The Federal Trade Commission (FTC) recently announced that it has challenged a merger between Wilhelmsen Maritime Services (Wilhelmsen) and Drew Marine Group (Drew) because of an overlap in service to “global fleet customers,” a narrow customer segment that purchases marine water treatment chemicals and services.WHAT HAPPENED:
- The FTC issued an administrative complaint and filed a complaint in federal court seeking a temporary restraining order and preliminary injunction, asserting that Wilhelmsen’s proposed $400 million acquisition of Drew would significantly reduce competition in the market for marine water treatment chemicals and services used by global fleets.
- The FTC enforcement action focuses on a narrow sub-segment of customers, global fleet customers, that buys marine water treatment chemicals and services.
- The FTC distinguished global fleet customers from other marine water treatment chemical customers on the basis that:
- (1) global fleets have specialized needs that only a few suppliers can meet
(turn-key global sales, service and delivery capabilities, as well as consistent and reliable product supply); and
- (2) these customers seek out suppliers via requests for proposal and direct negotiation and therefore potential suppliers can price discriminate to that subset of customers.
- Because of the specific needs of global fleet customers and because global fleet suppliers can identify which customers are seeking service for global fleets, suppliers are able to price discriminate to the global fleet customer set.
- The FTC alleged a harm to competition because their investigation showed Wilhelmsen and Drew are each other’s closest competitors based on company documents, statements by the business personnel, and bid data showing that the companies are most frequently the first and second choice for global fleet customers. In addition, the FTC noted that Wilhelmsen and Drew would control at least 60 percent of the market with the next largest competitor having less than a 5 percent share.
- The FTC complaint disparaged the remaining market participants as unable to practicably compete with Wilhelmsen and Drew to service global fleets because they are perceived as offering lower quality products with less reliability, having more limited service capabilities, and failing to price competitively.
- The FTC’s enforcement action continues a trend of applying price discrimination markets. These markets are characterized by: (1) buyers with special requirements that only select suppliers can service; and (2) sellers who can identify the buyers with those special requirements and selectively price based upon the knowledge of those special needs.
- Antitrust enforcement of price discrimination markets lead to narrower product market definitions. Therefore, applying price discrimination markets may result in antitrust enforcers challenging mergers that appear lawful when viewed as a broader market.
- There is increased risk of price discrimination markets being applied by antitrust enforcers in industries in which:
- The customers’ end uses differ for the same product;
- Merging companies’ documents recognize distinctions among customer groups; and
- Groups of customers require unique product characteristics.