Diagonal mergers: the importance of understanding interactions between value chains

Lear economists provided economic advice in the acquisition of Esso Italiana S.r.l. by Italiana Petroli S.p.A. Although the merging parties did not overlap in the retail market and were not in a supply relationship, the Italian Competition Authority was concerned that the transaction could negatively affect retail oil prices. This concern was linked to the possible existence of diagonal effects – even if they were not labelled as such by the Authority. The term diagonal merger refers to a special case of vertical concentrations in which the merging parties are active at different levels of the (same or different) value chain(s) and are not linked (or they are only to a limited extent) by supply relationships. The analysis of diagonal effects is increasingly relevant – as shown also by some recent cases investigated by the European Commission – and highlights the importance of a thorough understanding of how the products supplied by the merging parties relate to one another beyond the traditional categories of horizontal and vertical mergers.