There is a growing push from certain quarters for the European Commission to weaken merger control in order to spur greater investment and innovation, higher productivity and growth, or the creation of European champions. This column argues that there are empirical and theoretical grounds to strengthen, rather than weaken, merger control, and offers suggestions to inform and guide the process of updating the Commission’s Merger Guidelines.
The European Commission has begun drafting new Merger Guidelines to replace its 2004 Horizontal Merger Guidelines and 2008 Non-Horizontal Merger Guidelines. Although the existing guidelines remain valuable tools for assessing mergers, significant changes in economic realities and advances in our understanding of merger effects make an update both desirable and timely. In this column, we put forward a series of suggestions to inform and guide that process.
We observe with preoccupation pressure upon the Commission to substantially change its approach to merger policy. In particular, there is a growing push from certain quarters to weaken merger control – ostensibly to spur greater investment and innovation, higher productivity and growth, or the creation of European champions. Others are advocating for the Commission to include a range of objectives other than competition and efficiency in its merger evaluation. We believe instead that the current overall analytical framework used by the Commission in merger control, and its underlying objectives, are sound and should be preserved. However, improvements can be made, and we submit that there are empirical and theoretical grounds to strengthen, rather than weaken, merger control.
Consider the claim that merger control has hindered higher productivity in Europe. Even a cursory look at EU merger control statistics would suggest that this claim is difficult to substantiate. From 2015 to 2024, for example, the Commission has reviewed 2,833 mergers and prohibited only nine. Moreover, only around 5% of mergers were subject to (behavioural or structural) remedies, which is even lower than the historical intervention rate, close to 7%. These figures undermine the assertion that merger control measures have been unduly aggressive: with Commission interventions being so rare (and national competition authorities arguably having even weaker merger enforcement), it is difficult to argue that merger policy has been an obstacle to EU productivity or growth unless one thinks that socially valuable mergers have not been proposed due to a perceived risk of intervention for such unobserved merger proposals. The scholarly empirical evidence points in the opposite direction, suggesting under-enforcement of merger policy in the EU (e.g. Duso et al. 2013).
According to economic theory, horizontal mergers are presumed to harm consumers unless proven efficiencies more than offset the resulting increase in market power. In response, mergers between competitors commanding sufficient market shares or those raising concerns following an initial investigation should be prohibited unless there are significant merger-specific efficiencies. This represents a radically different approach to the current one, whereby the European Commission has the burden of proving that a merger is anti-competitive. Instead, under certain conditions (which may include the use of structural presumptions), the burden of proof should be reversed.
Furthermore, mounting evidence suggests that several firms enjoying an entrenched dominant position – not only in the digital sector – have systematically acquired potential competitors to prevent competition, without the Commission being able to intervene, primarily because of shortcomings in notification criteria (e.g. Motta and Peitz 2021). Of course, we are aware that the merger guidelines are not the appropriate instrument to modify the regime of the burden of proof or the notification policy. Nevertheless, we highlight these shortcomings in merger policy to emphasise the broader issue of under-enforcement.
Furthermore, in the case of a firm with an entrenched dominant position, removing a firm that with some non-negligible probability is expected to become a viable competitor in the future, will cause serious harm on consumers. Thus, the more-likely-than-not standard is inadequate for dealing with such situations. Dynamic competition cannot arise if targets that are potential competitors (even with a relatively small probability) are cleared without much scrutiny.
As for non-horizontal mergers, recent theoretical developments have demonstrated the necessity of reviewing them when they involve firms with significant market power.
Several antitrust authorities have abandoned their laissez-faire approach towards vertical and conglomerate mergers. An update of the Merger Guidelines should reflect these developments.
Although we see no grounds to weaken merger control and to change its general assessment framework, we agree that the Merger Guidelines should be updated.
One area for improvement is to better account for likely future developments both with and without the merger. Over the past decade or so, the Commission has devoted more attention to the impact of mergers on innovation, investment and variety of offerings, as well as on the long-term effects on competition (in principle, a merger may be competition-neutral, or even beneficial in the short term, but deprive rivals of the resources, data, and scale they need to compete, thereby undermining competition in the future). Note also that considering these future developments does not require a change in paradigm. The objective of consumer welfare includes effects not only on prices but also on variables such as quality (possibly including, among others, environmental factors and security of access to goods and services), range, variety. Furthermore, it should be interpreted dynamically rather than statically. 9 This is therefore consistent with an assessment of the protection of the competitive process as a means to avoid merger-induced consumer welfare losses in the long run. Consequently, barriers to entry and expansion may play a more important role in the revised guidelines.
Sustainability ranks high on the policy agenda, but the tension between environmental and competition objectives is often invoked without justification. For instance, recent research finds that firms exposed to stronger product market competition are more likely to innovate in environmentally friendly ways (Aghion et al. 2023). To the extent that stricter merger control helps preserve competition, it can also foster green innovation. This reinforces the importance of assessing the dynamic effects of mergers in sectors central to the green transition. As many clean technologies are still in the early stages of development, mergers that strategically delay their deployment can hinder learning-by-doing effects, leading to long-lasting negative consequences. In cases where collaboration among firms could accelerate green innovation, joint ventures may provide a more efficient alternative to mergers. In any event, the current framework enables the evaluation of such innovation and sustainability effects within the efficiency assessment, without requiring a shift in paradigm (however, out-of-market efficiencies should be taken into account, as we argue below).
The current framework can also accommodate geopolitical and trade risks. For instance, when competing imports are at risk, a prudential merger evaluation should start from a more narrowly defined market in which these imports are no longer a competitive constraint and are therefore excluded from the assessment of the relevant market with and without the merger. An update of the Merger Guidelines could provide guidance on how the Commission is to evaluate a merger in sectors subject to such risks.
We understand that the European Commission has sometimes been criticised for not properly considering efficiency claims, so the Merger Guidelines should also clarify the Commission’s approach to efficiencies. Relatedly, we submit that the Commission should take into account out-of-market efficiencies in its merger assessments – an issue that might be particularly pertinent when sustainability and security of supply considerations are involved. The effect on consumers should be considered in the aggregate. It would hardly be a good outcome for society if the Commission were to prohibit a merger that had a negative impact on a small relevant market but which had more than offsetting efficiencies in other markets.
Source : VOXeu
