when assessing Volvo's argument that customers are not concerned, it
is first necessary to keep in mind that, despite a certain degree of consolidation that
has occurred in the past decade, as also submitted by the notifying party in its
notification and Reply, also the bus industry also has a fragmented customer
structure, in particular as concerns touring coaches.

262. Moreover, for the same reasons as stated in relation to heavy trucks, the relevant
question is not, as implied by Volvo, the number of "complaints" that have been
submitted. Instead, a qualitative analysis must be made of all the available
information, including the comments provided by third parties. When, as in this
case, the proposed concentration would lead to extremely high market shares for the
combined entity, the fact that even some of the largest customers indicate, inter alia,
that the parties will become dominant, must be seen as significant. The Commission
is therefore unable to accept Volvo's argument that no concerns exist.

263. As regards the GfK Survey conducted on behalf of Volvo for its Reply, it must be
noted that the survey was carried out by telephone with a sample of Volvo’s and
Scania’s bus and coach customers in each of the four Nordic countries, the United
Kingdom and Ireland. The customer list was provided by Volvo. Even if the survey
could give some indications of the characteristics and reactions of the customers, it
fails to identify which are the coach, inter-city and city bus customers. Therefore, it
is not possible to draw the necessary detailed conclusions as regards the behaviour
of each of these customer groups.

Shrinkage effect

264. Volvo has put forward the so-called shrinkage effect, which is related to customers'
“multiple sourcing” policy. However, as regards the markets for city- and inter-city
buses and touring coaches, Volvo has not been able to establish that there will be
market share losses, which would significantly change the competitive situation on
these markets. Volvo has not provided any data to support its claims of a significant
64
This text is made available for information purposes only and does not constitute an official publication.

shrinkage effect in these markets. Instead it refers to the Commission's Decision in

the Mercedes-Benz/Kässbohrer case, which mainly concerned the German markets
for city buses, inter-city buses and touring coaches.

265. In that case the Commission considered the markets to be national in scope. In its
assessment it took account of structural elements which were likely to alter the
conditions of competition and which would justify a more dynamic interpretation of
the significance of the market share of the merged parties. It was concluded that
such structural factors could, for example, include the ability of actual competitors
to constrain the actions of the new entity, the expectation of a significant increase in
potential competition from powerful competitors, the possibility of a quick market
entry or the buying power of important customers. In particular, the Commission
considered the issue of expected substantial actual and potential competition and the
effect of public procurement procedures. The Commission noted in that case, that
the small number of imports into the German market in the past was due not only to
intangible barriers to market entry, including customer-supplier relationships and
brand loyalty, but also to the fact that foreign suppliers’ products were not properly
tailored to the German market. The Commission concluded that the potential
competition together with the already existing competition was sufficient to limit the
merged entity’s freedom of manoeuvre on the German market, because the tangible
entry barriers could be overcome and the intangible barriers were expected to lose
significance.

266. The Commission notes, however, that there are significant differences between the
circumstances in these two cases meaning that direct parallels cannot be drawn.
First, in terms of market size, Germany is by far the most important bus market in
Europe and bus manufacturers have a strategic interest in entering that market.
Secondly, following the concentration two further significant domestic bus and
coach manufacturers, namely MAN and Neoplan, remained on the market in
addition to foreign manufacturers, like Bova. This is not the situation in the present
case.

267. However, even if one were to accept the possibility of a certain shrinkage effect after
the planned merger of Volvo and Scania, the evidence from the Mercedes/
Kässbohrer merger shows that the market share loss over four years was actually
only 3% to 5%, according to Volvo's own submission, and that the market share loss
took longer to materialise than was expected at the time of the merger.

268. In its Reply, Volvo asserts that the experience of the Swedish coach market, where
its market share dropped drastically in 1998, should be taken as evidence that all bus
markets are contestable and therefore, Volvo’s and Scania’s combined high market
shares should not be a cause for concern. However, Volvo has not been able to
explain the exact reason why its market share decreased in the Swedish coach
market. Nor has it has it explained the reason why this experience should be
expected to be transposed to other relevant coach markets. Therefore, while
recognising that these markets are not entirely sealed off from competition, and
therefore could be subject to change, the Commission does not consider that the
available evidence allows it to disregard the extremely high and stable market shares
in other relevant markets. In particular, the Commission considers that the loss of
market share on the Swedish coach market may be due to specific factors, such as
the change of ownership in some of the main Swedish players on this market.
65
This text is made available for information purposes only and does not constitute an official publication.

Indeed, some of the main players in the Swedish touring coach market have recently
been taken over by companies, such as Vivendi, which given their international
presence are more likely to buy foreign brands.

Touring coaches

269. Both Volvo and Scania have a significant presence across most Member States.
However, in Austria, Belgium, France, Germany and Luxembourg their combined
market shares were less than 15% in 1998. Consequently, it is not necessary to
consider these markets for the purposes of the assessment of the notified operation.
The market shares of Volvo and Scania in the remaining Member States (and
Norway) are set out in the table below.

Volvo Scania Largest competitor

Denmark [10-20%] [10-20%] >25%
Finland [60-70%] [20-30%] <10%
Greece [20-30%] [60-70%] *
Ireland [20-30%] [30-40%] *
Italy [10-20%] [0-10%] >40%
Netherlands [10-20%] [10-20%] <30%
Norway [20-30%] [10-20%] >30%
Portugal [10-20%] [10-20%] >25%
Spain [0-10%] [30-40%] >25%
Sweden [0-10%] [20-30%] >30%
United Kingdom [40-50%] [10-20%] >10%
Total EEA [10-20%] [10-20%] >30%

270. As can be seen from the table in paragraph 268, the merged entity would remain
subject to competition from at least one other supplier with similar or greater market
share in Italy, the Netherlands, Spain and Sweden. Consequently, there is no risk
that the proposed concentration will create or strengthen a dominant position in
those markets. In Denmark, Norway and Portugal, the parties' combined market
share is between [30-40%]. However, in each of those countries the combined entity
would remain subject to competition from, at least, one supplier with a market share
exceeding 25%. Furthermore, the parties' combined market shares in these three
countries have been subject to significant fluctuations over the last three years.
Against that background, the information available to the Commission does not
indicate that the proposed concentration could lead to the creation or strengthening
of a dominant position in Denmark, Norway or Portugal.

271. According to the figures provided by Volvo, the parties would achieve very large
market shares in Greece and Ireland. It is however to be noted that the market for
touring coaches in both of these countries is very limited in size (a total of 16 and 15
registrations in 1998 respectively). This means that the market share calculation for
these countries is particularly sensitive to the general difficulty that official
registrations in most Member States29 do not differentiate between city buses, inter-
city buses and coaches. In the course of the Commission's investigation, information
provided by third parties made it necessary to revise the market share information
for Greece and Ireland submitted by Volvo. When taking this third-party
information into consideration, it follows that the combined market share of Volvo

29 According to the notification, the United Kingdom is the only Member State to differentiate
registrations into two classes: city buses and touring coaches.

66
This text is made available for information purposes only and does not constitute an official publication.

and Scania is significantly lower than indicated in the table in paragraph 268, and, in
fact, that in both Member States the combined sales of Volvo and Scania in 1998
were lower than those of at least one other manufacturer. It follows from this that
the information available to the Commission does not support a finding that the
proposed concentration could lead to the creation or strengthening of a dominant
position in Greece or Ireland.

272. There are however two countries where the proposed concentration would have a
serious impact on competition; Finland and the United Kingdom. Each of these two
markets will be analysed in detail.

A dominant position would be created on the Finnish market for touring coaches

Market size and market shares

273. The Finnish coach market is relatively small in volume, with annual sales of
between 80-100 units. As indicated in the table above, the parties' combined share of
that market was [80-90%] in 1998. Their combined share has been very stable at that
high level ([80-90%] in 1996, [80-90%] in 1997). Even if measured over a 10-year
period (1989-1998) the combined share is [80-90%]. Although the market share
distribution between Volvo and Scania has also been relatively stable over this
period, with Volvo generally having [50-60%] of the market and Scania having [30-
40%], there was a change in this trend in 1998. In that year Volvo increased its
market share to [60-70%], whereas Scania's market share fell to [20-30%]. The
development of the parties' market shares show that gains by Scania have resulted in
losses for Volvo and vice versa. These figures therefore confirm the statements by
third parties to the effect that Scania has competed with Volvo for the same
customers.

274. There are no other suppliers that have had any significant sales of touring coaches in
Finland over the last 10 years. In the notification, Volvo nevertheless submitted that
DaimlerChrysler is a serious challenger. Volvo's contention cannot, however, be
accepted, given that the sales of DaimlerChrysler have remained stable at a level
representing less than 5% of the market. The same is true for all other
manufacturers.

Demand characteristics

275. It is a feature of the Finnish market (touring coaches and other buses) that customers
have, historically, often bought the vehicle chassis and body separately. In that
respect, third parties have submitted that the purchasing of chassis and body
separately can have two main advantages. First, body-builders are traditionally
active on a national basis and, as such, are well-placed to produce a body that will
satisfy local requirements, which tend to relate more to the body than the chassis.
Secondly, this type of separate purchasing has traditionally been a way to reduce the
chassis manufacturer's leverage in negotiations. In this respect, third parties have
stated that Volvo's market position was strengthened by its acquisition, in 1998, of
the largest Finnish bodybuilder, Carrus. Also, the Finnish Bus and Coach
Association, acting as a third party at the oral hearing stated that Volvo has a 75 %
share of the body building production in terms of volume through the Volvo-owned
Carrus factories in Finland. This would be consistent with the observation Volvo's
market share increased significantly from 1997 to 1998. This ability to significantly
67
This text is made available for information purposes only and does not constitute an official publication.

strengthen its market position, demonstrated following the acquisition of Carrus also
significantly reduces the credibility of Volvo's argument that, despite an important
structural change in the market, Finnish touring coach customers will "support" a
second manufacturer in order to maintain the possibility of dual sourcing. In fact,
Volvo's increase in market share suggests that these customers will favour the
manufacturer with the strategically strongest market position.

276. On the customer side, it is to be noted that 83% of all Finnish bus companies have
20 vehicles or less (with 37% having a fleet of 1 to 5 buses, 28% a fleet of 6 to10
buses and 18% a fleet of 11 to 20 buses). The number of small customers is
particularly high among the touring coach customers. The market investigation has
confirmed that, for this type of small bus company, there are significant advantages
in concentrating purchases to one single supplier, as this reduces the cost and
complexity of maintaining multiple contacts with suppliers, spare parts logistics and
stockholding, training of drivers and mechanics, etc. The market investigation has
also confirmed that these customers are only to a limited extent in a position to buy
touring coaches from suppliers located outside Finland. This was also the view
presented by the Finnish Bus and Coach Association at the oral hearing. As already
indicated, this has enabled Volvo and Scania to maintain significantly higher prices
in Finland than, for example, in neighbouring Sweden.

Barriers to entry and potential competition

277. As there is a certain degree of commonality between the service network used for
touring coaches and other types of buses and heavy trucks, it is important to note
that Volvo and Scania also have similarly high market shares for city- and inter-city
buses (see paragraph 290) and heavy trucks in Finland. The fact that most touring
coach customers are small private companies means that they may rely on their
supplier for more complex repair and maintenance of their vehicles. This explains
why customers of touring coaches in Finland would generally find it more difficult
to source their touring coaches from DaimlerChrysler or any of the other
manufacturers that do not have a service network, comparable to that of the parties.
A number of customers have also indicated that other manufacturers' prices for
service and spare parts can be substantially higher than Volvo's and Scania's, and
that other manufacturers have less well developed logistic systems, which leads to
longer delivery time for spare parts. These views reflect the importance of a well-
established service network also in respect of touring coaches.

278. Volvo and Scania currently have 31 and 34 service points respectively in Finland, all
of which, according to Volvo, are suitable for servicing both heavy trucks and all
types of buses. In its Reply, the notifying party submitted further information on the
number of competitors’ service points. According to this information, the number of
service points of the competitors would be significantly lower than that of the
merged entity. Renault has 45 service points, DaimlerChrysler 34 and MAN 25. It
can therefore be concluded that the merged entity's competitors would have less
dense service networks in Finland. In its Reply, Volvo contests the importance of a
dense service network to city, inter-city bus and coach customers by reference to the
high proportion of in-house servicing done by bus and coach customers; as an
example it mentions Göteborg City bus company. Volvo also claims that customers
can use the service networks of competitors as well as independent service points as
a source of service and repair. Whilst it is true that a number of customers are able
68
This text is made available for information purposes only and does not constitute an official publication.

to service and repair their vehicles in-house, in view of the relatively small size of
touring coach companies in general and the need for more complex repairs, the
value of effective after-sales service should not be underestimated, in particular in
relation to small companies. As already mentioned, service offered by the
manufacturer is also an element perceived by customers as closely related to brand
image. However, apart from the amount of the investment required for a dense
service network, it has been reported to the Commission that the establishment of a
competitive service network in Finland (and the other Nordic countries) is relatively
more expensive than in other parts of the EEA, owing to the combination of high
wages, large areas, small total vehicle population and the existing position of Volvo
and Scania.

279. It follows from the foregoing that, prior to the concentration, Scania has been the
only real source of competitive pressure that Volvo has had to face on the Finnish
market. This source of competition would be removed by the proposed
concentration. The market investigation indicates that Volvo, following
implementation of the concentration, would be able to raise its prices significantly,
and that the small bus companies, which are the main group of buyers of touring
coaches, would not be able to restrain the merged entity's behaviour on the market.
The notified transaction would thus create a dominant position on the Finnish
market for touring coaches.

280. Volvo has suggested that there are no barriers to entry, and that, consequently, it
would be subject to effective potential competition from all other European
manufacturers, which would obtain improved opportunities to increase their
presence on the market following the concentration. However, as already noted,
there are a number of technical characteristics that make touring coaches intended
for continental Europe less suitable for the Finnish market and adaptations for
climate and road conditions, length of the vehicle etc. are thus necessary. Third
parties have submitted that the cost involved in adapting their existing coach models
to the Finnish market would be significant. Furthermore, in order to become a
significant competitive force in the market, the other manufacturers would need to
invest in the reinforcement or establishment of a service network, comparable to that
of Volvo and Scania. The market investigation has also shown that other suppliers
regard the limited size of the Finnish market as a barrier to effective entry, in the
sense that it may be difficult to recoup the necessary investments within a
reasonable time-frame. Consequently, it has to be concluded that Volvo has not
sufficiently shown that, following the implementation of the proposed concentration,
it would be subject to such potential competition as to significantly restrain it from
exercising the increased market power gained through the acquisition of Scania.

Conclusion on the Finnish market for touring coaches

281. For all of these reasons the notified transaction would create a dominant position on
the Finnish market for touring coaches.

A dominant position would be created on the United Kingdom market for touring
coaches

Market size and market shares

69
This text is made available for information purposes only and does not constitute an official publication.

282. In terms of volume, the coach market in the United Kingdom is the second largest in
Europe (after Germany). In 1998, 1320 touring coaches were sold in the United
Kingdom. The parties' combined share of that market was 52% in 1998, with Volvo
having 42% and Scania 10%. The combined market share of the parties was 57% in
1996 and 59% in 1997. Also when measured over a 10-year period (1989-1998) the
combined share was 57%. As in the case of Finland, Volvo has, throughout this
period, been the competitor with the stronger position with a market share of
between 42% and 50%, whereas Scania has been stable at approximately 10%. It
appears that one of the main reasons for Volvo's consistently strong position in the
United Kingdom is its acquisition of the United Kingdom company Leyland Buses.
However, the market investigation indicates that, despite its lower market share,
Scania has been one of the main sources of competition to Volvo, that the two
companies have generally competed for the same customers, and that Scania's
vehicles are considered by many customers to be their preferred substitute for
Volvo's touring coaches. Internal Volvo data confirm that Volvo and Scania are
considered by their United Kingdom coach customers to be close substitutes in
terms of quality, safety and environmental impact.

283. Apart from Volvo and Scania, the supply-side of the touring coach market is very
fragmented in the United Kingdom, with all other manufacturers (DaimlerChrysler,
MAN, DAF Bus, Van Hool and Dennis) having market shares of around 10%.

Demand characteristics

284. As in the case of the Finnish market, touring coach customers in the United
Kingdom often buy the vehicle chassis and body separately (80% of Volvo's sales
has been stated to involve chassis only). In that respect, third parties have submitted
that Volvo's market position is strengthened by its indirect ownership of one of the
most important bodybuilders in the United Kingdom, Plaxton. Furthermore, third
parties have projected that this type of vertical integration will gain more importance
over the coming years and submitted that Scania, which only sells complete touring
coaches in the United Kingdom, is an example of this trend.

285. On the customer side, Volvo has cited the United Kingdom as an example of a
completely privatised market with sophisticated and powerful private bus operators.
It has submitted that the five largest bus operators account for about [60-70%] of
demand. The degree of customer dispersion is, however, higher on the coach market
than on the city bus market. This is consistent with the fact that the economies of
scale that can be found in operating a significant number of scheduled public bus
services are less evident in the excursion and tourism sector, which is the main field
of use for touring coaches. Thus, the number of small customers is higher among the
users of touring coaches, and for this type of small bus company, the same
advantages apply in concentrating purchases to one single supplier, as already
described for Finland (reducing the cost and complexity of maintaining multiple
contacts with suppliers, spare parts logistics and stockholding, training of drivers
and mechanics etc.) Again, the market investigation has confirmed that these
customers are not in a realistic position to buy touring coaches from suppliers
located outside the United Kingdom. This has enabled Volvo and Scania to maintain
significantly higher prices in the United Kingdom than, for example, in
neighbouring Netherlands.

70
This text is made available for information purposes only and does not constitute an official publication.

Actual and potential competition

286. Volvo and Scania also have high market shares for city buses (see paragraph 290)
and would become the market leader in heavy trucks in the United Kingdom. As
explained above in relation to Finland, the existing commonality between the
service network for all these vehicles and the fact that many touring coach
customers are dependent on their supplier for repair and maintenance creates a lock-
in effect. This is consistent with a finding that touring coach customers generally
display a high degree of brand loyalty. Volvo has 94 service points and Scania 80 in
the United Kingdom. At present, the main competitors have a similar network of
service points. Iveco has 119 service points and DaimlerChrysler 82.

287. Following the proposed concentration, Volvo would be in a considerably stronger

position to take advantage of this brand loyalty. For example, if, it had attempted to
raise its prices in the pre-merger situation, it would have had to balance the potential
gains from this against the risk that a number of its customers would switch to other
manufacturers. Given the market perception that Scania is a close substitute for
Volvo, it would, in that exercise, have had to consider there to be a high risk that
customers would switch to Scania. Following the implementation of the proposed
concentration, such a customer response would, from a revenue viewpoint, become
neutral to Volvo. Consequently, the proposed operation would, as a direct result,
reduce the risk to Volvo of exercising its market power.

288. In addition to the effect of neutralising potential customer response (as far as Scania
is concerned) to a price increase, the concentration would also have the effect of
strengthening Volvo's market leadership. Given that the proposed transaction would
increase Volvo's share of the United Kingdom touring coach market to over 50%, it
would also be likely to result in other suppliers (none of whom have a market share
above 10%) becoming increasingly likely to accept Volvo's price leadership.
Consequently, the transaction would also reduce the risk of an aggressive response
from the smaller suppliers, if Volvo were, for example, to increase its touring coach
prices.

289. It follows from the foregoing, prior to the concentration, Scania has been a main
source of competitive pressure for Volvo on the United Kingdom market. This
source of competition would be removed by the proposed concentration, in a way
that would significantly strengthen Volvo's ability to exercise its market power.
Moreover, it is unlikely that the small bus companies, which are the main buyers of
touring coaches, would be able to restrain the merged entity's behaviour on the
market.

Conclusion on the United Kingdom market for touring coaches

290. For all of these reasons it is concluded that the notified transaction would create a
dominant position on the United Kingdom market for touring coaches.

City and inter-city buses

291. Both Volvo and Scania have significant activities in these markets across most
Member States. However, for city buses, their combined market shares in Austria,
Belgium, France, Germany, Italy, Luxembourg and Spain were less than [10-20%]
in 1998. For inter-city buses, the parties had less than [10-20%] market share in all
71
This text is made available for information purposes only and does not constitute an official publication.

of these Member States, as well as in the Netherlands. Consequently, it is not

necessary to consider these markets for the purposes of the assessment of the
notified operation. The market shares of Volvo and Scania in the remaining Member
States (and Norway) are set out in the table below.

City buses Inter-city buses

Volvo Scania Largest Volvo Scania Largest
competitor competitor
Denmark [50-60%] [20-30%] <20% [50-60%] [20-30%] <20%
Finland [70-80%] [20-30%] <10% [60-70%] [20-30%] <10%
Greece [10-20%] [30-40%] <30% [0-10%] [40-50%] <30%
Ireland [60-70%] [30-40%] <10% NA NA
Netherlands [10-20%] [0-10%] <30% [0-10%] [0-10%] <30%
Norway [40-50%] [10-20%] <20% [60-70%] [10-20%] <20%
Portugal [10-20%] [0-10%] <30% [10-20%] [10-20%] <20%
Sweden [30-40%] [40-50%] <10% [50-60%] [20-30%] <10%
United Kingdom [50-60%] [10-20%] <20%* NA NA
Total EEA [20-30%] [0-10%] [10-20%] [0-10%]

292. As can be seen from the table in paragraph 290, the merged entity would, on both
product markets, remain subject to competition from at least one other supplier with
similar or greater market share in the Netherlands and Portugal. Consequently, there
is no risk that the proposed concentration would create or strengthen a dominant
position in those markets.

293. The situation is also particular in relation to the United Kingdom and Greece, in
both of which, according to the figures provided by Volvo, the parties would
achieve significant combined market shares. Volvo has submitted that the parties'
combined market share for city buses in the United Kingdom decreased dramatically
in 1999, with Volvo's market share dropping to 18%. It follows that the information
available to the Commission does not support a finding that the proposed
concentration could lead to the creation or strengthening of a dominant position in
the United Kingdom.

294. The situation in Greece also requires specific attention. The total size of the Greek
markets for city and inter-city buses are very small (respectively approximately 100
and 20 vehicles in 1998). The public transport operators in Athens and Thessaloniki
are the main buyers of such vehicles in Greece. Both of these operators purchase city
and inter-city buses through public tenders. This has the effect that market shares in
Greece are extremely volatile. In the period between 1996 and 1998, Volvo's market
share for city buses in Greece was [20-30%], [60-70%] and [10-20%], whereas
Scania's market share for the same years was [10-20%], [30-40%] and [30-40%].
The market share of the largest competitor, DaimlerChrysler, was [60-70%], [0-
10%] and [40-50%] over the same period. Under such circumstances the
Commission is of the opinion that the proposed concentration would not lead to the
creation or strengthening of a dominant position in the Greek markets for city and
inter-city buses.

295. There are, however, five countries where the proposed concentration would have a
serious impact on competition: Sweden, Finland, Norway, Denmark and Ireland. As
the markets for city- and inter-city buses in the first four countries have a number of
similarities, the assessment will provide a detailed description of the markets in one
of these countries (Sweden). Following this, the assessment of the other three
72
This text is made available for information purposes only and does not constitute an official publication.

Nordic countries will be made largely by reference to the first assessment and focus
on existing national differences. Finally, the Irish market will be assessed.

296. A common feature of all four Nordic countries is that both Volvo and Scania are the
traditional suppliers in the whole area and have traditionally enjoyed very strong
market positions for both city- and inter-city buses. The market investigation also
strongly supports a finding that Volvo and Scania have been each other's main
competitor in each of the Nordic countries for a number of years. Therefore, the
proposed operation would lead to the elimination of Volvo's main competitor in
these markets.

Dominant positions would be created on the Swedish markets for city- and inter-
city buses

Market size and market shares

297. In 1998, the volume of the Swedish markets was 289 city buses and 411 inter-city
buses. For city buses, the parties' combined market share was [80-90%] in 1998,
with Volvo having [30-40%] and Scania [40-50%]. The corresponding figure for
inter-city buses was [80-90%] (combined), with Volvo contributing [60-70%] and
Scania [20-30%]. For city buses Volvo's market share was [40-50%] in 1997 and
[40-50%] in 1996 (the corresponding figures for Scania were [30-40%] in 1997 and
[30-40%] in 1996). For inter-city buses Volvo's market share was [70-80%] in 1997
and [60-70%] in 1996 (the corresponding figures for Scania were [20-30%] in 1997
and [30-40%] in 1996). Thus, although there has been some variation in the parties'
market shares over the last three years, the figures provided by Volvo clearly
indicate that this fluctuation of market share has mainly been between the two
parties. Also when measured over a 10-year period (1989 to1998) the combined
share is [80-90%] (city buses) and [90-100%] (inter-city buses). Thus, the available
evidence indicates that both Volvo and Scania have been able to consistently
maintain high market shares, and that they have been each other's main source of
competition in both markets. The market investigation also indicates that customers
in Sweden generally consider Volvo and Scania to be the closest substitutes in the
markets for city- and inter-city buses. This is further confirmed by internal data
submitted by Volvo.

298. It follows from the very high combined market shares of Volvo and Scania, that all
other suppliers (DaimlerChrysler, Neoplan and Bova) have weak market positions,
ranging from 2% to 10%. Consequently, the merged entity would have a market
share about eight times higher than that of its closest competitor. This is a
significant difference to the pre-merger situation, where Volvo faced competition
from a company, Scania, that had a comparable market share for city buses, as well
as significant sales of inter-city buses. In addition, whereas Sweden has been a core
market for Scania, there is no evidence that is the case for any of the other
manufacturers. This is important, as customers tend to attribute significant
importance to the track-record and commitment of the manufacturer to "their"
market. It follows that the merged entity would clearly become the market leader in
Sweden. As such, it would be in a significantly better position to spread the costs
related to specific national measures (such as development of service networks,
maintaining contacts with customers and public authorities and other promotional
campaigns etc.) than any of its remaining, weaker competitors.
73
This text is made available for information purposes only and does not constitute an official publication.

Demand characteristics

299. The Swedish city- and inter-city bus operators have been almost completely
privatised. Volvo has submitted that three operators, Swebus, Linjebuss and
Busslink account for [60-70%] of the total Swedish demand for city- and inter-city
buses, and that these companies exercise significant buying power. Volvo has also
given a number of examples of what it considers to be "significant contract losses"
over the last three years to these larger buyers. The Commission recognises that
privatisation and consolidation among Swedish bus operators is likely to have
provided these larger entities with a comparatively better bargaining position than
that previously held by the smaller and mainly publicly owned local operators. This,
however, does not constitute evidence that, despite the significant overlaps created,
the proposed concentration would not increase Volvo's market power. Instead, the
relevant question is whether Swedish customers would have the ability to
significantly restrain the combined entity's future market behaviour. A common
characteristic for all New Volvo's bus customers is that they buy a very high
proportion of their total requirements from Volvo and Scania (up to 100%). Each
customer would therefore be significantly more dependent on New Volvo than vice
versa. Therefore, based on their purchases, there is insufficient evidence that the
Swedish customers will have sufficient buying power to restrain New Volvo's
market behaviour.

300. It should also be noted that most of the Swedish city- and inter-city bus operators
have already been privatised for a considerable period of time (up to ten years).
However, as can be seen from the above market shares, Volvo and Scania have in
fact been able to retain very high and relatively stable market shares over the last ten
years. Against this background, it must be concluded that the modest market share
increases by DaimlerChrysler, Neoplan and Bova over the period since liberalisation
of the Swedish bus markets cannot be taken as support for Volvo's contention
relating to "significant contract losses". Furthermore, it has already been shown that
fluctuations in market shares have primarily been between the parties. It therefore
appears that even large Swedish buyers of city- and inter-city buses have a strong
preference for the Volvo and Scania products. The market investigation indicates
that most customers are not very price sensitive. This is consistent with a customer
survey for city buses conducted by Volvo in 1996/97, which concluded that the
purchase price was less important than factors such as local service network,
reliability and life-time costs. Volvo's contention as to the likelihood of New
Volvo's customers reducing their purchases from New Volvo in response to the
merger has already been analysed in relation to the shrinkage effect.

301. Secondly, it should be noted that even if the Swedish bus operator market is
relatively concentrated, there are still a significant number of small sized bus
operators. These smaller customers are in a number of aspects in a similar position
to that of the touring coach customers, which means that they will normally have a
preference for concentrating their purchases to one single supplier (for reasons such
as reducing the cost and complexity of maintaining multiple contacts with suppliers,
spare parts logistics and stockholding, training of drivers and mechanics etc.). In
addition, smaller city- and inter-city bus customers are normally more dependent on
their supplier for after-sales services. For these reasons, these smaller customers will
have little or no ability to withstand attempts by the merged entity to use its
increased market power after the concentration.
74
This text is made available for information purposes only and does not constitute an official publication.

302. In conclusion, Volvo has not been able to demonstrate that the existing level of
buying power of the city- and inter-city bus operators in Sweden would be sufficient
to negate the merged entity's ability to take advantage of the increased market power
that it would gain from the proposed concentration.

Barriers to entry and potential competition

303. In Sweden, Volvo and Scania also have high market shares for heavy trucks and, to
a lesser extent, touring coaches (see table in paragraph 268). Therefore, to the extent
that city- and inter-city bus customers require after-sales services from the
manufacturer, the existing commonality between the service network for all these
vehicles creates a lock-in effect among existing customers, who consequently can be
expected to display a significant degree of brand loyalty. The wide-spread nature of
the Volvo and Scania service network in Sweden will therefore act as an additional
barrier to entry for other manufacturers of city- and inter-city buses. For the reasons
indicated in relation to the Finnish market for touring coaches, the market
investigation also indicates that the comparatively high costs of establishment, in
particular as concerns the sales and after-sale organisation, combined with the
limited size, and therefore attractiveness, of the Swedish markets is another
important barrier to significant entry.

304. Volvo and Scania currently have 116 and 105 service points respectively in Sweden.
All competitors have significantly fewer service points in Sweden, with the largest
competing service network having less than one third as many points of presence as
that of the merged entity. Consequently, the merged entity's competitors would be at
an additional disadvantage, in terms of being able to offer a comprehensive service
network. Finally, the same cost-related restraints to increase the capillarity of the
service network as described for Finland also apply in Sweden.

305. Volvo has submitted that its customers generally have a dual sourcing policy, and
that customers who have so far bought from Volvo and Scania are likely to look for
alternative suppliers following the concentration. In its view, this is likely to lead to
a reduction of the merged entity's market share in Sweden, to the benefit of other
manufacturers. Volvo has also suggested that it would be at a competitive
disadvantage compared to other manufacturers, which, according to Volvo, are more
advanced in providing [certain types of] buses. This argument has not been
confirmed by the market investigation, and must therefore be disregarded. As to
Volvo's argument relating to "shrinkage", this has already been analysed above.
However, it is to be noted that the board documents and other reports relied on by
Volvo to demonstrate this "shrinkage" effect are largely focused on heavy trucks,
and that most of these documents contain no specific analysis of the development of
the city- and inter-city bus markets. Therefore, in addition to the Commission's
arguments set out in relation to heavy trucks, it must be concluded that Volvo's
contention as to the likelihood of significant "shrinkage" in the sales of city- and
inter-city buses is only an estimation without any firm foundation and as such
cannot be given such value as to remove the concerns following from the
combination of the two main competitors in the market.

306. To the contrary, it must be concluded that Volvo, following the proposed
concentration, would be in a considerably stronger position to utilise its market
power. For example, if, in the pre-merger situation, it had attempted to raise its
75
This text is made available for information purposes only and does not constitute an official publication.

prices, it would have had to balance the potential gains from this against the risk that
a number of its customers would switch to other manufacturers. Given the
established position of Scania, combined with the market perception that Scania is
the closest substitute to Volvo, as confirmed by internal Volvo data, it would, in so
doing, have had to consider the particularly high risk that customers would switch to
Scania. Following the implementation of the proposed concentration, such a
customer response would, from a revenue viewpoint, become neutral to Volvo.
Consequently, the proposed operation would, as a direct result, reduce Volvo's risk
in exercising its market power.

307. In addition to the effect of neutralising potential customer reaction (as far as Scania
is concerned) to a price increase, the concentration would also have the effect of
creating a strong position of market leadership for Volvo. Given that the proposed
transaction would increase Volvo's share of the Swedish city bus market from
around [40-50%] to approximately [80-90%], it would also be likely to have the
effect that other suppliers (all of which have a market share below 10%) will
become increasingly likely to accept Volvo's price leadership. The same applies to
the inter-city bus market, where Volvo's market share would increase from [50-
60%] to [80-90%], and where the only significant competitor would be removed.
Consequently, the transaction would also reduce the risk of an aggressive response
from the smaller suppliers, if Volvo were, for example, to increase its prices.

308. It follows from the foregoing that, prior to the concentration, Scania has been the
only significant source of competitive pressure faced by Volvo on the Swedish
market. This source of competition would be removed as a result of the proposed
concentration, in a way that would significantly strengthen Volvo's ability to
exercise its market power. The market investigation does not support a finding that
the buying power of the merged entity's customers would be such as to significantly
restrain its behaviour on the market.

Conclusion on the Swedish markets for city- and inter-city buses

309. For all of these reasons the notified transaction would create a dominant position on
the Swedish markets for city- and inter-city buses.

Dominant positions would be created on the Finnish, Norwegian and Danish

markets for city- and inter-city buses

310. The structure of the Finnish, Norwegian and Danish markets for city- and inter-city
buses are all to a significant extent similar to that described in relation to Sweden.
This section will therefore focus on the existing differences, whilst making
references to the previous section where appropriate.

Market size and market shares

311. According to the notification, in 1998, [<140] city buses were registered in Finland,
[<180] in Norway and [<250] in Denmark. The corresponding figures for inter-city
buses were [<130], [<180] and [<270].

312. For city buses, the parties' combined market share was [90-100%] in Finland (Volvo
having [70-80%] and Scania [20-30%]), in Norway it was [60-70%] (Volvo [40-

76
This text is made available for information purposes only and does not constitute an official publication.

50%] and Scania [10-20%]) and in Denmark, the parties' combined share was [80-
90%] (Volvo [50-60%] and Scania [30-40%]).

313. For inter-city buses, the parties' combined market share was [80-90%] in Finland
(Volvo [60-70%] and Scania [20-30%]), [80-90%] in Norway (Volvo [60-70%] and
Scania [10-20%]) and [70-80%] in Denmark (Volvo [50-60%] and Scania [20-
30%]).

314. As can be seen from these market share figures, the same relationship that exists in
Sweden, where Volvo has consistently been the stronger of the two parties, also
applies to Finland, Norway and Denmark. The main reason for Scania's relatively
higher proportion of the combined market share in Denmark appears to be related to
its recent acquisition of DAB, the most significant body builder in that country.

315. According to the information submitted by Volvo, the market share of the largest
competitor in each of these markets ranges from approximately 5% to just below
20%30. It therefore follows that the merged entity, in a similar way as described for
Sweden, would have the benefit of a market position several times stronger than that
of its closest competitor in each of the relevant markets. The market investigation
also supports a finding that Volvo and Scania have been each other's main
competitors in Finland, Norway and Denmark, and that customers generally
consider them as the closest substitutes to one another.

316. It may be noted that, if market shares were to be calculated at the Nordic level, the
combined city bus sales of Volvo and Scania would be [80-90%] (Volvo [50-60%]
and Scania [30-40%]). For inter-city buses the corresponding Nordic figures would
also be [80-90%] (Volvo [50-60%] and Scania [20-30%]). Consequently, all
conclusions stated for the four individual countries would remain valid, even if the
market were to be assessed at the Nordic level.

Demand characteristics

317. The Finnish, Norwegian and Danish market have not yet reached the same degree of
privatisation as the Swedish market and demand is generally less concentrated than
in Sweden. Consequently, for the same reasons as indicated in relation to Sweden, it
must be concluded that Volvo has not been able to demonstrate that the existing
level of buying power of the city- and inter-city bus operators in Finland, Norway
and Denmark will be sufficient to negate the merged entity's ability to take
advantage of the increased market power that it would gain from the proposed
concentration.

Barriers to entry and potential competition

318. The barriers to entry relating to after-sales services and limited attractiveness of the
market described in relation to Sweden are equally applicable to Finland, Norway
and Denmark. Moreover, for the same reasons as described in relation to Sweden,
Volvo's arguments on "shrinkage" cannot be accepted for the other Nordic countries.

30 Volvo had submitted that DaimlerChrysler would have a market share around 30% for city buses in
Norway. This, however, has not been confirmed by the investigation.

77
This text is made available for information purposes only and does not constitute an official publication.

Instead, it has to be concluded that, again for the same reasons as indicated for
Sweden, the proposed concentration would remove Scania as the only effective
source of competitive pressure from each of these markets, and that this would
significantly strengthen Volvo's ability to exercise its market power.

319. The merged entity's competitive advantage in Finland, relating to its significantly
larger service network, has been described in the section on touring coaches. The
situation is similar in Norway, where Volvo has 65 service points and Scania has 50,
as well as in Denmark, where Volvo and Scania have 31 and 29 service points
respectively. Again, all competitors have significantly fewer service points in each
of these countries (about a third as many in Norway for the largest competing
service network, and, for Denmark, about half the coverage of the combined
Volvo/Scania network). Consequently, it can be concluded, also for Norway and
Denmark, that the merged entity's competitors would be at an additional
disadvantage in terms of being able to offer customers a comprehensive service
network. Finally, the same cost-related restraints to increase the capillarity of the
service network as has already been described applies also in these countries.

Conclusion on the Finnish, Norwegian and Danish markets for city- and inter-city buses

320. For all of these reasons the notified transaction would create a dominant position on
the Finnish, Norwegian and Danish markets for city- and inter-city buses.

A dominant position would be created on the Irish market for city buses

Market size and market shares

321. In 1998, the total volume of the Irish market was 110 city buses. The parties'
combined market share in 1998 was extremely high, amounting to 92%, with Volvo
having 60% and Scania 32%. Volvo's market share has been consistently very high
in Ireland over the last three years, with shares of 88% in 1997 and 79% in 1996.
Volvo's traditionally strong position in Ireland stems from its acquisition of British
Leyland in the late eighties.

322. With the exception of DAF and Dennis, both of which had a market share of 11% in
1996, but have subsequently gone down to less than 5%, no other supplier (i.e.
DaimlerChrysler and MAN) has managed to reach a market share exceeding 10% in
the period between 1996 and 1998. In fact, Scania had no sales on the Irish city bus
market in 1996 and 1997, but, as indicated above, managed to obtain a 32% market
share in 1998.31

323. Scania's ability to penetrate the Irish market on a significant scale, where no other
producer has managed to do so over the last three years, provides another strong
indication that customers generally consider Volvo and Scania as the closest
substitutes for city buses. The proposed concentration would therefore remove this
newly introduced element of competition from the Irish market.

31 In its Reply, Volvo claims that this market share is not related to sales but registrations since Scania's
market share is based on city buses leased by Bus Eirann from Scania Bus and Coach in the United
Kingdom. However, Volvo has not proposed that the relevant market should exclude leased vehicles
and has not provided figures based on sales only.

78
This text is made available for information purposes only and does not constitute an official publication.

324. It follows from the very high combined market shares of Volvo and Scania, that all
other suppliers have extremely weak market positions (below 5%). Consequently,
the merged entity would have a market share almost 20 times higher than that of its
closest competitor.

Demand characteristics

325. In Ireland, city bus services are still largely operated by public authorities, the most
important of which is Dublin Bus. Consequently, most purchases of city buses in
Ireland will be subject to a public tendering procedure. However, as can be seen
from the table in paragraph 290, Volvo has (apart from the loss of market share to
Scania in 1998) been able to retain very high and relatively stable market shares
over the last three years. Against this background, it must be concluded that there is
no evidence to permit the conclusion that the public procurement procedure would
enable other city bus suppliers to provide the same degree of competition to the
merged entity, as Scania has recently demonstrated its ability to do.

326. In conclusion, Volvo has not been able to demonstrate that the existing level of
buying power of the city bus operators in Ireland will be sufficient to negate the
merged entity's ability to take advantage of the increased market power that it would
gain from the proposed concentration.

Barriers to entry and potential competition

327. Volvo's strong position on Ireland is linked to its acquisition of British Leyland's bus
division and the perception that it has provided the best combination of price and
after-sales services. Its ability to consistently maintain very high market shares,
despite the fact that the market is mainly driven by public tendering procedures,
indicates that other suppliers find it difficult to enter the market on a significant
scale. For the reasons indicated in relation to the Nordic markets, the limited size,
and therefore attractiveness, of the Irish market appears to be another important
barrier to significant entry.

328. Given that Scania, over the last three years, has been the only other supplier able to
significantly challenge Volvo for sales of city buses in Ireland, it must be concluded
that the proposed concentration would improve Volvo's ability to use its market
power. For example, in the absence of the concentration, Volvo would, if it
considered raising its prices by a small but significant amount, have had to balance
the potential gains from this against the risk that a number of its customers would
switch to Scania, which in 1998 demonstrated its ability to make significant inroads
into the market. Following the implementation of the proposed concentration, such a
customer reaction would, from a revenue viewpoint, become neutral to Volvo.
Consequently, as no other supplier has demonstrated the same ability to take market
share, the proposed operation would, as a direct result, reduce Volvo's risk in
exercising its market power.

329. It follows from the foregoing that, prior to the concentration, Scania has been the
only significant source of competitive pressure faced by Volvo on the Irish market.
This source of competition would be removed through the proposed concentration,
in a way that would significantly strengthen Volvo's ability to exercise its market
power. The market investigation does not support a finding that the buying power of
the merged entity's customers would be such as to significantly restrain its behaviour
79
This text is made available for information purposes only and does not constitute an official publication.

on the market. It is therefore concluded that the notified transaction would create a
dominant position on the Irish market for city buses.

Conclusion on the Irish market for city buses

330. For all of these reasons the notified transaction would create a dominant position on
the Irish market for city buses.

Conclusion on the bus markets

331. The proposed concentration would create a dominant position on the markets for
touring coaches in Finland and the United Kingdom, as well as on the markets for city-
and inter-city buses in Sweden, Finland, Norway and Denmark as well as on the Irish
city bus market.

V. UNDERTAKINGS PROPOSED BY VOLVO

332. In order to ensure the adoption of a decision pursuant to Article 8(2) of the Merger
Regulation, on 21 February 2000, Volvo submitted the following undertakings that
would take effect on the date of adoption of such a decision:

A. Heavy trucks

1. Opening up of Volvo and Scania's dealer and service networks in Sweden,

Finland, Denmark and Norway, as well as the Volvo network in Ireland,

2. Divestiture of Volvo's 37% stake in Bilia AB (a distributor in the Nordic

countries),

3. Best efforts to ensure abolition of Swedish cab crash test,

4. A two-year temporary suspension of the Scania brand name in Sweden, Finland

and Norway.

B. Coaches, city- and inter-city buses

1. Same opening of sales and service network and suspension of Scania brand as
for heavy trucks (1 and 4 above)

2. Divestiture of three bus and coach bodybuilding plants (2 in Denmark, 1 in

Sweden)

3. Access to body-building capacity in Finland

333. Volvo has contacted the Swedish Government and requested that it eliminate the
specific Swedish technical safety standard applicable to cabs used on heavy duty
trucks (the "cab crash test") as soon as practically possible and in any event no later
than six months following the adoption of the Decision. After the adoption of the
Decision, Volvo undertakes to use its best efforts to ensure abolition of the cab crash
test in Sweden and to keep the Commission informed of progress in this regard on a
basis to be determined by the Commission.

80
This text is made available for information purposes only and does not constitute an official publication.

334. Volvo has proposed to open up it's and Scania’s sales and service networks by
informing all authorised dealers and service centres in relevant countries that they
are free to establish contractual relations with Volvo's competitors, including their
foreign and/or Swedish subsidiaries, for the sale and leasing of those competitors'
heavy trucks, city buses, inter-city buses and performance of maintenance, servicing
and repair related thereto or to provide the same on an ad hoc basis without the need
to establish a separate company or to carry out such activities at separate premises.
Moreover, according to the proposal, dealers and service stations may terminate, at
their option, with effect two months after providing written notice to Volvo, any
existing dealership agreements or service centre agreements. Volvo further commits
not to discriminate against any actual or prospective dealer or service centre on the
basis that they deal with any of Volvo’s competitors. In the event that the combined
share of Volvo and Scania heavy trucks falls below 40 percent of total heavy truck
sales in the relevant countries in a given year, Volvo shall according to its proposal
be free to enter into exclusive arrangements with new or existing dealers or service
centres and shall no longer be bound by the commitment, except as such rights may
be provided in the dealership or service centre agreements.

335. Volvo proposes to divest its stake in Bilia AB and the three bus and coach
bodybuilding plants (Volvo's plant in Aabenraa, Denmark, Scania's plant in
Silkeborg, Denmark and Scania's plant in Katrineholm, Sweden) within six months
of the Decision, with the possibility of an extension of another six months. The
proposal also contains provisions for supervision and possible sale by a trustee.

336. The undertaking to provide third parties access to Volvo's bus and coach bodybuilding
capacity relates to Volvo’s subsidiary, Carrus Oy (“Carrus”), situated in Finland.
According to Volvo, Carrus currently has a practice of supplying bus and coach bodies
to unrelated bus, coach and chassis suppliers on commercial terms. Volvo would
commit to oblige Carrus to supply bus and coach bodies to Volvo's competing
European bus and coach suppliers for their sales of buses and coaches in Finland on
terms that are non-discriminatory as compared with the supply of Carrus bus and
coach bodies to Volvo for sale in Finland.

337. Finally, the proposal not to use the Scania trade mark for new heavy trucks,
city/intercity buses and coaches sold in Sweden, Finland and Norway for a period of
two years would commence on the date of the closing of the transaction or as soon
as contractually possible. The proposal is subject to provisions, which mean that the
Scania vehicles would continue to be sold during the two-year period, but under
another trade mark to be decided solely by Volvo. The proposal is also subject to the
fulfilment of existing contracts and orders, as well as to the sale of products in
existence prior to the closing.

VI. ASSESSMENT OF THE PROPOSED UNDERTAKINGS

338. Even though the undertakings proposed by Volvo could, if properly implemented,
have some beneficial effect on the competitive situation in the relevant markets, the
Commission has, following contacts with market participants, come to the
conclusion that the proposed undertakings are insufficient to resolve the competitive
concerns resulting from the elimination of Volvo's main competitor, Scania.

A. Heavy trucks
81
This text is made available for information purposes only and does not constitute an official publication.

339. The market test has confirmed that Volvo's proposals relating to the Swedish cab
crash test and the suspension of the Scania brand in Sweden, Norway and Finland
would have little or no impact on the competitive situation. The cab crash test can
only be abolished by the Swedish Government, which has not indicated that the test
would be removed within the six month period referred to by Volvo. Despite
Volvo's undertaking to use its best efforts to seek its abolition, it is therefore not
possible to conclude for the purposes of this assessment that the test would be
abolished. Equally, the proposed suspension of the Scania brand is of limited
significance. First, it relates to a two-year period (and does not extend to Ireland).
Moreover, it would not imply the withdrawal of the Scania product line, which,
according to the proposal, would continue to be sold under another brand of Volvo's
choice. Nor would the suspension apply to existing contracts, binding orders or
products in stock. In conclusion, these proposals would appear very limited in
substance and consequently unlikely to have any competitive impact.

340. The market test has also revealed scepticism about the proposed divestiture of
Volvo's 37% stake in Bilia AB (a truck, bus and car distributor in the Nordic
countries), even though this would remove this vertical link. According to the
market test, even if this link were to be removed, Bilia would, in the same way as all
other Volvo dealers, continue to be economically dependent on Volvo, in the sense
that a large majority of its business activities relate to the sale and service of Volvo
vehicles. Moreover, it has been suggested that the most likely buyer is Ford, which
owns the Volvo car division, and uses Bilia for its distribution of cars in the Nordic
countries. Ford is not active on the market for heavy trucks and buses and would
therefore not necessarily provide any new competition on the market. In addition to
that, Volvo has indicated that it may terminate its contract with Bilia AB if this latter
company is acquired by a competing manufacturer and thereby takes on a competing
brand.

341. As to the measures proposed for the opening up of Volvo’s and Scania's dealer and
service networks, the market test has confirmed that they are unlikely to provide the
existing dealers with the necessary strong incentive to take on an additional brand or
to switch completely to a new brand. The proposal would basically leave the
existing structure of the Volvo and Scania organisations intact (that is to say there
would be no divestiture, active termination of contracts etc.). This, in itself leads to
significant doubts as to the effectiveness of the proposal. Therefore, in order to
conclude that the proposal would have a significant impact on the market structure
in the foreseeable future, it would be necessary to demonstrate that, despite its lack
of structural features, it is highly likely to provide the existing dealers with a strong
incentive to change their behaviour in a way that would have a structural impact on
the market. There are, however, both formal and economic arguments against such a
conclusion. Most respondents believe that the proposal is unlikely to have any
significant effect on reducing New Volvo's market share in the next 2 to 3 years.
Both formal and economic arguments have been given against the effectiveness of
the proposal.

342. First, a number of respondents have questioned the effectiveness of the proposal as
regards Scania's dealer and service network, which includes wholly owned dealers in
all Nordic countries. In Sweden [30-40%] of Scania's sales are made through wholly
owned dealers. The corresponding figures for Norway and Finland are even higher
([90-100%] and [90-100%], respectively). In fact, the proposed opening up of the
82
This text is made available for information purposes only and does not constitute an official publication.

Scania network would only relate to three independent dealers in Norway and to one
independent dealer in Finland. For these reasons some respondents have suggested
that divestiture of these wholly owned networks would have a greater market
impact.

343. Second, all Volvo and Scania dealers are, according to the block exemption for
motor vehicle distribution32, already able to take on a competing brand. The only
requirement is that they do so on separate business premises. The fact that Volvo
and Scania dealers have not, in the past, used the possibility of taking on another
brand has been mentioned as an indication of the limited attractiveness of dual
branding distribution (both from the viewpoint of the supplier and the distributor).
In addition to that, Volvo has, in relation to the proposed Bilia divestiture, reserved
its right to terminate its distribution agreement with Bilia should it be acquired by a
competitor. Third parties have indicated this as Volvo's indirect acknowledgement
of the unattractiveness of dual brand distribution.

344. Third, for the service stations, the market test has confirmed that the Volvo and
Scania networks have already, in the past accepted, de facto, to do work for
competing brands. Therefore, the proposal is unlikely to lead to any substantial
change.

345. Fourth, a number of reasons have been indicated for concluding that the proposal
would not provide existing Volvo and Scania dealers and service stations with a
sufficiently strong economic incentive to take on another brand. From a purely
economic viewpoint it has been stressed that these dealers will continue to be
economically dependent on revenues derived from sales and servicing of Volvo and
Scania vehicles for a long period (up to 15 years has been mentioned). The reason
for this continued dependency is that trucks and buses are durable goods, and that,
consequently, the main part of the "rolling stock" of such vehicles will continue to
be Volvos and Scanias for the foreseeable future. In this context it should be recalled
that a dealer achieves about [70-80%] of its revenues from service and sales of spare
parts (and [20-30%] from sales of new vehicles). Other disincentives for dealers to
take on new brands have been indicated to be the risk that New Volvo could decide
to adopt a new policy of more direct sales from the head office (stated to represent
40% of all Volvo's sales in Finland today), and the fact that there is a widespread
belief that New Volvo will reduce the size of its combined dealer network in the
future, and that "disloyal dealers" would run a higher risk of being excluded at that
stage.

346. Fifth, Volvo's proposed undertaking not to discriminate against dealers which take
on a new brand, has been criticised as being too vague and impossible to monitor
effectively. Similarly, the provision that the undertaking should no longer have
effect if the combined Volvo and Scania market share was to fall below 40% has
been criticised as making it impossible for both dealers and other suppliers to take

32 Commission Regulation (EC) No 1475/95 of 28 June 1995 on the application of Article 85 (3) of
the Treaty to certain categories of motor vehicle distribution and servicing agreements - Official
Journal L 145, 29.06.1995, p. 25.

83
This text is made available for information purposes only and does not constitute an official publication.

on the necessary long-term investments related to building up a sufficient installed

base of a new brand.

347. Sixth, the market test has also confirmed that the proposal is unlikely to enable other
suppliers to create a sufficiently capillar network to provide effective competition
with New Volvo (in particular, owing to the limited incentives for dealers as set out
above). Most respondents believe that only a very limited number of Volvo and
Scania dealers would, within a 2 to 3 year period, significantly reduce their
dependency on New Volvo by taking up other brands. For this reason the proposal
would, at most, provide each of the other suppliers with access to a limited number
of dealers.

348. Seventh, competitors believe that the risks involved in entering or expanding their
market presence through the existing Volvo and/or Scania networks would be high.
In this context, it has been explained that the sunk costs involved would still be
significant. The investments would include, inter alia, employing a full network of
specialised mechanics and dedicated sales personnel, training, investment in
specialised tools, stock of spare parts and computer and administrative systems. In
addition, there would be significant commercial costs in terms of selling the
products at prices which are, at least, 10% to 20% below those of Volvo and
Scania, as well as offering the dealers a significantly higher margin to compensate
for the lower volumes until a sufficient installed base is reached. Given all of these
costs, competitors have expressed strong reservations about entrusting the marketing
of their vehicles to dealers that will continue to sell Volvo and Scania, and which,
for significant periods of time, have been telling their customers that the best option
is a Volvo (or Scania) vehicle.

349. In conclusion, the proposed undertaking to open up the dealer and service networks
is not structural in character, and is unlikely to provide a strong incentive for the
existing dealers to change their behaviour in a way that would have a structural
impact on the market.

B. Coaches, city- and inter-city buses

350. As stated above, Volvo's proposal includes the same opening up of the dealer and
service network as for heavy trucks. This means, firstly, that the proposal does not
include any measure directed at the coach market in the United Kingdom, where
New Volvo would have a combined market share of 52%. Secondly, as indicated by
Volvo itself, the dealer and service network is of more limited interest for, in
particular, the city and inter-city bus markets than for heavy trucks (as these vehicles
are normally sold directly from the manufacturer’s head office and since servicing is
more often carried out in-house by the customers). This means that the lack of
incentive for dealers and service stations to take up new brands would apply to an
even greater extent than for heavy trucks. This proposal can therefore not be
expected to have a significant impact on the competitive situation in the relevant bus
and coach markets.

351. Moreover, for the same reasons as indicated in relation to heavy trucks, the proposal
for a limited suspension of the Scania brand name is unlikely to have any significant
impact on the relevant markets for coaches, city buses and inter-city buses.

84
This text is made available for information purposes only and does not constitute an official publication.

352. The market test has also confirmed that the proposal to allow competitors access to
Volvo's body-building capacity in Finland (Carrus Oy), would provide little or no
change from the existing situation. Some respondents have indicated that they have
been and would continue to be unwilling to contract with Carrus, as it is a wholly
owned subsidiary of Volvo. Others, including Volvo itself, have confirmed that
Carrus has already, in the past, had a practice of supplying bus and coach bodies to
unrelated bus and coach suppliers on commercial terms. The addition of a
behavioural non-discrimination undertaking is also unlikely to increase the
attractiveness of the proposal (and would from a logical viewpoint only have an
effect if Carrus has been discriminating against third parties in the past). For these
reasons, the proposed undertaking relating to Carrus is unlikely to have any
significant impact on the relevant markets for coaches, city buses and inter-city
buses.

353. Volvo's proposal to divest three bus and coach bodybuilding plants (Volvo's plant in
Aabenraa, Denmark, Scania's plant in Silkeborg, Denmark and Scania's plant in
Katrineholm, Sweden) has also been criticised as not improving market access for
competitors to the relevant market and, more generally, as being insufficient to
remove the identified competition concerns.

354. First, a number of respondents have indicated that this proposal is in effect limited
to a proposal to divest the resulting over-capacity of New Volvo. It has been pointed
out that both Volvo and Scania have recently invested in modern bodybuilding
capacity in Poland, and that the most efficient Nordic plants will be retained (Carrus
in Finland, and Säffle in Sweden). None of the contacted third parties have
expressed any interest in acquiring the three proposed plants.

355. It has also been submitted that the divestiture of the three proposed plants would not
significantly facilitate access to the Nordic markets for competitors, in particular as
there is a strong belief that these plants, for technical compatibility reasons, will
continue to be dependent on chassis supplies by New Volvo for the foreseeable
future. This dependency will also mean that after-sales service on the completed
vehicles will have to continue to be performed by New Volvo.

356. Finally, according to Volvo, the Aabenraa plant produced [230-240] city and inter-
city bodies in 1999. Out of these, [190-200] were delivered to Denmark, [20-30] to
Sweden, and [10-20] to Norway. The Scania plant in Katrineholm delivered only
city bus bodies, [90-100%] of which went to the Swedish market (part of the
remaining [0-10%] went to Finland and Iceland). Scania's Silkeborg plant
manufactures both city and inter-city buses. It produces bodies under the DAB
trademark. Apart from [10-20] units registered in Northern Sweden, all of its
production is destined for the Danish market. Therefore, although the undertakings
proposed by Volvo for the coach, city- and inter-city bus markets are, at least partly,
structural in character, the market test has indicated that they would not significantly
facilitate access to the relevant markets for competitors and that, even under the
most favourable interpretation, they are of insufficient scope to eliminate the
competition concerns in each of the relevant markets.

357. In conclusion the undertakings proposed by Volvo for the coach, city- and inter-city
bus markets is, even under the most favourable interpretation, of insufficient reach
to remove the competitive concerns in each of the relevant markets.
85
This text is made available for information purposes only and does not constitute an official publication.

New proposal by Volvo

358. At a very late stage in the procedure, on 7 March 2000, Volvo proposed a new and
substantially modified undertaking. The new proposal differs from the above
described undertakings, submitted on 21 February 2000 in the following respects:

- the proposal to divest Volvo's 37% shareholding in Bilia AB is withdrawn,

- the proposal to suspend the use of the Scania brand name for a two-year period is
withdrawn,

- a new proposal has been introduced, [business secret; concerns distribution

networks],

- a provision has been added to the proposal to divest the Scania Bodybuilding
plants; [business secret, concerns sales of city and inter-city bus chassis].

359. Article 18(2) of the Regulation (EC) No 447/98 provides that commitments intended
by the parties to form the basis of a decision of compatibility pursuant to Article
8(2) of the Merger Regulation are to be submitted to the Commission within three
months of the decision to open proceedings, although the Commission may, in
exceptional circumstances, extend that period. Volvo did not put forward any
reasons, which could be regarded as constituting such exceptional circumstances.
The last day for submitting proposed commitments in this case was 21 February
1999 and Volvo's new proposal was submitted on March 7, 2000. In the
Commission’s view, there was nothing in the new proposal which Volvo could not
have included in an undertaking submitted within the three-month time limit. The
present decision therefore will not take this proposal into account.

360. It may be added that the implementation of the new proposals would be complex
from a procedural viewpoint, in particular as regards the proposal to terminate the
contracts with dealers and/or divest sales points. The procedure according to which
interested third parties would be able to take over part of the Volvo and Scania
distribution capacity is also complex and would require detailed examination. Such
procedural complexities inherently, and in particular when submitted at a late stage
in the procedure, increase the difficulty in assessing the proposal's potential effects
from a substantive viewpoint.

361. It is not possible to conclude that the new proposal in an obvious and clear-cut way
would remove all the identified competition concerns. The complexity of the new
proposals would have made it impossible, in the short time remaining before the
expiry of the deadline under Article 10(3) of the Merger Regulation, for the
Commission to evaluate them effectively. Further investigation would have been
called for, and it would also have been necessary to seek the views of interested
third parties pursuant to the relevant provisions of the Merger Regulation.

Conclusion on the proposed undertakings

362. For the reasons indicated above, the Commission has come to the conclusion that
the undertakings proposed by Volvo on 21 February are insufficient to remove the
competitive concerns resulting from the proposed acquisition of Scania. As concerns
the new proposal of 7 March 2000, it is firstly concluded that Volvo has not been
86
This text is made available for information purposes only and does not constitute an official publication.

able to justify their submission several weeks after the expiry of the deadline for
submission of undertakings. In any event the new proposal does not in an obvious
and clear-cut way remove all the identified competition concerns.

VII. OVERALL CONCLUSION

363. In view of the above, the Commission has come to the conclusion that the notified
concentration is incompatible with the common market and the functioning of the
EEA Agreement, since, even assuming full compliance with the proposed
undertakings, it would create dominant positions in the markets for heavy trucks in
Sweden, Norway, Finland and Ireland, for touring coaches in Finland and the United
Kingdom, for inter-city buses in Sweden, Finland, Norway and Denmark, and for
city buses in Sweden, Finland, Norway, Denmark and Ireland, each of which would
result in effective competition being significantly impeded in the common market
within the meaning of Article 2(3) of the Merger Regulation and Article 57 of the
EEA Agreement.

HAS ADOPTED THIS DECISION:

Article 1

The concentration notified to the Commission by AB Volvo on 22 September

1999, whereby AB Volvo would acquire sole control over Scania AB is hereby
declared incompatible with the common market and the functioning of the EEA
Agreement.

Article 2

This Decision is addressed to:

AB VOLVO
40508 Göteborg
Sweden

Done at Brussels, 14 March 2000

For the Commission,

Mario MONTI
Member of the Commission

87