Consumer Preferences in Merger Control: Demand Substitution, Brand Perception and Actual Consumer Behavior

Introduction

In merger control, defining the boundaries of the relevant market and assessing the extent to which the parties to a transaction exert competitive constraints on each other depend to a significant extent on customers’ ability and willingness to switch to substitute products or services. Demand substitution is therefore not merely a technical criterion used to define the relevant market but also plays an important role in assessing the degree of competition between the parties, particularly in markets where products are differentiated in terms of their brands and characteristics. The European Commission’s (Commission) 2024 Market Definition Notice indicates that, when assessing demand substitution, customer preferences, evidence of past or hypothetical substitution, and barriers to switching should be considered alongside product characteristics, prices and intended use[1]. Similarly, the Turkish Competition Authority’s Guidelines on the Definition of the Relevant Market state that factors such as evidence of substitution in the recent past, quantitative and econometric analyses, views of customers and competitors, consumer preferences, costs and barriers associated with switching to substitute products, and different customer groups and price discrimination may be taken into account when assessing demand substitution[2].

These approaches demonstrate that demand substitution cannot be assessed based on a single indicator but requires a combined assessment of quantitative and qualitative factors. The quantitative criteria considered in assessing demand substitution provide important indications of market structure and the degree of substitutability between products. The parties’ market shares and the Herfindahl-Hirschman Index (HHI), which measures the level of market concentration based on the distribution of market shares, are key structural indicators of the parties’ positions in the market. In addition, quantitative tools such as the Small but Significant and Non-transitory Increase in Price (SSNIP) test (which assesses whether customers would switch to alternative products in response to a small but significant and non-transitory increase in price), diversion ratios (which indicate the alternatives to which customers switch when they stop purchasing a particular product) and the Gross Upward Pricing Pressure Index (GUPPI) (which measures incentives to increase prices following a merger) assist in assessing demand substitution and potential incentives to raise prices following a concentration. However, these tools do not, on their own, explain the preferences and underlying reasons driving consumer behavior. In markets where products are significantly differentiated in terms of factors such as quality, characteristics, design, service or user experience, brand loyalty and perceptions of prestige, the assessment of the closeness of competition cannot be based solely on quantitative indicators. Assessing the closeness of competition between the parties also requires consideration of which products consumers regard as substitutes, which product attributes influence their purchasing decisions, and whether consumers would switch to another product or another retail outlet if their preferred product were unavailable[3].

The primary aim of this article is not to examine the economic or psychological reasons underlying consumer preferences from a technical perspective, but rather to explore the evidence on which the Commission and the Turkish Competition Board (Board) rely to identify such preferences in merger control assessments and how they incorporate them into their competitive assessments. To this end, the article first briefly discusses the analysis of market research and data on actual consumer behavior. It then examines how consumer and retailer views, brand perception, product characteristics and observed purchasing behavior are reflected in the Commission’s and the Board’s assessments of close substitutability, market power and bargaining power.

Qualitative Factors Considered in Assessing Demand Substitution

Market Research, Surveys, and Actual Consumer Behavior

How consumers perceive and position the products available on the market is important in assessing demand substitution. Consumer or customer surveys can reveal which products are perceived as close alternatives, which product characteristics are important in purchasing decisions, and how consumers would respond to a hypothetical price increase. In addition, the views of competitors and industry representatives provide complementary information regarding products’ shelf positioning, brand strength, the risk of lost sales, and available commercial alternatives[4].

Similarly, instances in which a product is removed temporarily or for an extended period from store shelves may reveal whether consumers switch to another product within the same store when their preferred brand is unavailable or instead switch to a different retail outlet. This distinction is particularly relevant to the competitive assessment in merger cases examining the impact of strong brand portfolios on suppliers’ bargaining power vis-à-vis retailers[5].

The Commission’s practice demonstrates that the types of evidence considered vary depending on the circumstances of each case and that demand substitution is often assessed by considering multiple sources of evidence together. The 2024 Market Definition Notice identifies observed substitution patterns following past supply shocks, temporary product unavailability, the entry of new products, or the exit of suppliers from the market as particularly informative. Surveys and market research also provide insights into which product characteristics customers value and which alternatives they perceive as close substitutes. Accordingly, the assessment of demand substitution does not involve a categorical preference for survey findings over evidence of actual consumer behavior, or vice versa, but rather considers whether different sources of evidence support the same substitution patterns[6].

The Commission’s approach is clearly illustrated in its Hutchison 3G Austria/Orange Austria decision[7]. In assessing the transaction, the Commission relied on mobile number portability (MNP) data, which directly reflected consumers’ actual switching behavior in the market (revealed preferences), rather than relying solely on their stated preferences. Using these data, the Commission examined observed customer switching patterns and diversion ratios between the parties. The significance of MNP data lies in their ability to reveal consumers’ actual switching behavior between mobile network operators independently of survey responses based on hypothetical scenarios. Consumer surveys and other qualitative evidence can help identify consumer preferences and how consumers perceive substitutability between products. However, such evidence may be affected by response bias, and answers to hypothetical questions may not fully reflect actual market behavior. The Commission therefore assessed the observed switching patterns derived from MNP data alongside the qualitative evidence in the case file. It also conducted GUPPI calculations based on prices, profit margins, and diversion ratios to quantitatively assess the closeness of competition between the parties and their incentives to unilaterally increase prices following the merger. Accordingly, consumer preferences were assessed not only based on consumers’ stated perceptions of which operators constituted close alternatives, but also by examining the extent to which those preferences were reflected in actual switching behavior[8].

Brand Loyalty and Close Substitutability

In markets where brands play a decisive role in consumer preferences, the presence of strong brands is important for competitive assessment. However, it is also necessary to examine how such brand strength translates into consumer preferences and substitutability between products.

In its Coty/Procter & Gamble Beauty Businesses decision, the Commission examined the importance of brands in the competitive process in the fragrance and color cosmetics markets through an extensive market investigation[9]. Retailers indicated that certain brands widely sought after by consumers needed to be included in their product assortments to meet customer expectations, describing these brands as “must-have” or “must-carry” brands. However, this characterization was not limited to the brands of the parties to the transaction. Various brands belonging to competing undertakings were similarly regarded by retailers. Accordingly, although the proposed transaction would bring several strong brands together within a single portfolio, the Commission also took into account that competitors owned strong brands that were important to consumers[10]. The Commission therefore concluded that the acquiring party would not gain a particular competitive advantage solely on the basis of its brand strength following the merger[11].

The Coty/Procter & Gamble Beauty Businesses decision further addresses the impact of consumer preferences on the assessment of substitutability, particularly by examining brand loyalty and the closeness of substitution between brands. The market investigation indicated that brand loyalty was moderate or high in the prestige fragrance and color cosmetics segments, but lower in the mass-market segments. The Commission therefore considered that switching between brands was more likely in the mass-market segments. In addition, the Commission examined specific substitution patterns between individual brands. For example, while Hugo Boss was the most frequently mentioned alternative to Calvin Klein, Paco Rabanne and several third-party brands were also identified as close alternatives. For Hugo Boss, Armani was identified as an important alternative after Calvin Klein. In color cosmetics, the Commission also assessed the closeness of competition between brands such as Rimmel, Maybelline, L’Oréal Paris, and Max Factor based on the views expressed by market participants. Accordingly, the Commission did not assess the strength of the parties’ brands in isolation but also examined the groups of brands between which consumers could switch and whether the parties’ brands were closer competitors to each other than to third-party brands[12].

The Commission’s Kraft Foods/Cadbury decision[13] provides a concrete example of the combined use of market investigation findings and actual sales data. The decision concerned a concentration between two competing undertakings active in the markets for chocolate, filled chocolates and sugar confectionery. The Commission found that demand substitution between British heritage chocolate products, such as those marketed under the long-established British brand Cadbury, and Continental European-style chocolate products was limited due to differences in taste, texture, and cultural heritage. A large majority of respondents to the market investigation indicated that consumers would not switch to Continental European-style chocolate products even in the event of a permanent price increase of 5-10% for British heritage chocolate products. The assessment of individual products further supported this distinction. Market participants identified Mars Galaxy, rather than Kraft’s Milka or Toblerone chocolate products, as the closest competitor to Cadbury Dairy Milk.

Similarly, the Commission’s analysis of weekly Nielsen price and sales data for the 2006–2009 period indicated that Mars Galaxy exerted a stronger competitive constraint on Cadbury Dairy Milk than Milka and Toblerone. The fact that Cadbury Dairy Milk was regarded as a must-have brand by almost all market participants was not assessed in isolation, but alongside the evidence on substitutability and sales data[14].

The Commission’s assessment of the Polish market, however, demonstrates that the same factor of brand strength may lead to different competitive outcomes under different market conditions. The Commission noted that Kraft’s Milka and Alpen Gold brands and Cadbury’s local Wedel brand held strong positions among consumers in the Polish chocolate tablets market. The market investigation identified these brands as close competitors to one another, while retailers regarded them as important or must-have brands. These findings, considered alongside the parties’ high market shares and the competitive constraints that would be eliminated as a result of the transaction, constituted a key element of the Commission’s competition concerns in Poland. Ultimately, the Commission identified serious competition concerns in the Polish market and approved the transaction subject to a commitment to divest Cadbury’s Polish confectionery business operated under the Wedel brand. In addition, the parties committed to divesting Cadbury’s Romanian business, including the local brands Kandia, Laura, and ROM, to address competition concerns in the Romanian chocolate tablets market[15].

The Kraft/Cadbury decision therefore illustrates that the parties’ market shares alone are insufficient for a merger assessment and that a brand’s position among consumers must be considered together with the closeness of substitution between the parties’ products and the actual competitive constraints they exert on each other[16].

Intended Use, Product Characteristics, and Substitutability Across Segments

The Board’s Tofaş/Stellantis TR decision provides an important example of the detailed assessment of consumer preferences in a market characterized by differentiated products[17]. The decision concerned Tofaş’s acquisition of Stellantis TR, both of which were active in the passenger car and light commercial vehicle markets. In its assessment, the Board referred to views expressed by market participants indicating that vehicles in the B, C, and D segments could overlap in terms of certain price and product characteristics, and that models positioned at the upper and lower boundaries of these segments could be regarded by consumers as substitutes for one another. Similarly, it was noted that models in the B or D segments could sometimes be considered alternatives to a C-segment vehicle, and that B-SUV and C-SUV models could exert competitive constraints on other body types within the C segment. Noting that the segmentation used by the Automotive Distributors and Mobility Association (Otomotiv Distribütörleri ve Mobilite Derneği) also took account of patterns of consumer preference, intended use, equipment levels, differences in vehicle dimensions and customer trends, the Board concluded that supply-side and demand-side substitution between segments was possible and therefore did not define separate relevant product markets for individual passenger car segments[18].

The Board also separately examined the extent to which the parties to the transaction were close competitors, particularly in the C and C-SUV segments. In this context, the Board considered the views of competing undertakings, the models most preferred by consumers, price levels, and product characteristics together. It found that numerous brands and models with different body types competed in the C segment, that undertakings had the ability to reposition their products, and that this segment was one of the most competitive areas of the passenger car market. With respect to the C-SUV segment, the Board also observed that most competing undertakings did not simultaneously identify both Tofaş and Stellantis TR brands as their close competitors. Taking into account prices, consumer preferences, and the competitive positions of rival undertakings, the Board concluded that the parties to the transaction could not be characterized as close competitors in the C segment. Nevertheless, the Board separately considered the competition concerns arising from Tofaş’s increased ability to cater to different consumer preferences by bringing numerous brands (Fiat, Alfa Romeo, Jeep, Peugeot, Citroën, Opel, and DS) under its portfolio following the acquisition[19].

In this context, the Tofaş/Stellantis TR decision demonstrates that segment classifications may serve as a starting point for assessing demand substitution, but that the analysis of the closeness of competition extends beyond such classifications. The Board considered consumer preferences alongside product characteristics, including price, equipment, technical specifications, intended use, and body type, and separately examined the competitive positions of the parties’ models relative to those of third parties. In this respect, the decision illustrates how, in markets characterized by a high degree of product differentiation, consumer preferences may be used not merely to confirm predefined segment boundaries, but rather to assess the actual closeness of competition between the parties.

The Board’s Evyap/Elleair decision provides another example of how differences in consumer preferences depending on the conditions and setting in which a product is used are taken into account in relevant market definition[20]. In its assessment of Evyap Holding’s acquisition of control over Elleair, the Board identified horizontal overlaps in the solid soap, liquid soap, shampoo, shower gel, wet wipes, and baby diapers markets. The Board noted that consumers generally preferred liquid soap in public places due to the perception that it was more hygienic, whereas no equally clear distinction between consumer preferences for solid and liquid soap existed in household use. Nevertheless, taking into account differences in production techniques, the Board defined separate relevant product markets for solid soap and liquid soap. Consumer preferences were thus considered alongside the products’ intended use and characteristics as one of the factors relevant to assessing demand substitution. The decision also addressed brand loyalty, albeit to a limited extent. In this context, the Board referred to data from the Ipsos Brand Health Study concerning the level of consumer brand loyalty in the shower gel category. The presence of competitors with high brand awareness in the shower gel production and sales market was also among the factors considered in the Board’s competitive assessment[21].

The Impact of Brand Strength on Bargaining Power

Must-Have Brands and Retailers’ Need to Stock Them: Kimberly-Clark/Scott

Another way in which strong consumer demand for a brand affects merger control assessments is through the bargaining relationship between manufacturers and retailers. The decisive factor is not merely whether consumers prefer a particular brand, but how they behave when that brand is unavailable at a retail outlet. If consumers easily switch to another brand, retailers have the option of not stocking or delisting the product and can use this option as a source of bargaining power. Conversely, if consumers switch to another retail outlet to obtain their preferred brand, retailers risk losing customers and sales if they delist that brand. In such circumstances, the brand’s supplier gains a stronger bargaining position.

In its decision concerning Kimberly-Clark’s acquisition of Scott Paper,[22] both active in the tissue paper products sector, the Commission examined how strong consumer demand could make a brand essential for retailers to stock. The Commission noted that, in smaller retail outlets where shelf space was limited, product selection could be restricted in favor of market leaders, while strong brands could obtain distribution more easily and attract consumers to stores. In this context, all five major retailers that responded to the Commission’s questionnaire stocked Kleenex and Andrex, and some considered these to be essential brands for which no suitable substitutes were available. Retailers’ responses also indicated that brand loyalty was particularly strong in the toilet tissue and facial tissue segments[23]. Based on these findings, the Commission concluded that even the largest retail chains, which possessed the greatest buyer power in the retail sector, would find it extremely difficult to substitute alternative brands for Kleenex or Andrex.

The relationship between strong manufacturer brands and private label products sold by retailers under their own names was also important in the Commission’s assessment. The ability of Kleenex and Andrex to attract consumers to stores and serve as benchmark products in the market increased retailers’ need to stock these brands. At the same time, the Commission acknowledged that private label products could exert some competitive pressure on manufacturer brands. Nevertheless, the Commission expressly characterized Kleenex and Andrex as must-carry goods and noted their role as reference products in the relevant market. This raised concerns that Kimberly-Clark’s control over brands that retailers would find difficult to do without, combined with its ability to supply private label products, could give it additional bargaining power by enabling it to link the terms of sale of branded and private label products[24].

Mars/Kellanova: Testing Must-Have Brand Claims Against Actual Consumer Behavior

The Commission’s Mars/Kellanova decision[25] provides an important recent example of how merger control assessments examine whether strong consumer demand for brands translates into increased bargaining power vis-à-vis retailers. The Commission initially raised concerns that adding Kellanova’s strong brands, such as the savory snack brand Pringles and the breakfast cereal brand Kellogg’s, to Mars’s existing portfolio could increase the merged entity’s bargaining power vis-à-vis retailers. Factors supporting these concerns included the characterization of several of the parties’ brands as must-have brands by retailers during the market investigation, statements by certain retailers that their ability to resist price increases would be weakened by the expanded portfolio, and the fact that a significant proportion of consumers concentrate most of their weekly shopping at a single supermarket (one-stop shopping). In particular, Pringles was frequently identified by retailers as a must-have brand during the market investigation[26].

The Commission assessed whether the transaction would increase Mars’s bargaining power vis-à-vis retailers by examining the potential for portfolio leveraging through linked negotiations across different product categories. In this context, the Commission considered (i) the parties’ market power in individual product categories, (ii) Mars’s ability to link negotiations across product categories, and (iii) whether adding Kellanova’s brands to Mars’s portfolio would significantly worsen retailers’ alternatives following the transaction. The Commission found evidence that Mars had previously leveraged its portfolio to achieve better terms and conditions by linking negotiations across product categories, even when negotiations had initially been conducted on a product-by-product basis. However, the Commission also found that some retailers were able to link the outcomes of their negotiations across product categories and, in certain instances, resist Mars during negotiations. Accordingly, past negotiation practices alone did not resolve the question of whether adding Kellanova’s brands would confer additional bargaining power following the transaction.

In light of the evidence gathered during the investigation, the Commission focused its assessment on how consumers would respond to the unavailability of the parties’ products. In its final decision, the Commission separately examined consumers’ tendency to concentrate most of their weekly shopping at a single supermarket (one-stop shopping), the extent of overlap between consumers purchasing Mars and Kellanova products, the purchase frequency and sales channels of Kellanova’s products, whether consumer loyalty to the parties’ brands would lead consumers to switch to another retailer if those products were unavailable, and whether consumers switching retailers would take their entire shopping basket, or a significant portion of it, with them. Rather than treating the characterization of certain brands as must-have brands as sufficient evidence of increased bargaining power, the Commission thus examined whether the unavailability of those brands would expose retailers to greater losses in sales.

The most significant findings concerning consumer preferences emerged at this stage of the investigation. The Commission acknowledged that consumers tended to concentrate most of their weekly shopping at a single supermarket (one-stop shopping) and that a significant proportion of consumers regularly purchased products from both Mars and Kellanova. Nevertheless, it concluded that the remaining evidence did not support the view that the transaction would significantly increase the merged entity’s bargaining power vis-à-vis retailers. The Commission found that Pringles products were typically purchased infrequently and on an impulse basis, were available through various sales channels, and faced competition from private label products and other suppliers active in the broader chips and savory snacks market.

With respect to Kellogg’s breakfast cereals, the Commission found that overall demand for cereals was declining, that Kellogg’s had lost sales to private label alternatives, and that consumers purchased cereals relatively infrequently. Moreover, the available evidence did not establish that a meaningful proportion of consumers would switch to another retailer if the parties’ products were unavailable at their primary supermarket. The parties’ internal documents indicated that, on previous occasions when their products had been unavailable at particular retailers, both the parties themselves and the retailers had suffered lost sales. However, these findings did not establish the existence of a “basket effect,” whereby consumers would switch their entire shopping basket, or a significant portion thereof, to another retailer[27].

The Commission’s conclusion in its final decision is further supported by the analysis of actual consumer behavior presented in DG Competition’s March 2026 Competition Merger Brief[28]. The analysis, based on NielsenIQ panel data, showed that during extended periods when Mars and Kellanova products were unavailable on store shelves, most consumers did not switch retailers but instead stopped purchasing the products in question or switched to alternative products at the same retailer. Similarly, no significant increase in sales at competing stores and no change in shopping frequency were observed. These findings indicated that the unavailability of the parties’ products at a particular retailer did not generally lead consumers to shift their shopping to another retailer and therefore did not support the alleged “basket effect.” Accordingly, the fact that Pringles had been characterized as a must-have brand during the market investigation was insufficient to establish that adding Kellanova’s portfolio would generate additional merger-specific bargaining power vis-à-vis retailers. The Commission concluded that consumers’ actual switching behavior did not support the proposed theory of harm and cleared the transaction unconditionally.

The Limits of Brand Strength: Ferrero/CPK

The Commission’s Ferrero/CPK decision[29] provides a complementary example demonstrating that bringing strong brands together within a single portfolio does not necessarily increase the merging parties’ market power or bargaining power vis-à-vis retailers. Ferrero is active in the chocolate spreads market through its Nutella brand and in sugar confectionery through its Tic Tac brand, while CPK operates in the chocolate confectionery and chocolate spreads markets through its Poulain brand and in sugar confectionery through brands such as Lutti and Carambar. Based on the findings of its market investigation, the Commission established that, despite operating in overlapping product categories, the parties were not close competitors. In particular, CPK’s Poulain chocolate spread products had a very limited presence in the French market, and retailers did not consider Poulain a close competitor to Nutella. Instead, competing manufacturers’ brands and retailers’ private label products were identified as important alternatives to Nutella. Similarly, differences in how consumers use Tic Tac and CPK’s confectionery products, such as Lutti, supported the finding that the parties were not close competitors.

In addition to the limited closeness of competition between the parties’ products, the Commission considered CPK’s relatively modest market shares in the relevant markets, the fact that negotiations with retailers were conducted on a category-by-category basis, and retailers’ countervailing buyer power. In this context, the Commission concluded that adding CPK’s brands to Ferrero’s portfolio would not significantly increase Ferrero’s bargaining power vis-à-vis retailers[30]. The decision therefore illustrates that brand recognition and portfolio breadth do not, in themselves, give rise to competition concerns, but must be assessed alongside actual substitution patterns, the competitive positions of rivals, and retailers’ access to alternative suppliers.

Conclusion

In merger control assessments involving undertakings active in closely related or the same product markets, assessing demand substitution requires identifying which products consumers perceive as close alternatives. In this assessment, quantitative indicators such as market shares and the HHI provide an initial indication of market structure. However, in markets where products are differentiated by factors such as quality, characteristics, design, brand loyalty, and perceptions of prestige, the closeness of competition is assessed not solely on the basis of quantitative indicators, but also by considering which products consumers regard as substitutes, which product attributes they value, and how they behave when their preferred product is unavailable.

The Commission and Board decisions examined in this article also demonstrate that consumer preferences are taken into account in merger control assessments as a factor complementing quantitative analyses. In this respect, what matters is not merely whether a brand is strong or popular among consumers, but rather what such preferences reveal about substitutability between products and the closeness of competition between the parties to a transaction[31].

Surveys and market research are important tools for identifying which products consumers or customers regard as close alternatives and which brands they consider commercially critical. The Coty and Kraft/Cadbury decisions illustrate how statements by market participants can inform assessments of competitive closeness between brands. The Hutchison/Orange decision, in turn, highlights the importance of actual customer switching patterns, alongside stated preferences, in assessing competitive closeness. The effects of brand strength on retailers were examined from different perspectives in Kimberly-Clark/Scott and Mars/Kellanova. While Kimberly-Clark/Scott demonstrated that strong brands can increase retailers’ need to stock particular products, Mars/Kellanova examined whether the characterization of brands as must-have was supported by actual consumer behavior. Finally, Ferrero/CPK illustrates that combining strong brands within a single portfolio does not necessarily result in additional bargaining power.

The Tofaş/Stellantis TR decision also illustrates how consumer preferences can be used to assess product differentiation. Although segment classifications and price levels provided a starting point for the assessment, the Board separately examined which vehicle models consumers regarded as alternatives based on factors such as intended use, body type, technical specifications, and equipment. Accordingly, findings concerning consumer preferences serve not merely to explain abstract consumer motivations, but rather to provide concrete evidence of demand substitution between products and the competitive constraints that the merging parties exert on each other. Similarly, in Evyap/Elleair, the Board established that consumer preferences may differ depending on the conditions in which products are used and also took supply-side substitution into account when defining the relevant product market. These decisions demonstrate that consumer preferences are relevant both to defining the relevant product market and to assessing the closeness of competition between the merging parties, alongside other factors such as product characteristics and supply conditions.

Considered together, these decisions reveal a common analytical approach. First, the assessment identifies how consumers perceive different products and which alternatives they consider. Second, it examines whether these perceptions are reflected in actual purchasing, switching, or stocking behavior. Finally, it evaluates what the resulting evidence indicates about the closeness of competition between the merging parties or retailers’ bargaining position. Consumer preferences are thus considered not as an abstract indicator of brand strength, but as one of the factors explaining demand substitution and potential competitive effects in the circumstances of each case. In this context, the significance of consumer preferences in merger control lies not in replacing quantitative tools, but in helping to test the findings derived from those tools against actual market behavior and identify which products are, in practice, substitutes for one another.