Competition and trade law: Commission clears merger between Price Waterhouse and Coopers & Lybrand

The European Commission has decided to authorise the merger between the two "Big-Six" auditing and accounting firms, Price Waterhouse and Coopers & Lybrand. After an in-depth investigation the Commission concluded that the merger would not create a dominant position in any of the markets in which these firms are active.

Both groups are active in the provision of auditing and accounting services, tax compliance and advisory services, management consultancy services, corporate finance and insolvency services. The Commission found that, with the exception of the market for the provision of audit and accounting services to quoted and large companies, the Big Six face strong competition from a range of other service providers in respect of all the other markets considered. These service providers include second-tier auditors in the audit of smaller or local companies, accounting firms, law firms, banks and tax advisory services, management consultants, investment banks in corporate finance services and law firms in corporate insolvency.

Therefore, the Commission's main analysis focused on the provision of audit and accounting services to large companies, whether quoted or unquoted and whether national or multi-national. Such companies are dependent for such services on the Big Six, since only the latter have the necessary depth of resources and expertise, the requisite geographic spread, and a sufficiently strong reputation in the financial markets. The Commission found this market to be national in geographic scope in view of national regulatory requirements for statutory audits and professional qualifications, and the need on the part of the service provider for a local presence.

The existing high degree of concentration in this market led the Commission to examine the possibility of the creation or strengthening of a position of single dominance, and also that of a position of collective dominance. As far as single firm dominance is concerned, from data concerning both market shares, and the outcome of the Big Six competitive bidding activities over a period of years, the Commission found that the merged firm will be constrained by the competitive behaviour of the remaining four large accounting firms. As far as collective dominance is concerned, the Commission found that the market in question is characterised by many elements which would be conducive to the creation of such dominance; demand is not fast-growing and is relatively insensitive to price, the service is homogenous, the market is relatively transparent and characterised by a low rate of innovation, the suppliers are inter-linked by self-regulatory professional organisations, and clients tend to be "locked-in" to incumbent auditors for long periods.

Despite these market characteristics, the Commission found no conclusive proof that the merger would create or strengthen a position of collective dominance within any of the national markets for the provision of audit and accounting services to quoted and large companies within the EU. In particular, the Commission took into account that no fewer than five major providers of such services would continue to exist post-merger, and would all be likely to continue to participate in the competitive tender offers which take place on the relevant market. The Commission further considered that no two firms would emerge as clear market leaders post-merger, and that in any case a situation of collective dominance at the level of five service-providers would be unlikely to be stable over time (IP/98/454).