Completed acquisition by The GAME Group plc of Game Station Limited

Affected market: Electronic games

No. ME/3059/07

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, undertakings in lieu, jurisdiction, assessment and decision.

The OFT's decision on reference under section 22(1) given on 9 August 2007. Full text of decision published 3 September 2007.

PARTIES

Game Group plc ('GAME') is a retailer primarily of new and pre-owned video games, video consoles and related accessories. Pre-merger, it operated around 800 stores, concessions and franchises across eight European countries and in Australia, of which almost 400 are in the UK. In the year ending 31 January 2007, Game achieved sales of £801.3m, £586.4m of which was generated in the UK.

Game Station Ltd ('Gamestation') is a UK retailer of new and pre-owned video games, video consoles and related accessories. Prior to the merger, Gamestation operated 252 outlets, of which 35 were concessions in Blockbuster stores not subject to the transaction. In the year ending 31 December 2006, Gamestation achieved UK sales of £229.2m.

TRANSACTION

On 2 May 2007, GAME acquired the entire issued share capital of Gamestation for a total cash consideration of £74m. The statutory deadline is 1 September 2007.

On 12 June 2007, GAME provided initial 'hold separate' undertakings to the OFT pursuant to section 71 of the Enterprise Act 2002 (the Act).

JURISDICTION

As a result of this transaction, GAME and Gamestation have ceased to be distinct. Gamestation's UK turnover for the year ending 31 December 2006 was £229.2m. Consequently, the turnover test in Section 23 of the Act is satisfied. The OFT therefore believes that it is, or may be the case, that a relevant merger situation has been created as a result of the transaction.

THIRD PARTY VIEWS

The OFT received a number of responses from consumers in response to its invitation to comment – many of which expressed concerns with regard to the increase in concentration amongst high street specialist gaming retailers. These customers considered that they could switch to online retailers for mint gaming software in response to a post-merger price increase, but many expressed concerns with regard to using online retailers for purchasing pre-owned software due to the lack of opportunity to inspect the quality and condition of the goods in advance.

UNDERTAKINGS IN LIEU

Where the duty to make a reference under section 22(1) of the Act applies, pursuant to section 73(2) of the Act, the OFT may, instead of making such a reference, and for the purpose of remedying, mitigating or preventing the substantial lessening of competition concerned or any adverse effect which has or may have resulted from it or may be expected to result from it, accept from such of the parties concerned undertakings as it considers appropriate.

The OFT has therefore considered whether there might be undertakings in lieu of reference which would address the competition concerns outlined above. The OFT's Mergers Substantive Assessment Guidance states that, 'undertakings in lieu of reference are appropriate only where the competition concerns raised by the merger and the remedies proposed to address them are clear cut, and those remedies are capable of ready implementation.'

GAME has formally undertaken [ - undertakings in lieu of reference redacted at parties request in order to safeguard legitimate business interests - ]

The OFT believes that the behavioural undertakings offered by the parties fail to meet the criteria set out in the OFT's Mergers Substantive Assessment Guidance. They do not restore the competitive dynamic lost as a result of the merger and are not clear cut or capable of remedying the adverse competition effects that this merger will give rise to. The duty to refer therefore remains.

ASSESSMENT

The parties are both bricks and mortar (B&M) specialist retailers of brand new (mint) gaming consoles and hardware (including peripherals) and gaming software.

Unlike the majority of other types of retail channel, the commercial model operated by gaming specialists includes the B&M sales to consumers of second-hand ('pre-owned') items of hardware and software.

Sales of pre-owned goods within both GAME's and Gamestation's retail chains are generated principally by customers 'trading in' used items in exchange for discounts on further in-store purchases or for cash. Pre-owned goods retail at cheaper rates than identical brand new ('mint') items.

GAME and Gamestation – as specialist gaming retailers and by the operation of their virtually identical business models (of which trade-ins are an important part) – each offer consumers a wide dispersion of hundreds of stores that carry an unrivalled offering in terms of the available range and depth of both mint and pre-owned software gaming titles. The OFT considers that the closeness of this competition would appear to extend to geographic location. The average distance between a GAME and a Gamestation store is only around 160 metres.

The OFT considers that there is no doubt that the combined entity would face competition from online retailers such as Amazon and eBay and from other B&M retailers such as Woolworths, HMV and Virgin in relation to mint sales. However, this merger involves the loss of competition between two parties who, in some segments at least, appear to be each other's closest competitors and in circumstances where the OFT cannot confidently rely on new market entry resolving issues quickly. There is a shortage of evidence at this stage in the analysis that competition from other suppliers will be sufficient to prevent the merged firm from raising prices, lowering trade-in values or cutting back services in a way that would harm consumers. The OFT therefore believes that the removal of Gamestation as a competitive specialist gaming retailer can be expected to give rise to an increase in prices of pre-owned gaming software, a lowering of trade-in values and/or a reduction in service to gaming customers.

Consequently, the OFT believes that it is or may be the case that the merger has resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

This merger will therefore be referred to the Competition Commission under section 22(1) of the Act.

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