Mergers and Merger Remedies in the EU
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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.
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Chapter 1: Mergers and Remedies in the EU: Overview

Stephen Davies and Bruce Lyons


1. Mergers and remedies in the EU: an overview 1.0 INTRODUCTION Mergers constitute a major potential means of restructuring, allowing a more efficient allocation of resources as market conditions and firm-specific capabilities change over time. This can enhance the competitiveness of the merging firms, leading to increased competition within the industry concerned and improved competitiveness of the industry on the world stage. Potentially, both consumers and producers can ultimately gain from that restructuring. However, mergers may also dampen the competitive process, by reducing the number of effective competitors, by softening competition, by impeding entry, and by reducing the incentives to innovate. This can harm both domestic consumers and international competitiveness. The focus of this research is on the remedies that the European Commission sometimes requires before clearing prospective mergers. First note that 90 per cent of merger proposals falling within the Commission’s scrutiny are allowed without any conditions. Headlines are made when a merger is prohibited, but this has happened only 19 times in 17 years, during which time over 3000 mergers have been appraised. Clearances subject to conditions (that is, remedies) happen over ten times more often, yet they have received far less attention both in the popular press and in the academic literature. In broad terms, a remedy is an intervention designed to avoid the anticompetitive consequences, while not impeding the hoped-for efficiency gains from the merger. Unlike prohibitions, remedies are far more complex than a simple yes/no decision by the Commission. They require...

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