The Ministry of Commerce of the People's Republic of China (hereinafter referred to as the “MOFCOM”) received the anti-monopoly declaration for the concentration of undertakings on the acquisition of certain business (hereinafter referred to as the “Target Business”) of Samsung Electronics Co. (hereinafter referred to as “Samsung”) by HP Inc. (hereinafter referred to as "HP").Upon review, the MOFCOM decided to approve the concentration of undertakings with additional restrictive conditions. In accordance with Article 30 of the Anti-monopoly Law of the People's Republic of China (hereinafter referred to as the “Anti-monopoly Law”), relevant matters are hereby announced as follows:
I. Case-filing and review procedures
On November 16, 2016, the MOFCOM received the anti-monopoly declaration for the concentration of undertakings on the case. Upon review, the MOFCOM considered that the documents and materials for declaration were incomplete, and required the declarer to make supplementation. On December 23, after further supplementation, the MOFCOM confirmed that the documents and materials complied with Article 23 of the Anti-monopoly Law, and therefore the anti-monopoly declaration for the concentration of undertakings was admitted to be filed, and the preliminary investigation was launched. On January 19, 2017, the MOFCOM decided to further review this concentration of undertakings. Upon further review, the MOFCOM believed that the concentration of undertakings might have the effect of eliminating and restricting competition in the Chinese markets of A4 laser printers and A4 laser printing materials. On April 19, with the consent of the declarer, the MOFCOM decided to extend the further review period. Upon the expiry of the extended further review period, the declarer applied for withdrawal of the case, which was approved by the MOFCOM. On June 21, the MOFCOM conducted the investigation for the re-declaration from the declarer. The case is currently in the further review period. The deadline is October 18.
In the course of review, the MOFCOM solicited opinions from the relevant government departments, trade associations and the relevant enterprises, held several times of forums for the knowledge of the relevant market definition, market players, market structure, industry characteristics and future development prospects and reviewed the authenticity, completeness and accuracy of the documents and materials submitted by the declarer.
II. General information of the case
The acquirer HP is a joint-stock company incorporated in 1998 in the United States. Its establishment can be traced back to 1947. In 1961, it went listing on the New York Stock Exchange. It has a dispersed shareholding structure and no final controllership is mainly engaged in the computer and printer business.
The Target Business is Samsung's global printer business, consisting of several subsidiaries engaged in the printer business and related assets. Samsung is a joint-stock company incorporated in January 13, 1969 in South Korea. It went listing on the Korea Stock Exchange. It has a dispersed shareholding structure and no final controller.
On September 12, 2016, HP and Samsung signed a concentration agreement, pursuant to which HP will acquire all the equities and assets of the Target Business. After the completion of the transaction, HP will acquire sole control over the Target Business.
III. Relevant markets
The MOFCOM defined the relevant commodity markets and relevant geographic markets in the case in accordance with the Anti-monopoly Law, the Guidelines of the Anti-monopoly Commission under the State Council concerning the Definition of Relevant Markets and other provisions.
(I) Relevant commodity markets.
1. Printer products.
Both HP and Samsung are engaged in the printer business. A printer is an output device that prints the processing results of a computer or other devices on a related medium. Print format is an important indicator to measure a printer. Generally printers with a print width of exceeding A3 are regarded as large-format printers, while those with a print width of A3 or smaller are regarded as regular-format printers. Regular-format printers are mainly used for office and at home; large-format printers are mainly used in some special occasions or professional areas, such as advertising design and project display. Compared with regular-format printers, in addition to the different functions, the sales prices of large-format printers are also apparently higher than those of regular-format printers. Therefore, there is no substitution relationship between large-format printers and regular-format printers. As for this concentration, the Target Business does not provide large-format printer products, so the anti-monopoly investigation focused on the laterally overlapped regular-format printer products between both sides.
There are many subdivided dimensions in regular-format printers. The anti-monopoly investigation indicates that regular-format printer products can be further subdivided from two dimensions: A3/A4 format and laser/inkjet.
(1) A3 format printers and A4 format printers do not belong to the same relevant commodity market.
Both HP and the Target Business produce A3 format and A4 format printers. In terms of demand substitution, it is learnt from a functional analysis that A3 format printers can print both A3 format and A4 format data, but A4 format printers cannot print A3 format data. It is further learnt from a price analysis that the average price of A3 format printers is 6-10 times that of A4 format printers. The data analysis of the third-party research agency International Data Corporation (hereinafter referred to as "IDC") shows that between 2010 and 2016, the average price correlation between A3 format printers and A4 format printers in the Chinese market was only 0.12, and even in the global market, the average price correlation of both products was only 0.37, indicating that the substitution between the two products is relatively weak. The research on consumer demand also shows that the two constitute complementary products, rather than substitutable products. Unless there is a rigid printing demand for A3 format materials, consumers will select A4 format printers in consideration of costs.
In terms of supply substitution, the research shows that the development of a common A4 format black and white laser printer needs huge investment, while the investment required for the development of an A3 format printer is several times that for an A4 format printer. Even if there is a large profit margin as a result of a rise in the prices of A3 format printers, it is difficult for producers of A4 format printers to produce A3 format printers in a short term for technology, patents, input costs and other reasons.
In conclusion, A3 format printers and A4 format printers belong to two independent relevant commodity markets.
(2) Laser printers and inkjet printers do not belong to the same relevant commodity market.
HP produces and sells laser printers and inkjet printers. The Target Business mainly offers laser printers and does not sell inkjet printers in China. In terms of demand substitution, inkjet printers and laser printers have different market positioning and are targeted at different consumer groups, so the substitution between them is relatively weak. With the color printer function, most inkjet printers are the first choice for printing color photographs and are able to complete printing tasks on paper of different sizes and materials. They are suitable for the consumers who print less frequently and have less printing quantity but have certain demand for color printing. Laser printers are more suitable to meet the printing demand for high printing frequency and large printing quantity and the printing costs are nearly one-third lower than those of inkjet printers. Therefore, in terms of demand, the substitution between inkjet printers and laser printers is relatively weak. It is learnt from a price analysis that the sales prices of laser printers and inkjet printers are quite different, whether in the global market or the Chinese market. In the Chinese market, the average sales price of laser printers is about 3-4 times that of inkjet printers. Given such price difference, their respective market demands will not vary from the minor changes in each other's market prices.
In terms of supply substitution, although laser printers and inkjet printers have the same function, but have different printing technologies, so their producers cannot easily switch to each other's production line. Therefore, laser printers and inkjet printers belong to two independent relevant commodity markets.
In conclusion, the relevant commodity markets in the case are A3 format laser printers and A4 format laser printers.
2. Printing material products.
Printers and printing materials are different independent products which do not belong to the same relevant commodity market. For consumers, only purchasing both a printer and printing materials at the same time can achieve the printing purpose. The two constitute complementary products in the economic sense.
The printing materials of a laser printer include a toner cartridge, toner and other components. Printing materials can be divided into original materials and third-party materials. Original materials refer to the materials which are used exclusively for the printers of a brand, and all consumables of which are produced and sold by the producer of the printers of such brand. Third-party materials refer to the materials which are compatible with the printers of a brand, but one or more consumables of which are not produced by the producer of the printers of such brand. Although original materials and third-party materials are different in terms of prices and printing effects, the market research shows that the vast majority of consumers consider that original materials and third-party materials compete with each other as there is an apparent substitution relationship between the two. Original materials and third-party materials constitute differentiated products in the same relevant commodity market. Printing materials can be subdivided by the corresponding type of printers. The relevant commodity markets in the case are the market of A3 format laser printing materials and the market of A4 format laser printing materials.
(II) Relevant geographic markets.
Geographically, more than 90% of regular-format printers in the Chinese market are purchased in China. Regardless of A3 format printers or A4 format printers, the average sales price in the Chinese market is much lower than that in the global market. The average sales price of A3 format printers in the global market is about 3 times that in the Chinese market, and the average sales price of A4 format printers in the global market is about 1.5 times that in the Chinese market. For the printer product of a specific type, there is a continuous and systematic difference between the prices of the same product in the Chinese and global markets, showing that the same producer has different pricing powers in the Chinese and global markets and indicating that the Chinese and global markets have different demand flexibilities for the product, so the two geographic markets are independent of each other.
More than 90% of printing materials in the Chinese market are purchased in China. The prices and product market structure are different from those shown in the global market, showing characteristics different from those in other regions.
The anti-monopoly investigation shows that in the fields of A3 format and A4 format laser printers and printing materials, the relevant geographic market in the case is China.
IV. Competitive analysis
The MOFCOM reviewed the concentration of undertakings in terms of the market share and market control in the relevant markets of the undertakings participating in concentration, the relevant market concentration rate, the difficulty in market access and the impacts on consumers and other undertakings in accordance with Article 27 of the Anti-monopoly Law, deeply analyzed the impacts of the concentration of undertakings on market competition and thereby came to believe that the concentration would have the effects of eliminating and restricting competition in the Chinese markets of A4 laser printers and A4 laser printing materials.
(I) Concentration will lead to the rise in the concentration degree of the Chinese market of A4 format laser printers and further enhance HP's market control, so that HP has the ability and motivation to eliminate and restrict competition.
In the Chinese market of A4 format laser printers, calculated by sales, the market shares of HP and Samsung in 2016 were [45-50]% and [5-10]%, respectively, and their market share after concentration will be [50-55]%, followed by competitors Brother, Lenovo and Canon, who are far behind HP. The Herfindahl-Hirschman Index (HHI) in the market before the concentration of HP and Samsung was 2597 and will be 3067 after concentration. The market after concentration will constitute a market of high concentration. Moreover, the concentration will generate 470 HHI increment. Such results show that the concentration will generate or enhance HP's dominant market position in the relevant commodity markets.
The anti-monopoly investigation shows that HP and Samsung constitute close competitors in the Chinese market of A4 format laser printers. Samsung's products are mainly distributed in the laser printer market, and Samsung offers diversified products with a wide price range and product distribution similar to that of HP in the market. Concentration will lead to the elimination of the close competition between HP and Samsung and reduce the constraints on enterprises' pricing acts generated from the competition substitution, thereby having the effects of eliminating and restricting competition.
(II) After concentration, HP has the ability and motivation to carry out tie-in sales of materials, thereby eliminating and restricting competition in the Chinese market of A4 format laser printing materials and damaging consumer interests.
Consumers will not re-purchase printers, which are durables, during a long term after purchase, but will need to continuously purchase toner cartridges or ink cartridges and other printing materials. If purchasing and using third-party printing materials will disable a printer or reducing a consumer's printing experience, it means that the consumer will be in a locked state. This marketing model cannot only strengthen the control over consumers, but also be taken as a strategy to prevent the access of new enterprises, thus forming the effects of eliminating and restricting competition.
The anti-monopoly investigation shows that consumers' requirements for printing effects are differentiated. Prices of third-party materials are significantly lower than those of original materials. Those consumers choosing the original materials that are more expensive often have higher requirements for printing effects, after-sales maintenance and other aspects. Different consumers will choose different printing material products according to their own needs. If printer enterprises force consumers to buy the material products designated by them by firmware upgrades, advertising and otherwise, it will directly reduce the options of consumers, and in essence constitute a market blockade, which will damage consumer interests.
The anti-monopoly investigation shows that the larger market share a printer enterprise accounts for, the more solid foundation for the tie-in sales of printing materials it has. According to IDC data, the shares of HP and Samsung in the market of A4 format laser printers in 2016 were [45-50]% and [5-10]%, respectively, and their market share after concentration will reach [50-55]%, so that HP will have a dominant market position. After the completion of concentration, HP will have the motivation and ability to carry out tie-in sales of printing materials in the Chinese market, thereby eliminating and restricting competition in the Chinese market of A4 format laser printing materials.
(III) In the short term, it is difficult to have new effective competitors in the relevant market because of difficult access.
The anti-monopoly investigation shows that printers are optical-mechanical-electrical integrated products involving a number of disciplines and complex technology, the research, development and production of which needs relatively high technical and capital thresholds. In the Chinese market of A4 format laser printers, it is difficult to have new competitive market participants in a short term, so that it is impossible to form effective competition constraints on HP and difficult to eliminate the adverse impacts of this concentration on competition.
V. Discussions with additional restrictive conditions
In the course of review, the MOFCOM notified HP in good time of the review opinion that the case might eliminate and restrict competition, and held several rounds of negotiation with HP with respect to matters concerning the imposition of additional restrictive conditions to reduce the adverse impacts of this concentration of undertakings on competition. With respect to the restrictive conditions proposal submitted by HP, the MOFCOM mainly evaluated the validity, feasibility and timeliness of such proposal in accordance with the Provisions on Additional Restrictive Conditions for the Concentration of Undertakings (for Trial Implementation).
Upon evaluation, the MOFCOM believes that the restrictive conditions proposal submitted by HP to the MOFCOM on September 27, 2017 can reduce the adverse impacts of the concentration of undertakings on competition.
Given that the concentration of undertakings may have the effect of eliminating and restricting competition in the Chinese markets of A4 laser printers and A4 laser printing materials, according to the proposal on restrictive conditions submitted by HP to the MOFCOM, the MOFCOM has decided to approve the concentration with additional restrictive conditions, and require HP to perform the following obligations:
(I) continue to sell A4 laser printer products on fair and reasonable supply conditions, and submit pricing information and related data to the Anti-monopoly Bureau of the MOFCOM every six months.
(II) not acquire any share in the Chinese A4 laser printer business of any other printer manufacturers, even minority equity investment.
(III) take, launch or conduct no technical measures, firmware or upgrades for Samsung A4 laser printers and original materials thereof sold in China (excluding exported ones) that may affect the compatibility of third-party materials.
(IV) take, launch or conduct no technical measures, firmware or upgrades for HP A4 laser printers and original HP A4 materials sold in China (excluding exported ones) that may affect the compatibility of third-party materials for original HP chips.
(V) in advertising A4 laser printers' original materials, HP will not carry out false or misleading advertising or marketing for Chinese potential customers, nor will it claim that third-party materials cannot be compatible with A4 laser printer products.
(VI) in accordance with the Anti-monopoly Law and the relevant laws and regulations, not carry out tie-in sales for A4 laser printer products or other unreasonable business practices.
The above restrictive conditions shall be effective within five years as of the date of effectiveness and terminate automatically upon expiration of the term.
Besides the supervision and execution of such restrictive conditions subject to the announcement, the additional restrictive conditions proposal submitted by HP to the MOFCOM on September 27, 2017 shall be binding upon HP.
The MOFCOM has the power to supervise HP on its own or through the supervision of the trustee on the fulfillment of the obligations above. Where HP fails to fulfill the obligations above, the MOFCOM will handle the matter in accordance with the relevant provisions of the Anti-monopoly Law.
This Decision shall come into force as of the date of announcement.
October 5, 2017