A more recent version of these Merger Regulation Notes notes – written by Oxford students – is available here.
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Merger Regulation Notes By reducing the number of competitors in a market a merger may increase the likelihood of a cooperative solution to competition being adopted by the remaining firms in the market Horizontal mergers are more likely to raise competitive concerns than vertical ones Although vertical may raise concerns where effect is to gain control of an input/distribution source which is vital for competitors Where a firm is failing, a merger that would otherwise be anti-competitive might be efficient and welfare enhancing Intro Most commentators agree that there should be some kind of merger control The attainment/ extension of dominance is attacked in EC, rather than dominance itself
1. Difference between merger control and dominance control is that former is normally ex ante Merger = any situation where the ownership of two or more undertakings is joined together Mergers can be vertical, horizontal or conglomerate (where firms in different markets merge, and their products are to some extent substitutes) Merger may have advantages when an undertaking wishes to diversify into a new market
2. Overcomes barriers to entry
3. Avoids intense comp should incumbent choose to defend territory
4. Mergers also tend to break into profit quicker (although see citi, and timewarner...) Horizontal Mergers May be substitutes for cartels - Neumann Mergers tend to be more efficient than cartels, as they generate economies of scale and scope Where a merger would lead to a monopoly, then it will usually be blocked Commission Notice on appraisal of horizontal mergers Identifies two aspects in which concerns might be raised :
5. Competitive oligopolies in which competitive constraints might be weakened by the fact of the merger
1. Commission will pay attention to mkt conc. and will be concerned about the ability and incentive of merging firms to increase prices
6. Merger will lead to a more concentrated mkt where oligopolistic collusion will be facilitated
1. I.e. by leading to greater coordinated interaction between the remaining non-merged firms
2. Even if this is tacit Factors highlighted are:
7. Concentration (i.e. up to a max of 3 firms)
8. Product homogeneity
9. Symmetry of mkt shares and costs
10. Transparency in pricing
11. Ease with which firms may retaliate to competitive action
12. Barriers to entry
13. Inelastic demand
14. Absence of buyer power
15. "maturity" of market Collusion can take various forms
16. I.e. increasing prices, as was feared in Gencor/Lonhro
17. Or reducing capacity/ production, with the end result of increasing prices albeit in a competitive mkt structure Airtours/Firstchoice
Four stages to be considered
1. Is there a plausible mechanism whereby collusion can take place?
2. Market must be analysed to determine whether it has characteristics which could support collusive mechanism
3. Do those features actually exist in mkt being considered?
4. Is there past evidence to suggest that a collusive outcome might occur in new situation?
The failing firm defence Sometimes argued that a merger which saves a failing firm should not be blocked, on the grounds that were it not for the merger, the mkt would be more concentrated following that firm's exit
18. And there would be social costs of merger
1. But surely failure is all part of efficient markets - if there genuinely was extra capacity then it would be filled by existing participants/ taken up by new entrants Note that it was considered by the CC in the AirCanada/Canadian Airlines merger, but dismissed by the CC in the Safeway merger case Commission indicated that 3 factors were relevant:
19. Allegedly failing firm would in near future be forced out of mkt because of financial difficulties
20. There is no less anti-competitive alternative purchase than the notified merger
21. In the absence of a merger the failing firm would inevitably exit Vertical Mergers Can make entry more difficult by foreclosing rivals from previously independent firms
22. Either at the vertical level, by increasing capital requirements associated with entry
23. and promoting product differentiation vertically integrated oligopoly is insulated from comp pressures that come from vertically related com levels The EC Merger Control Regime and the treatment of joint ventures where a merger ("concentration") meets the relevant thresholds it falls within the exclusive competence of the EC Commission to examine undertakings contemplating such a merger are required to compulsorily notify the EC Test of a merger's acceptance is whether it substantially impedes effective competition in the common mkt, in particular but not exclusively by creating or strengthening a dom position Under the Merger Regulation, the commission may authorise the merger in a two-stage process MS are sometimes able to take over control over aspects of, or the whole merger Intro Under the EC regime only the largest mergers need to be reviewed Most answers are to be found in EC Reg 139/2004 on the control of concentrations between undertakings (the Merger regulation), ECMR
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