In 2023, the European Commission prohibited the acquisition of Etraveli, a flight-focused online travel agency (OTA), by Booking.com – its only merger prohibition that year (of course we blogged about it here). Last week, the EU’s General Court upheld the decision. The judgment is particularly interesting for what it says about the Commission’s ability to develop theories of harm that are not expressly covered by its own Merger Guidelines. And the timing could hardly be more interesting: After adopting the new abuse of dominance guidelines two weeks ago (we blogged about it here), the Commission is currently finalising new Merger Guidelines to replace both its 2008 Non-Horizontal and the 2004 Horizontal Merger Guidelines (see our blogpost here). The key question: How much room do the Guidelines leave for new theories of harm?
Booking/Etraveli: A different kind of leveraging
The Commission found that the transaction would strengthen Booking’s already dominant position in the market for OTAs in the hotel sector. Adding Etraveli’s flight business would, in the Commission’s view, raise barriers to entry and expansion for rival hotel OTAs and make Booking’s already dominant position less contestable. The Commission described this as a “reverse leveraging effect”. Unlike in typical cases of leveraging, in which a dominant position in one market is leveraged to strengthen one’s position in another market, reverse leveraging works the other way around: Activities in another market are used to strengthen an existing dominant position.
Booking disagreed: As the parties were active in different markets, the transaction was a conglomerate merger. The Non-Horizontal Merger Guidelines identify foreclosure as the main competition concern in such cases. Booking argued that the Commission had departed from the Non-Horizontal Merger Guidelines by not showing a foreclosure effect but instead using a theory of harm based on the reversed leveraging effect.
Guidelines: More than guidance, less than legislation
Before turning to the General Court’s decision, it is helpful to briefly consider the purpose of the Commission’s Merger Guidelines: The Commission publishes guidelines to summarise its decisional practice and explain how it intends to assess future cases. Their purpose is to make enforcement more transparent and predictable. From a legal perspective, such guidelines “only” reflect the Commission’s interpretation of the law. However, as such they carry significant weight.
Although the Commission’s guidelines are not legally binding , they limit the exercise of the Commission’s discretion. This follows in particular from the principles of equal treatment and the protection of legitimate expectations. That means that the Commission may depart from its guidelines only if it has an objective reason to do so. Thus, the key question was whether this applied only towards situations or concerns that are covered by the Merger Guidelines or if a case raises a new concern, or a concern that the Guidelines do not address, whether the Commission is allowed to assess it independently under the relevant legal rules and the specific facts.
The General Court’s answer: Guidelines are not exhaustive
The General Court now confirmed that reverse leveraging effects in digital markets may constitute a concern that the existing Non-Horizontal Merger Guidelines do not address:
While the Non-Horizontal Merger Guidelines identify foreclosure as the principal concern in conglomerate mergers, they do not say this may be the only issue. According to the court, other concerns may arise, particularly in sectors whose competitive dynamics were not fully considered when the Guidelines were adopted in 2008 – digital markets being the obvious example. The Court found that reverse leveraging was such a concern and that the Non-Horizontal Merger Guidelines therefore did not prevent the Commission from developing and applying that theory of harm.
What to watch
The judgment has three practical implications for future merger cases:
- The draft Merger Guidelines are on firmer ground. Chapter 7 of the draft, “Entrenchment of a dominant position”, largely reflects the approach taken in Booking/Etraveli. As the General Court now upheld that approach, the Commission is likely to be reluctant to make significant changes to this chapter.
- Reverse leveraging may reach beyond digital markets. The draft Merger Guidelines address entrenchment and reverse leveraging concerns more generally. The theory may therefore become relevant not only with regard to digital markets, but also in other conglomerate mergers involving a dominant undertaking.
- New Merger Guidelines may leave less room for new theories of harm – for now. The judgment confirms that the Commission may develop new theories of harm where existing Guidelines do not cover the concern. However, the new Merger Guidelines are expected to reflect recent developments more comprehensively. It therefore remains to be seen whether, in the near future, there will be many concerns that fall outside the Guidelines.
That said, while this is the status as of now, it might not be end of the story: Booking is reviewing the judgment and considering a possible appeal to the European Court of Justice.
Picture by David Birozy via Unsplash
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