INQUIRY INTO THE PROPOSED ACQUISITION BY KODAK PROCESSING COMPANIES LIMITED (KPCL) OF CERTAIN ASSETS OF COLOURCARE LIMITED (COLOURCARE)

Statement of Issues and Hypothetical Remedies

The Competition Commission has sent issues letters to KPCL and ColourCare, as part of its inquiry into the proposed acquisition. The letters also list some hypothetical remedies.

Such letters are always sent before the Commission has reached any conclusions and are designed to highlight matters that have been identified for further consideration. This statement is being made public to give interested parties the opportunity to bring to the Commission’s attention, in the next two weeks, any further points that they wish to raise. The Commission has reached no conclusions about whether any matters operate or may be expected to operate against the public interest and will not do so until after it has discussed these issues with the parties concerned.

The issues that the Commission intends to consider are:

The appropriate definition of the economic markets affected by the proposed acquisition, in particular:

whether the UK is the relevant market, or whether it should be Great Britain, the UK and the Republic of Ireland, Europe, or a series of regional markets within the UK;
whether there is a single market (or a distinct segment of a market) for providers of wholesale developing and printing (D&P) services to third parties, or whether they are part of a wider market;
if they are, whether that wider market includes:

wholesale D&P providers that offer services to only one, or a very limited number of customers; and/or
mini lab processors with equipment located in or very near to retail stores; and /or
mail order providers of D&P services;

whether there is scope for substitution, on the supply or demand side, at the boundaries of any of the markets identified; and,
whether there are significant barriers to entry or expansion in the relevant markets, such as:

high capital and start-up costs,
economies of scale, such as advantages in being able to operate larger plants or to provide a nation-wide service, in purchasing raw materials, or in establishing a collection and delivery network;
access to technology or equipment;
economies of scope from operating in related markets; or
an expectation that existing firms will respond aggressively to new entry or expansion.

Whether the proposed merger is likely to affect competition in any of the markets identified in the UK, and, in particular:

whether the proposed acquisition is likely to lead to a significant rise in prices, or to a reduction in quality or levels of service, for retailers—and hence for their ultimate customers—compared with what would otherwise have occurred;
whether, as a result of the market conditions created by the proposed acquisition, other providers of wholesale D&P services in the UK would be seriously weakened;
whether any features of the market—such as lack of transparent pricing, or KPCL’s ultimate parent being a major participant in many areas of the photographic business—restrict competition;
whether any anti-competitive practices—such as collusion, price discrimination, suppliers forcing full lines of products and/or services onto customers, or predatory pricing—may be expected to come into existence or be exacerbated as a result of the proposed acquisition;
whether the vertically integrated nature of Kodak’s business is likely to be enhanced by the proposed acquisition, with consequent implications for competition;
whether technological progress in the market in the next five years is likely to effect competition, and if so, how; and
whether other aspects of the proposed acquisition could be expected to be to the detriment of customers or competitors.

Whether any potentially anti-competitive consequences of the proposed acquisition might be constrained sufficiently to avoid detriment to the public interest:

by customers having sufficient buyer power, or
by their ability to find alternative supply of such services in the UK.

Whether there are likely to be benefits to the public interest from the acquisition; if so:

what are they likely to be;
to whom will they accrue; and
how will the benefit of any synergies be passed on to consumers.

In the event of the Commission finding that the proposed acquisition was expected to operate against the public interest, what remedies would be appropriate to deal with the adverse effects identified:
1. a complete ban on the proposed acquisition taking place, or
2. the proposed acquisition being conditional on the divestment of one or more of the KPCL group’s and/or ColourCare’s laboratories or operations relating to specific services or to parts of the UK where adverse effects may be identified;
3. any other remedies.

Notes to Editors

The reference was made by the Secretary of State for Trade and Industry, under sections 64, 69(2) and 75 of the Fair Trading Act 1973, on 16 August 2001 (see DTI news release P/2001/442).
The Competition Commission will submit its report to the Secretary of State by 26 November 2001. It will subsequently be published.
This inquiry is being undertaken by a group of five Commission members. The Chairman is Professor Paul Geroski, a Deputy Chairman of the Commission, who is also Professor of Economics at the London Business School. The other members are Mrs Sarah Brown, a former DTI Civil Servant, who is a member of the Friendly Societies Commission and a director of the Financial Services Compensation Scheme; Miss Judith Hanratty, a barrister who is Company Secretary of BP AMOCO plc and a member of the Takeover Panel; Mr Tim Richmond, a chartered accountant, and Mr Jeremy Seddon, a former merchant banker.
Further information can be obtained from the Commission’s website at www.competition-commission.org.uk/inquiries/ref.htm
Enquiries should be directed to: Francis Royle, Press Officer (020 7271 0242).