A key consequence of our competition-economic perspective is that we possess an involved understanding of the functionality of markets and of the driving forces of competition and structural change. With this background, we help companies develop market strategies compatible with German and EU law, with a focus on estimating the economic consequences of strategic decisions upon turnover, market share, margins and profitability.
These key economic questions emerge in cases of growth strategies in particular, but also in cases of company buyouts, collaborations or strategic alliances and even distribution expansion, whether through selective distribution channels or multi-branch operations at the retail level. For this purpose, customer and competitor reactions have to be predicted reliably. We possess a high level of expertise, making it possible to examine margin and profit expectations and further develop draft strategies.
Our many years of experience in the analysis of market forces and developments in drastically different branches enable us to conduct basic investigation of competition mechanisms within new or very specific markets. Such surveys can be limited to the investigation of key measurements, such as quantity, price, turnover, or market share. However, they can also encompass complex issues such as competition-economic based evaluations of market segmentation or willingness to pay or switch of customers in dependence on usage or competitive parameters (e.g. decisions based on price, discounts, locations or distance). We have completed such studies for diverse markets within the fast moving consumer goods sector, for example upon the sales and aftersales division of the European new vehicles markets or upon the correlations between new and nearly new vehicles. Worth mentioning here are also industry-wide surveys, such as in the food trade or the dairy sector.
In cases of horizontal mergers, the pricing effects for the merging parties are primarily dependent on their current market positions, the closeness of competition, also to other competitors, and the type and strength of synergies that will be released by the merger (fixed-cost savings and/or the reduction of variable costs).
In horizontal mergers the aim is often to strengthen the earning power of the procurement side through cost reductions. A takeover will, in practice, have the aim of broadening the scope of action regarding pricing policy and thereby improving both market position and, ultimately, profitability. Existing options regarding pricing policy are not solely dependent on the reactions of competitors and the market power of the suppliers, but also on the own price elasticity of demand. Post-merger the most probable scenario for the market and competition development is therefore of great importance for the target achievement of the company’s own business case (beside the approval of antitrust law). We possess a sophisticated set of methods enabling the prediction of such developments and of economic parameters.
Different strategic options play an important role in vertical mergers. In addition to assured access to the procurement market, the incumbent often has the aim of bringing the sales and procurement channels of its product under control. Such motivations have been evident in various mergers, for example in the digital-mapping market or of companies in the construction industry in the downstream real-estate market or in project development. Other examples of merger goals are affected by bundling calculations, with which a company seeks access to a downstream market. In such cases, we apply highly efficient analysis instruments, which facilitate sound assessments of a bundling strategy’s prospects for success or of market control.
Pricing policy remains a highly sensitive yet decisive parameter of competition. The instruments of non-price competition are only truly emphasized when the pricing strategy has been optimally aligned to suit the competitive and demand conditions of the market in question. A central starting point for strategic pricing is the customers’ willingness to pay for a product with a particular level of service. In individual cases, the price penetration is significantly dependent on whether customers are willing to pay above minimum required levels for additional benefits (almost no product is ever sold “purely”; service dominant logic).
One further key issue concerns temporal and regional price differentiation: is there scope for price variation on a daily or seasonal basis? Can profitability be strengthened by using regional differences in demand and competition conditions in order to support regional pricing? How can special offers and mixed calculations be applied so that customers’ buying intentions and willingness to switch are optimally stimulated? We support the price management of our clients in matters of pricing policy with robust analysis and conceptional contributions.
The jurisdiction of the European courts tends towards a per se prohibition of retroactive rebates in cases of market dominant companies. In many branches, however, annual repayments belong to historically developed trade customs and encourage efficient production and distribution. From the industry and trade point of view, retroactive conditions should still be used as much as possible.
From the competition-economic perspective, a per-se prohibition is not justified if a position of market dominance is not evident or multiple discount levels are in use and/or if a critical discount rate (which displays no suction or foreclosure effect) is not exceeded. In such cases it is justified to make use of the non-critical discount. We apply an internally developed computer-supported analysis tool, with which a legally justified system of terms and conditions can be configured to suit our clients’ needs. After the initial calibration and thorough training, our clients can then continue to use this analysis tool independently.
A central industry question relates to the overall assessment of a distribution system. Such an important evaluation covers the determination of the length and differentiation of channels of distribution (number of intermediate stages, a mono- or multi-channel strategy, selective vs. open channels of distribution), the decision of whether to use direct or indirect sales and distribution (make or buy), the network density, as well as the selection of an optimal location. In periods of accelerated technical impositions, these concepts become increasingly urgent as they entail long-term commitments to basic patterns of market development and penetration.
In close correlation with such structural decisions it must be assessed whether and to what extent the manufacturer retains control over the ultimate retail price. In this respect, long-term sales and distribution decisions also dictate the pricing and margin systems of the manufacturer with respect to the use of non-binding recommended retail prices (RRP). We have accumulated extensive experience in distribution networks with complex organisational arrangements, above all in the automotive sector. These entailed analysing the subject of network density while taking into account the market share of a particular brand as well as non-predatory intrabrand competition or studying incentive components within margin systems of trade manufacturers.