Do We Need an Efficiency Defence?
Edited by Fabienne IIzkovitz and Roderick Meiklejohn
Chapter 4: Merger Control and Enterprise Competitiveness: Empirical Analysis and Policy Recommendations
4. Merger control and enterprise competitiveness: empirical analysis and policy recommendations Johan Stennek and Frank Verboven This chapter studies the importance of eﬃciency gains from horizontal mergers. A general theme throughout the chapter is that eﬃciency gains, and their pass-on to consumers, may vary substantially from merger to merger. For this reason it seems appropriate to reconsider current practice in European merger control, which does not allow the merging parties to appeal to an eﬃciency defence. We provide a detailed examination of two main parts of an eﬃciency analysis. The ﬁrst part of the chapter considers the presence of eﬃciencies from mergers, with a focus on economies of scale. The second part considers the pass-on of eﬃciencies to consumers in the form of lower prices. In a ﬁnal section, we develop an alternative approach based on the concept of the diversion ratio. 1. 1.1 ECONOMIES OF SCALE The Importance of Scale Economies For a horizontal merger to beneﬁt consumers and the economy as a whole it must reduce the ﬁrms’ costs or generate some other form of eﬃciency gain. Cost savings are also one of many important determinants of enterprise competitiveness. One of the most important sources of cost savings is economies of scale. The aim of this chapter is to investigate to what extent mergers are likely to generate cost savings through better exploitation of scale economies. This information is an important input to the discussion about the pros and cons...
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