Mergers and Merger Remedies in the EU

Mergers and Merger Remedies in the EU

Assessing the Consequences for Competition

Stephen Davies and Bruce Lyons

Headlines are made when the European Commission prohibits a merger, but this is actually very rare. Clearances subject to conditions (i.e. remedies) happen ten times as frequently, but have received far less attention in academic literature. This book provides an empirical assessment of the effectiveness of merger remedies, employing a novel simulation methodology based on formal economic theory. The authors were given unprecedented access to data available to case handlers, concerning a range of remedied mergers covering 21 markets. Using this they have adapted simple simulation techniques to appraise the competitive effects of these mergers and the impact of potential and actual remedies. Ex-ante results are then compared with ex-post impact to examine the actual effectiveness of remedies. The results provide a critique of both simple market share analysis and remedy design. This research thus contributes to economics research and practical merger policy.

Chapter 4: Methodology for Assessment of Mergers and Remedies

Stephen Davies and Bruce Lyons

Subjects: economics and finance, competition policy, industrial economics, law - academic, european law


4.0 INTRODUCTION The purpose of this chapter is to introduce our proposed methodology for assessing the efficacy of merger remedies: ‘basic’ simulation founded in oligopoly theory. We start from the position that any remedy should be assessed in terms of how far it succeeds in restoring the market to a level of competition equivalent to that existing before the merger. This requires an understanding of: (a) the pre-merger nature of competition; (b) what would have happened post-merger, had the remedy not been imposed; and (c) what can be expected to happen post-remedy. The initial finding of an adverse effect of the merger is based on comparison of (b) with (a). Remedy appraisal is associated with a comparison of (c) with (b). We argue that these alternative outcomes are best identified by simulation of the market.1 The ex ante efficacy of a remedy can be judged by the extent to which it yields an outcome that is at least as good as pre-merger. We begin with an informal description of the basic idea. The essence of the methodology is as follows. Faced with any merger and proposed remedy, one first forms an opinion of the nature of competition in the market concerned. This is then formalized into a relevant oligopoly model. The analytical implications of the merger are then derived within the model – both with and without remedies. In order to quantify those implications, one needs to calibrate (that is, attribute numerical values to) certain key parameters,...

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