CRA advised both Parties on VTech’s completed acquisition of LeapFrog. After an in-depth Phase II investigation, the UK Competition and Markets Authority has signalled its provisional intention is to unconditionally clear the merger. The main issues centred on the Parties’ overlaps within ‘toddler electronic learning toys’ and ‘child tablets’ in the UK.
The CRA team was led by Matthew Bennett and included Vicki Mertzanidou, Sam Brown and Angelos Stenimachitis. In learning toys, a key part of the CMA’s provisional findings was the question of whether the Parties’ high shares in the narrow segment of ‘toddler electronic learning toys’ were determinative of the constraint they placed on each other, or whether consumers and retailers considered the wider variety of other electronic and non-electronic toys in making their purchase decisions. CRA commissioned a survey for the Parties that showed that, contrary to the CMA’s Phase I findings, consumers considered a wide range of toys when making purchasing decisions. This, coupled with CRA evidence of the dynamic nature of the toy business, the large number of toy manufacturers and the considerable choice and bargaining power that retailers had in choosing from suppliers, made it clear that the merger would not lead to a reduction in competition.
In children’s tablets, CRA demonstrated that both Parties had experienced a significant downturn in their demand due to the increasing tendency for parents to either buy adult tablets, or pass older adult tablets/phones onto their children. Therefore, despite the Parties being the two largest providers of children’s tablets with similar products, the rapidly evolving nature of the segment and the strength of the outside option was such that the merger would not result in any ability to increase the Parties’ prices. Both of the findings in tablets and learning toys were supported by CRA’s analysis of margins and concentration which showed that even when the Parties had strong positions in narrow segments, this did not grant them the ability to yield market power.
Further information on the case can be found here.