Chillin'Competition

When it comes to potential harm, horizontal mergers are almost up there with cartels. It is true that concentrations between competitors do not necessarily have anticompetitive effects. It is also undeniable that they can generate efficiencies. At the same time, any competition authority has every reason to be wary about horizontal mergers. It is certainly safer to devote resources to prevent undue market concentration than to, say, cases based on speculative theories where harm is not even obvious to establish.

If this is all well-known – and I would say, uncontroversial – it is somewhat counterintuitive that, according to the statistics on merger control, two or three years can easily pass before a transaction is blocked by the Commission. Why has the prohibition of horizontal mergers been seen as something exceptional by any standard?

There is probably not a single reason, but my impression is that inertia is the single most important one. Competition law provides, indeed, evidence of the validity of Newton’s first law of motion. The moment something is considered to be exceptional, authorities and courts become reluctant to address the issue, and this until the moment it never – or almost never – happens. Inertia might also explain, at least in part, why vertical agreements disappeared for a long while from the enforcement landscape.

I wonder whether things may slowly be changing in the realm of merger control. Perhaps, blocking a merger is no longer perceived to be exceptional. The incompatibility decision concerning the tie-up of Deutsche Borse and LSE – the other one! – may very well be the latest example in this regard. I do not have the means to know whether this particular decision is justified or not. This, in any event, is not the point of my argument, which is far more general.

What matters, in my view, is that the prohibition of horizontal concentrations start to be seen, once again, as a normal and integral aspect of a well-functioning competition law regime, in the same way that the occasional annulment of a Commission decision by the EU courts is no longer seen as a ‘blow’, a ‘fiasco’ or a challenge to the underlying policy choices, but as something that is a natural and inevitable consequence of effective judicial oversight.

Is it the change in the intellectual climate justified? Well, there are, at the very least, some powerful reasons to think carefully about some issues. I have been followed with great interest studies monitoring the post-merger evolution of markets. This book by John Kwoka is the sort of work that is worth pursuing. The ex post analysis of mobile mergers in Austria is another great example in this sense.

We have to be ready to accept, in the same vein, that authorities might have relied too much on remedies in certain instances. Perhaps a prohibition decision was more appropriate in some cases and should have been prioritised. It may also be the case that there is scope for improvement in relation to remedy design.

In the same vein, I am willing to take seriously claims by distinguished economists like Larry Summers, who has argued that corporate profits are high because markets are not competitive, or rather, have become less competitive due to increased market concentration.

My point, I guess, is that inertia and rigid thinking about what is the appropriate approach to deal with a matter can only lead to mistakes. The clearance of a merger should not be seen as the default scenario (in the same way that there should be no negative preconception vis-à-vis 4-to-3 transactions, which, according to some, is an emerging, and worrying, trend).