Bundeskartellamt prohibits Phonak/GN ReSound merger

The Bundeskartellamt has prohibited the planned acquisition of the hearing aid business of GN Store Nord A/S, Ballerup, Denmark by Phonak Holding AG, Stäfa, Switzerland. The companies to be acquired are known in the market concerned under the name GN ReSound. Phonak is one of the world’s leading producers of hearing aids. The other two main producers are Siemens and the Danish company William Demant/Oticon.

The planned concentration affects the German market for the production and sale of hearing aids. In terms of sales revenue, Germany is the second largest market for hearing aids after the United States. Siemens, Phonak and Oticon together hold a share of more than 80% in this market. Their combined market share exceeds those of their next-largest competitors GN ReSound and Widex by more than 70%.

In the Bundeskartellamt’s view the acquisition of GN ReSound would lead to a collective dominant position of Siemens, Phonak and Oticon (so-called “oligopoly”). The oligopolists are already closely linked by a number of business relations. In addition, they cooperate in the area of basic patents and custom-designed technologies. The companies have installed an extensive market information system via the central association of the electronics and electrotechnical industry (Zentralverband Elektrotechnik- und Elektrotechnikindustrie e.V., ZVEI). Stable demand and supply conditions, the almost market-wide listing of all the oligopolists with hearing aid retailers and transparency on the time of launch of new products already facilitate parallel conduct between the oligopolists. In addition, there is already a low level of innovation competition. The average prices of hearing aids charged by Siemens, Phonak and Oticon to hearing aid retailers do not differ significantly. The fact that there have been changes in market shares in the recent years is not an indication that an oligopoly does not exist, since these occurred mainly to the detriment of outsiders.

The already weak competition within the oligopoly would become insignificant after the merger. The joint market share would increase to approx. 90%. By taking over the technological and productive potential of GN ReSound and securing by further acquisition the oligopoly’s leading position in the enabling technology sector, the oligopoly would succeed in eliminating what little competition potential remained in the market. Transparency on prices and product launches would be further increased. The oligopoly would be able to fend off competition even more effectively than prior to the merger. It is to be expected that the high profits achieved in the market for hearing aids would further increase. The merger would further weaken innovation and price competition, ultimately to the detriment of the consumer.

In the course of the proceedings, Phonak had made a number of commitment offers in order to have the merger cleared. These offers concerned its participation in the ZVEI information system, participation in a joint venture in the field of basic patents, and the exchange of custom-designed technologies. In addition, the companies had offered a commitment to divest. Although these commitments would have been apt to improve competition in the hearing aid market, they would by no means have been sufficient to compensate for the negative impact of the merger. Neither would they have eliminated the exchange of technologies between the oligopolists, nor diminished their dominant position or the lack of market transparency vis-á-vis hearing aid retailers and end consumers.
The decision is not yet final. A public version of the decision will shortly be available on the Bundeskartellamt’s website.