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European Merger Control

Do We Need an Efficiency Defence?

Edited by Fabienne IIzkovitz and Roderick Meiklejohn

This book examines the background to a change in the legal framework which occurred in May 2004 with the entry into force of a new Merger Regulation that for the first time explicitly recognises the possibility of an efficiency defence. European Merger Control assesses the likely impact of this new regulation, and discusses the pros and cons of the efficiency defence, how other merger control systems deal with efficiencies, how the investigation process can be organised to accommodate the analysis of efficiency gains and the main theoretical and practical problems which arise when anti-competitive effects have to be weighed against efficiency gains.
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Chapter 4: Merger Control and Enterprise Competitiveness: Empirical Analysis and Policy Recommendations

Johan Stennek and Frank Verboven


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 of introducing an efficiency defence in the merger regulation. For...

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