1. Whether:

1. carpet underlay, gripper and metal edging each constitutes a separate market; or
2. the relevant economic market should in each case be defined more widely or more narrowly.

2. Whether the geographical dimension of each of the economic markets for underlay, gripper and metal edging is local, regional, national or wider.

3.  Whether the acquisition of Gates by Duralay would reduce competition in the markets for underlay, gripper or metal edging (hereinafter provisionally referred to as "the reference products"), thereby enabling the merged company to:

1. raise the prices that it charges its customers for the reference products;
2. engage in predatory pricing, or other anti-competitive behaviour, thereby damaging the remaining competitors in the market or even forcing them to exit; or
3. engage in other behaviour brought about by the reduction in competition, for example (i) making the supply of any of the reference products (for example, underlay) dependent on the purchase of a different product (for example, gripper); or (ii) tying in customers through the use of volume-related incentives such as discounts and retrospective rebates.

Possible barriers to entry

4. Whether any barriers to entry or expansion currently exist in the market(s) for any of the reference products and whether therefore new entry into, or expansion within, those markets(s) would be less likely following the merger.

5. Whether the creation of an even stronger player in the markets for the reference products than currently exists would be likely to act as a barrier to entry.

Possible constraints on the merged company exercising market power

6. Whether, and if so to what extent, the following factors would be likely to act as constraints on the raising of prices of the reference products by the merged company:

1. the availability of carpets backed with felt, foam or other materials;
2. the availability of alternatives to carpet, for example, laminates and other types of smooth floor covering; or
3. customers’ ability to re-use existing underlay, or not to use underlay at all, when replacing their carpets.

7. Whether, were the merged company to raise prices on any of the reference products, customers could satisfy their demand by switching their purchases of these products to other existing UK suppliers.

8. Whether, were the merged company to raise prices on any of the reference products, competitors would be likely to resist such price increases.

9. Whether:

1. there is over-capacity in any of the reference products in the industry as a whole and, if so, how it is distributed between companies;
2. following the merger, competitors of the merged group would have substantial spare capacity, and whether this would give them the ability and the incentive to incease their market share should the merged group raise prices;
3. the merged group itself would have substantial spare capacity, and the incentive to maintain its volume sales would constrain any increase in price on its part;
4. if the merged company rationalised capacity, the constraint posited in ( c ) above would be removed.
5. alternatively, overcapacity has little effect in the industry because it does not add significantly to costs.

10. Whether, were the merger to proceed, there would be a realistic threat from imports of any of the reference products, capable of acting as a constraint on the price of these products. Whether matters such as the need for reliability and continuity of supply would deter customers from switching to imported supply of these products, even where such imports otherwise offered better value for money.

11. Whether the merged company would be able to raise prices above the levels that would have prevailed without the merger, even if below those sufficient to trigger significant imports.

12. Whether, and if so to what extent, buyer power exists among customers (wholesalers and retailers) of the reference products. Whether such customers of the merged company would be able, or would see it as in their interests, to resist increases in the prices of any of these products, or whether they would pass such price increases on to their own customers.

Possible adverse effects of the merger

Prices

13. Whether prices would be raised above levels that would otherwise have prevailed.

14. Whether consumers are less price sensitive to the reference products than to carpet and whether this would result in higher prices being passed on, via wholesalers and retailers, to consumers.

Quality and service

15. Whether, in respect of any of the reference products, the merged company would be able, and likely, to reduce product or service quality below levels that would otherwise have been provided.

16. Whether security of supply and distribution of the reference products would fall below levels that would otherwise have prevailed.

Innovation and choice

17. Whether, in respect of any of the reference products, the merged company would be less likely to innovate, to develop new and improved products, or to reduce production costs.

18. Whether, in respect of any of the reference products, the merged company would be likely to offer less choice than would otherwise have been the case.

Possible benefits of the merger

19. Whether any benefits would be likely to result from the acquisition of Gates by Duralay (a) for consumers; (b) for employment; (c) for the UK industry as a whole; and (d) of any other kind.

Possible remedies

20. Whether any of the possible adverse effects set out in paragraphs 13 to 17 above could be remedied:

1. by prohibition of the merger;
2. by the divestment of any plant, product or equipment of either Duralay or Gates;
3. by behavioural remedies of any sort, for example, some form of price control;
4. by any other means.

Notes to Editors

1. The reference was made by the Secretary of State for Trade and Industry under the Fair Trading Act 1973 on 28 June 2001 (see DTI Press Release P/2001/340).
2. The Commission has been asked to report to the Secretary of State by 18 October 2001. The report will be published some weeks later by the DTI.
3. The inquiry is being carried out by a group of four members of the Commission: Denise Kingsmill (inquiry chairman), Arthur Pryor, Professor Anthony Steele and Alan Young.
4. Further information can be obtained from the Commission’s website at www.competition-commission.org.uk.
5. Enquiries should be directed to Francis Royle, Press Officer, Tel: 020 7271 0242