When is a hire car not a hire car? The Hertz/Thrifty merger deal
Hertz has had to make some large concessions to get its merger with Thrifty Dollar approved by the FTC – being required to sell its Advantage Rent A Car business and giving up the rights to operate 29 Dollar Thrifty airport locations to Franchise Services of North America (FSNA), who currently operates U-Save rental car business, and Macquarie Capital. These concessions were required by the FTC as it sought to replicate the current and future competition between large car rental companies which would otherwise have been lost as a result of the merger and to limit the likelihood of future coordinated conduct. The FTC expects that the concessions will allow Advantage to become the fourth-largest car rental company and to sensibly compete with the remaining three large firms. The consent orders made by the Commission can be found here. More details are in the press release and in the FTC complaint.
Like in Australia, the FTC needed to identify the relevant market in which it assessed the impact on competition, which it considered to be the market for “airport car rentals”. The FTC noted in its public consultation paper that this was a distinct market because “alternative forms of transportation, such as taxi’s or buses, are not reasonable substitutes. Other forms of transportation do not provide the convenience, autonomy or cost efficiency of renting a car and, as a practical matter, customers are unlikely to turn to these alternative forms of transportation…”. This raises the interesting question of market definition in the future, having regard to the growth of car sharing business models (or ‘car clubs’, like Go-Get or Zipcar) which arguably presents a realistic alternative to traditional car hire (beyond the airport).
The UK Competition Commission faced this issue in late 2010/early 2011 in considering the merger of competing ‘car clubs’ Zipcar and Streetcar. There, the two companies involved both made submissions that their business pricing and offerings were also competing with public transport, taxis and traditional car rentals. However, the CC considered that the relevant market was restricted to “car club services”.
The UK narrow assessment approach is consistent with the way in which regulators have traditionally defined markets through identification of close substitutes. But arguably, it is a very limited interpretation of market forces which affect the price and other terms of offerings made by emerging car clubs. While there is a difference between a car and public transport to a family on holiday, the competition between car clubs and traditional car rentals for trips within a city or between cities is much more direct. For short trips, there is also direct competition between car clubs and public transport or taxis. In circumstances like this, where there is a new model of business developing alongside existing and established ‘markets’, how do regulators take account of the pressures imposed by broader alternatives to the product or service under consideration? While the CC chose a fairly narrow market definition in its consideration of the Zipcar merger, the comment made by the FTC in the Hertz consideration seems to leave open the option of taking broader transportation competitors into account when the situation calls for it.