The European Commission's New Horizontal Merger Guidelines
London, England
30 April 2004
Hosted By: IBC
NERA Director Dr. Mark Williams spoke at the IBC's Advanced EC Competition Law conference in London on 29-30 April 2004. On a panel with Professor Richard Whish, Götz Drauz of the European Commission and John Boyce of Slaughter and May, he discussed the new assessment of horizontal mergers by the European Commission.
After setting out various economic motivations behind horizontal mergers, Dr. Williams reviewed the new guidelines on horizontal merger assessment, which form the basis of the economic analysis applied by the European Commission. The guidance is particularly relevant in view of the revised substantive test for merger assessment. In the new Merger Regulation (Reg. 139/2004), the dominance test is being replaced by a "Significant Impediment to Effective Competition (SIEC)" standard. This new regime clarifies that unilateral effects have a legitimate place in the Commission's analysis, thus removing the uncertainty that had emerged after the Court of First Instance's Airtours judgement. After setting out the Commission's market share and HHI guidance thresholds, Dr. Williams explained the two main unilateral effect theories, developed by the "dead Frenchmen" (Augustin Cournot and Joseph Bertrand).
Dr. Williams also pointed out that already under the old dominance test the Commission had frequently based its decisions on unilateral effects theories. In particular, Philips/Agilent (2001) marked an early example of non-coordinated effects in bidding markets.
In unilateral effects cases, merger simulations can prove a helpful tool to quantify any anti-competitive effects. While such simulations typically show price rises, the new guidelines explicitly acknowledge efficiencies, which may offset such anti-competitive effects and result in overall lower prices. Dr. Williams discussed the conditions of consumer benefit, merger specificity and verifiability. Given that empirical literature suggests that on average efficiencies do not materialize, he placed particular emphasis on the verifiability and quantification of cost savings.
In addition to efficiencies and synergies, Dr. Williams pointed to buyer power, entry and product repositionings as "countervailing" effects that could offset competition concerns. He also reviewed the applicability of the failing firm defence under the new guidelines.
In conclusion Dr. Williams welcomed the European reforms and remarked that a new economic professionalism is developing at the European Commission. "There is an emerging consensus on what economic theories correspond to the legal concepts, and the assessment of mergers is becoming progressively more focused on the effects on customers and consumers," said Dr. Williams.
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