CMA to investigate UK house-builder merger

The Competition and Markets Authority are looking into the proposed £2.5bn Barratt takeover of Redrow, concerned about the impact that it's going to have on an already fairly concentrated sector.

The fear is that there's already collusion in the sector, with the eight biggest house builders already accused of sharing sensitive price information, and that a merger like this will only reduce competition and drive up prices.

The Competition and Markets Authority (CMA) might investigate a merger between two leading house builders for several reasons related to potential competition concerns. Some of these reasons include:

1. Market concentration: If the merger results in a significant increase in market concentration, the CMA may be concerned that the combined entity could exercise market power, leading to higher prices, reduced quality, or limited choices for consumers.
2. Reduced competition: The CMA might investigate the merger if it believes that the combined entity would face limited competition in the market, allowing it to act anti-competitively without facing sufficient pressure from rivals.
3. Barriers to entry and expansion: The CMA could also be concerned if the merger would create or increase barriers to entry or expansion in the market, making it difficult for new players to enter the market or for existing competitors to grow and challenge the dominant position of the merged entity.
4. Impact on innovation: If the merger could lead to reduced incentives for innovation in the house building sector, the CMA may investigate the potential impact on consumer welfare and industry progress.
5. Coordinated effects: The CMA might also consider the risk of coordinated effects, where the merger might facilitate tacit collusion or coordinated behavior between the merged entity and its remaining competitors in the market.
6. Buyer power: In some cases, the CMA may investigate the potential impact of the merger on the buying power of the combined entity, which could lead to reduced prices for suppliers and potentially impact the quality or availability of input materials.
7. Local market impact: As house building often involves local or regional markets, the CMA might investigate the potential impact of the merger on competition in specific geographical areas, even if the national market remains competitive.

The CMA's primary goal in investigating mergers is to ensure that they do not result in a substantial lessening of competition, which could lead to adverse effects on consumers, such as higher prices, reduced choice, or lower-quality products or services. If the CMA identifies potential competition concerns, it may seek remedies, such as divestments or behavioral commitments, to address these issues before clearing the merger.