Are mergers good for innovation or do they hinder it? Finding a balance between protecting competition in innovation and allowing consolidation in markets where efficiencies might be generated has proven one of the biggest challenges of merger control in recent years. Although economic literature provides helpful pointers in striking that balance, it does not provide a general unambiguous framework. Competition authorities consider both aspects and may seem to have adopted different approaches to this issue in traditional markets (e.g. pharmaceuticals and pesticides) compared to digital markets. While the debate is still ongoing, this article summarizes the theoretical framework from the economic literature and how it has been applied in real recent cases by competition authorities.
Pascale Déchamps and Ilaria Fanton
Ilaria Fanton, Spyros Droukopoulos and Matthew Johnson
Competition authorities around the world have for many years used sophisticated quantitative tools to assess the likely scale of harm from horizontal mergers. More recently, vertical mergers have also been increasingly scrutinized by competition authorities using a range of quantitative tools. These tools help the authorities to quantify the incentive of the merging parties to enact vertical foreclosure strategies that would harm competition.
One of those tools, known as the vGUPPI (vertical gross upward pricing pressure index), uses the same theoretical economic framework as the quantitative assessment used in horizontal merger assessments. This article explains how the vGUPPI tool works and uses two recent merger decisions of the Competition and Markets Authority in the groceries sector as case studies.