When market leadership becomes a merger control liability: What the General Court’s Booking/eTraveli judgment means for M&A Strategy

The EU General Court has upheld the European Commission's first-ever prohibition of a conglomerate merger based purely on so-called "ecosystem" or entrenchment concerns, confirming that a dominant acquirer's expansion into adjacent markets can be blocked under the EU merger control regime. The ruling validates the EC's use of a novel "reverse leveraging" theory of harm – and going beyond theories of harm outlined in the Non-Horizontal Merger Guidelines – to address potential entrenchment concerns. It also endorses the idea that it is sufficient for the EC to show that the merger results in "consolidation and perpetuation" of an existing low level of competition on a relevant market, even where the projected market share increment turns out, on the General Court's own findings, to be "limited to a few tenths of a per cent". The judgment signals heightened scrutiny of conglomerate mergers that create or expand "ecosystems", particularly where an acquirer is dominant.

Background

In September 2023, the European Commission ("EC") prohibited Booking Holdings' ("Booking") proposed acquisition of eTraveli, a Swedish online flight-booking group, for a consideration of approximately €1.63 billion, marking the first time the EC exercised its veto powers to block a purely conglomerate merger. The decision prevented the dominant hotel online travel agency ("OTA") from acquiring a company active in an adjacent market - online flight reservations - on the basis that the combination would entrench Booking's existing dominance in hotel OTAs. Central to the EC's reasoning was a novel application of the entrenchment theory of harm: that Booking's expansion of its "ecosystem" into a neighbouring market would strengthen its dominant position in its core hotel OTA activities.

The EC did not advance a classic vertical foreclosure theory of harm that the merged entity would foreclose rivals in flights, but rather that access to eTraveli's flight customer base would serve as a powerful new acquisition and retention channel, funneling users into Booking's hotel OTA and thereby making Booking's already strong market position even harder for competitors to challenge. The transaction had already been unconditionally cleared by the UK Competition and Markets Authority, underscoring the extent to which the EC's ecosystem-based approach diverges from the assessment reached by other major regulator on the same facts.

In December 2023, Booking (supported by eTraveli) appealed the prohibition decision to the General Court ("GC"), raising three principal grounds of challenge: (i) that the EC departed from the established anticompetitive foreclosure framework set out in the 2008 Non-Horizontal Merger Guidelines (the "2008 Guidelines") without adequate justification; (ii) that the EC erred in rejecting the parties' existing, legally binding and commercially successful cooperation agreement (first signed in 2019 and repeatedly extended) as the baseline counterfactual, instead relying on an implausible "zero-flights" scenario; and (iii) that the EC incorrectly concluded that the transaction would result in a significant impediment to effective competition. By the time of the GC hearing, the underlying transaction had been abandoned, the appeal was brought primarily to overturn a precedent that would otherwise constrain Booking's future M&A strategy.

During the EC's review, Booking offered behavioural commitments, principally, an obligation to maintain and develop the existing cooperation agreement with eTraveli irrespective of the merger outcome, as a means of neutralising the entrenchment concern. The EC rejected those commitments.

Key takeaways from the judgment

Merger guidelines provide a framework, not an exhaustive list of theories of harm – the EC retains discretion in how guidelines are applied

The GC held that the EC is bound to limit the exercise of its discretion and cannot depart from its Non-Horizontal Merger Guidelines, but noted that these guidelines had not sufficiently taken into the account "certain specific characteristics" of "digital markets" and "did not rule out" the possibility that different types of foreclosure concerns could arise than those explicitly set out in the guidelines.¹ On that basis, the GC endorsed the EC's approach in retaining flexibility to develop novel theories of harm that were not contemplated when the 2008 Guidelines were originally drafted. This is as long as the novel theory of harm falls within the general framework that the guidelines establish.²

The GC further held that "…[the EC] is not required to undertake an examination in every case of all the factors which are referred" in the guidelines. The competitive analysis to be carried out by the EC must not be based on a mechanical application of the factors set out in the guidelines, but on an overall assessment of the foreseeable impact of the merger, in the context of which not all elements that notice identifies are relevant in each and every case.³ In other words, guidelines do not prevent the EC from assessing a proposed merger against a different analytical framework provided that is within the overall guardrails any such guidelines set out.

This has important implications for how the EC's forthcoming final Merger Guidelines will operate in practice. The GC's holding effectively means that even where the revised guidelines introduce new frameworks, parties should not assume that because a particular harm scenario is not explicitly listed in the guidelines, it is beyond the EC's reach (although the significance of this finding could be limited to the specific circumstances of the case: the 2008 Guidelines were dated and not apt for assessing the competitive dynamics of digital markets).

"Entrenchment" of a dominant position and reverse leveraging is a valid theory of harm in non-horizontal mergers

Booking's central argument when challenging the prohibition was that the EC's theory of harm inverted the leveraging theory of harm envisaged by the 2008 Guidelines:⁴ according to Booking, the EC ought to have assessed possible anticompetitive foreclosure and, in particular, the ability and incentive of the merging undertakings to foreclose their rivals and any resulting anticompetitive effects. Instead, the EC's theory was that post-acquisition Booking would use its position on the market in which it lacked market power (flights) to reinforce its pre-existing dominance in the market in which it was already dominant (hotel OTAs).

The GC rejected this challenge – the court stated that the 2008 Guidelines do not preclude a theory of harm based on reverse leveraging. The GC reasoned that leveraging is "a generic term" for the impact a practice in one market may have on another market, such that the potential harm to competition (strengthening the merged entity's position to rivals' detriment) is essentially the same regardless of the direction in which the leveraging runs.⁵ The GC noted that "it would be contradictory to allow the EC to rely on leveraging only where that leveraging would strengthen a non-dominant position and not where it would strengthen an already dominant one".⁶ This is the core of so-called entrenchment theory of harm that the EC's draft Merger Guidelines has now established as one of the potential theories of harm that the EC will investigate (see below).

Clarifying the scope of the notion of significant impediment to competition ("SIEC"): consolidation and perpetuation of the low level of competition and consolidation of dominance may suffice despite the low market share increment

In situations where a concentration would consolidate the level of competition to the benefit of the merging parties and to the detriment of existing and potential competitors and consumers, "the significance of the impediment to effective competition on the relevant market found by the Commission does not necessarily follow from a significant reduction, post-transaction, of the competitive pressure on the parties to the concentration, but from the low level of competition on that market becoming consolidated and perpetuated".⁷ Moreover, the GC noted: "[…] not only would [the small market share increment] expand the dominant undertaking's customer base, but also prevent competitors from expanding their customer bases, which could, given the importance of the size of its customer base for a hotel OTA due to network effects, have a chilling effect on the already weak competitive dynamics and result in the consolidation of the leader's existing dominant position, making that position even less contestable".⁸

This finding was particularly significant because the post-merger market share increment, that is the increase in Booking's market share in the hotel OTA segment, was in some cases less than 1%. The GC further found that several of the EC's calculations of Booking's post-merger hotel-OTA market share increment were "vitiated by a number of errors", such that it cannot be ruled out that the real increment could be "limited to a few tenths of a per cent".⁹ Moreover, the EC also did not establish that Booking's growth post-transaction would have led hotels to transfer additional inventory to Booking¹⁰ or would have allowed Booking to increase commissions it charged to the hotels.¹¹ Nevertheless, the GC held that the merger resulted in a SIEC, on the basis that the market was characterised by strong network effects and a large gap between the dominant entity and its rivals and, moreover, the qualitative evidence presented by the EC (specifically Booking's internal documents) indicated that "from a strategic point of view, it is essential for the applicant to be able to offer flights on its platform as an instrument for acquiring or keeping hotel customers in its travel ecosystem".¹²

Efficiencies are (still) subject to high evidentiary burden

The GC rejected Booking's efficiency arguments on the following grounds:

• Efficiencies that were not explicitly raised and substantiated during the administrative procedure, i.e., during the merger control proceeding, are inadmissible — the "one-stop shop" efficiency argument failed on this basis.¹³ This finding is perhaps not surprising: the Commission was not able to assess such arguments during the review process as they had not been articulated by the parties.
• Passing-on of cost savings to consumers must be evidenced by actual data, by the merging party's own internal documents and actual behavioural data. Theoretical price-elasticity models carry less weight than pre-existing internal documents reflecting real customer behaviour.¹⁴
• Cross-market efficiencies (benefits to flight customers offsetting harm to hotel customers) are only relevant where the affected and benefiting consumer groups are "substantially the same", "limited commonality" between hotel and flight OTA customers was not enough.¹⁵

What does this mean in practice

It remains to be seen whether Booking will appeal the judgment before the Court of Justice of the EU, the EU's highest court. In the meantime, however, unless and until the judgment is set aside, the reasoning of the GC represents the state of the law and merging parties should take account of the following:

• (Super) dominant buyers targeting complementary customer-acquisition channels face heightened merger control risk. The GC endorsed the idea that the SIEC test can be satisfied by showing that a merger "consolidates and perpetuates" an already low level of competition, making the dominant position of an acquirer even less contestable. In practical terms, this means that the EC does not need to demonstrate that a merger makes competition measurably worse - it is enough to show that the transaction locks in existing competitive conditions that already favour the dominant acquirer. For companies holding dominant positions on markets characterised by strong network effects and a significant gap between the leader and its rivals, this considerably lowers the evidentiary bar: even a marginal expansion into a complementary channel - regardless of the size of the resulting market share increment - may be sufficient to trigger a prohibition if it reinforces the acquirer's pre-existing market power.
• Merger guidelines provide a framework, not an exhaustive list of theories of harm – the EC retains discretion in how guidelines are applied. By rejecting the argument that reverse leveraging was not foreseen by the existing 2008 Guidelines, the GC effectively opened the door for further creative theories of harm by the EC in the future, to the detriment of legal certainty.
• Conglomerate mergers are no longer assumed to be non-problematic. Conglomerate mergers were historically perceived to be neutral or even pro-competitive. The GC's endorsement of the EC's prohibition of Booking's acquisition of eTraveli departs from this notion (albeit the scenarios in which the conditions justifying prohibition may apply are likely to be relatively rare).
• Ecosystems in the spotlight. Expect increased scrutiny by the EC of "ecosystem" expansion and cross-selling strategies as potential vectors of competitive harm, independent of traditional foreclosure analysis. While the digital sector is the most obvious target, the reasoning is sector-agnostic and could be applied to any industry where a (super) dominant player seeks to extend its reach into adjacent markets.
• Prepare the efficiencies defence from the outset. Build the efficiencies case proactively at the beginning of the merger review, do not wait for the litigation stage, as evidence presented at that stage risks being dismissed as inadmissible. Make sure any claimed benefits are supported with realistic economic analysis, internal documents prepared in the ordinary course of business, and reports by industry experts. In particular, be alert to the GC's "substantially the same consumer group" standard for cross-market efficiencies: aggregate platform-level benefits are unlikely to suffice without granular evidence of consumer-group overlap.
• Manage internal documents with care. The GC's reliance on Booking's own strategy documents, describing flights as an "instrument" for the hotel ecosystem, as evidence of anticompetitive intent underscores the need for dominant companies to be mindful of how M&A rationale and ecosystem strategy are articulated internally. This is not a counsel of opacity, but of precision: documents that frame acquisitions in terms of "acquiring customers" for a dominant platform, without capturing the pro-competitive and efficiency rationale equally, risk becoming adverse evidence in a merger review.
• The judgment is already shaping the EC's forthcoming revised Merger Guidelines. The timing of the judgment is significant. The EC is in the process of finalising its revised Merger Guidelines. The draft Merger Guidelines codify "entrenchment" as a standalone theory of harm. The theory applies in particular to ecosystems "built around a core service with multiple complementary offerings, giving incumbents the ability to provide integrated or bundled solutions that smaller rivals cannot replicate". Entrenchment may occur when the merged entity gains control over assets that reinforce barriers to entry, thereby consolidating the dominant position in the core market. Given the GC's endorsement of the EC's reasoning in the Booking case, the revised Merger Guidelines can be expected to retain this standalone theory of harm. On the flip side, the draft Merger Guidelines make clear that the entrenchment theory is subject to a number of cumulative conditions which meaningfully limit its scope and recognise that mergers combining complementary products or technologies could generate consumer benefits, in particular from reduced transaction costs and increased interoperability between complementary products. This means that not all such mergers would lead to a SIEC even where one party holds market power in one of the relevant technologies.

^{1 Booking Holdings Inc, v European Commission, Case T-1139/23; paragraph 77.
2 Booking Holdings Inc, v European Commission, Case T-1139/23; paragraphs 76, 77 and 79.
3 Paragraph 78.
4 Paragraph 93 of the 2008 Guidelines states that the main competition concern in conglomerate mergers is foreclosure: the combination of products in related markets may give the merged entity the ability and incentive to "leverage" a strong market position from one market to another by means of tying, bundling, or other exclusionary practices.
5 Paragraph 88.
6 Paragraph 89.
7 Paragraphs 467-468.
8 Paragraph 470.
9 Paragraph 465.
10 Paragraph 465.
11 Paragraph 443.
12 Paragraph 268.
13 Paragraphs 485-489.
14 Paragraphs 500-508.
15 Paragraphs 522-524.}

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