Volvo Scania Merger - Personal Homepages

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Volvo-Scania Merger
September 1999 : Volvo notified the Commission of
the plans to acquire with Scania
Reasons for the merger:
Economies of scale in the industry of heavy trucks and
To compete in emerging markets
March 2000: after an investigation the Commission
blocked the proposed merger
After: Volvo formed a group with RVI and Scania
found a partner in Volkswagen (which previously was not active
in the production of heavy trucks and buses)
March 1999: Volvo sold his
automobile business to Ford
By consequence now fully
active in the manufactory and
sales of trucks, buses, marine
and industrial engines,
construction equipment, and
aerospace equipments
Truck business accounted for
57% of turnover, while buses
13% of turnover
Active in the manufacture and
sales of trucks, buses, marine
and industrial engines
Truck business accounted for
60% of turnover, while buses
8% of turnover
Economic analysis for Trucks and
Bus Market
Situation before the
proposed transaction
Definition of relevant market for Trucks
Product Market: identification of 3 Market segments according to
vehicles weight. Because of technical differences, the categories are
not considered as interchangeables by consumers. The proposed
merger concerns the market segment of heavy trucks.
Geographic market: because purchasing is done on a national
basis and the distribution and service network constitute a barrier to
import penetration, there are several distinct national markets. The
commission focuses its attention on Northen Europe because it is
where both Volvo and Scania have more market power
Definition of relevant market for
Product market:
3 categories of buses: City buses,Inter-city buses,Touring coaches
(with each category provides a different service)
→ heterogeneous products: differences in technical
distinct buyer groups
Geographic Market: the national markets constitute the
relevant geographic market, because price levels differ
between Member States, local consumer preferences,
purchasing is done on a national basis and technical
configurations vary between Member States.
Demand and supply
The demand is fragmented and inelastic
The consumer’s preference is based on: geographic location,
price, after sale networks, second hand value, power of the
engine and comfort level.
The consumer’s preference for buses is more concentrated on
local service network, reliabilitty and life-time costs
Change in customer’s profile
For trucks we see seven big producers on European market
within which DaimlerChrysler is the leader.
As for buses the main other suppliers are Neoplan and Bova,
MAN, DAF Bus, Van Hool and Dennis.
Volvo and Scania appear to be each other's closest competitors
and closest substitutes pursuing similar market strategy: both
high quality, loyalty and well-spread network services.
Price and competition
While the result of the investigation made by the commission
reveals a policy of bilateral prices between countries of 10-20%,
Volvo states that there is no substantial price differentiation
between member states and that indicated price differences are
due to variations in the equipment supplied with the heavy truck
and/or the customer structure.
As for competition:
 Absence of entry barriers
 High entry costs
 Crash test in Sweden
Economic analysis of the heavy
truck market and bus market
Changes in market
structure as a
consequence of the
proposed merger
Effects on competition
Some obstacles depend on intrinsic characteristics of both the
structure of the market and the national technical standards,
others are the result of the price policy that Volvo can put in
Capacity building as a barrier to enter ( service network;
cost of training)
Difficult to amortize costs because of a small population
Based on its loyalty Volvo could increase price by a little
amount acting as a price- taker
Effects on society
Anticompetitive unilateral effects:
 Negative effect on technological development
 lack of product differentiation which reduces the choice of the
 demand is inelastic the firm has a tendency on fixing higher prices
and on decreasing the quantity produced. The result is a loss of
consumer's surplus.
Coordinated positive effects:
 Technical efficiency ( specialization, economies of scale, capital
 Increase of the potential of price discrimination
Farrell and Saphiro analysis of mergers between oligopolies on
prices and total welfare
Shrinkage effect
Volvo, supported by a JP Morgan study, argues that a
shrinkage effect will result from the merger through the loss of a
10-20% of market share because of customers switching
Commission after studies made on consumers behaviour and
similar situations occurred in the past concludes that there is
little evidence suggesting that market shares should drop
drastically in the short to medium term
The commission has come to the conclusion that the proposed
concentration is not compatible with the common market as it would
create a dominant position which would significantly impede
concurrency and consequently generate a total welfare loss for society
Many critics have been made:
 Analysis focuses only on anti-competitive effects
 No transparency
 Narrow definition of relevant markets
 Impeded to compete internationally because based in a small market