In May, Game announced that it had acquired its high street competitor for £74m from Blockbuster. However, shortly after the announcement the OFT said it would be investigating the buyout to see whether it would result in significantly reduced competition.
After weeks of investigation and deliberation the OFT has decided that although the company will still face competition from other retailers, the combined group has the potential to create an imbalance in the market.
"There is no doubt that the combined firm would face competition from Amazon, play.com and eBay, and more generalist retailers like Woolworths, HMV and Virgin," said John Fingleton, OFT chief executive.
"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 we can not confidently rely on new companies entering the market to resolve any issues quickly."
"Without better evidence that competition from other suppliers will be sufficient to prevent the merged firm from raising prices or cutting back services in a way that would harm consumers – in a market where retail sales amount to around £1.5bn – we must refer to the CC for a fuller inquiry."
Game's chairman Peter Lewis said the company was "disappointed by the decision".
"We firmly believe that a combination of Game and Gamestation will not give rise to any substantial lessening of competition and intend to vigorously pursue this position before the Competition Commission," he said.
"Game will cooperate fully with the Competition Commission process, and demonstrate how this transaction brings very strong consumer, commercial and employee benefits in what is an increasingly competitive market."
Interested parties have until 31 August to make their case known to the Competition Commission, which is expected to report by 23 January 2008.
It may extend this deadline by up to eight weeks if there are special reasons why the report cannot be published by that date.
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