Clearing a merger - Game and Game Station

It was a close run thing but on the casting vote of the chairman of the investigation, the Competition Commission has cleared the merger between Game Group plc and Game Station the two largest specialist retailers of new and pre-owned video games (including new PC games), video games consoles and related accessories in the UK.

It seems that the willingness of computer games buyers to spend time looking for the best deal was the decisive factor behind the decision to allow the horizontal integration of these two businesses to go ahead.

The Enterprise Act 2002 empowers the Office of Fair Trading (OFT) to refer to the Competition Commission any completed or proposed mergers for investigation which create or enhance a 25 per cent share of supply in the UK or where the UK turnover associated with the enterprise being acquired is over £70 million.

The Competition Commission launched a full inquiry into the computer games industry in the UK and their report makes for really interesting reading for students wanting to understand a little more about changing market structure. Game Group is easily the largest independent retailer of computer games for the likes of the Nintendo Wii, the Xbox 360 and Sony’s PlayStation. But its market share has been in gradual decline towards the 20-25 per cent mark as a result of a change in consumer preferences. The independent high street retailer has had to combat strong competition from supermarkets (who tend only to stock the best selling games for reasons of space), high street stores such as Woolworths, Argos, WH Smith and HMV, internet retailers such as Amazon and Play.com and the report highlighted the option for games console owners to download games online rather than trek out to the stores.

The Competition Commission report concluded that very active ‘price sensitive’ consumers would act as a block on the combined Game / Game station business using their market dominance to raise prices and exploit consumer welfare. Nearly 90 per cent of consumers regard the lowest prices as most important when deciding from which retail channel to buy their new games. The ‘pre-owned’ market was found to be less competitive but here again consumers do have a choice - e.g. in renting pre-owned games or in accessing them through the internet including online auction sites.

The full competition commission report is available here
http://www.competition-commission.org.uk/rep_pub/reports/2008/fulltext/536.pdf