Horizontal Merger Assessment in Europe
17 September 2004
By Dr. Mark Williams et al.
This article provides an overview of the economic theory and tools used for assessing horizontal mergers in Europe. The authors note that legislative changes (the new Merger Regulation 139/2004), institutional changes and a policy shift at the European Commission have been manifestations of a trend in which economic analysis has assumed a more central role in antitrust enforcement.
In the analysis of mergers, which is by its nature a forward-looking exercise, economic theory is particularly valuable. Referencing the European Commission's Horizontal Merger Guidelines, the authors review the initial screens for horizontal mergers and acquisitions -- market share and the Herfindahl-Hirschman Index (HHI), and the thresholds, uses and limitations of these tools. The authors then assess potential non-coordinated and coordinated effects of mergers, with particular reference to merger simulation.
The two "dead Frenchman" (Bertrand and Cournot) models of static oligopoly behavior are examined, as well as the criteria that the Commission regards as necessary to be met for coordinated effects to occur: the necessity of having a mechanism to make the transition from low prices to a given level of high prices as well as the conditions for coordinated effects to be sustainable, (following the Court of First Instance's judgement in Airtours). The article also provides an overview of possible mitigating and offsetting factors that may -- according to the Guidelines -- be countervailing considerations where a merger will cause a loss of competition.
This article is an extract from The 2005 European Antitrust Review, a Global Competition Review special report.
