Merger control
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| Competition law |
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Merger control refers to the procedure of reviewing mergers and acquisitions under antitrust / competition law. Over 60 nations worldwide have adopted a regime providing for merger control. National or supernational competition agencies such as the EU European Commission or the US Federal Trade Commission are normally entrusted with the role of reviewing mergers.
Merger control regimes are adopted to prevent anti-competitive consequences of concentrations (as mergers and acquisitions are also known). Accordingly, most merger control regimes normally provide for one of the following substantive tests:
In practice most merger control regimes are based on very similar underlying principles. In simple terms, the creation of a dominant position would usually result in a substantial lessening of or significant impediment to effective competition.
The large majority of modern merger control regimes are of an ex-ante nature, i.e. the reviewing authorities carry out their assessment before the transaction is implemented.
While it is indisputable that a concentration may lead to a reduction in output and result in higher prices and thus in a welfare loss to consumers, the antitrust authority faces the challenge of applying various economic theories and rules in a legally binding procedure.
The vast majority of significant competition issues associated with mergers arises in horizontal mergers. A horizontal merger is one between parties that are competitors at the same level of production and/or distribution of a good or service, i.e., in the same relevant market.
There are two types of anticompetitive effects associated with horizontal mergers: unilateral effects and coordinated effects.
Unilateral effects, also known as non-coordinated effects, arise where, as a result of the merger, competition between the products of the merging firms is eliminated, allowing the merged entity to unilaterally exercise market power, for instance by profitably raising the price of one or both merging parties’ products, thus harming consumers.
In homogeneous markets, unilateral effects can be pronounced when two significant competitors merge to create a large, dominant player with only a few or no other competitors. In these markets, an important role in the assessment is played by market shares and by the capacity available in the market. In differentiated markets, unilateral effects tend to arise particularly when the two merging companies have highly substitutable goods. Such a price increase does not depend on the merged firm being the dominant player in the market. The likelihood and magnitude of such an increase will instead depend on the substitutability of the products supplied by the two firms – the closer the substitute, the greater the unilateral effects.
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