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 6: Assessment of Remedies Adopted by the EC in Paper Mergers

Stephen Davies and Bruce Lyons


6.0 INTRODUCTION This chapter uses the simulation methodology to assess the efficacy of remedies for two of the mergers in the paper sector (see Table 5.2): KimberlyClark/Scott (KC/S) in tissues, and SCA/Metsa (S/M) in corrugated packaging. These were chosen as examples, respectively, of differentiated and homogeneous products. Unfortunately, the DG Competition questionnaire/interview survey (2005) which was being conducted simultaneously with our project included only one of these mergers, KC/S, and so a full ex post assessment of S/M is not possible. The chapter is in two main sections, one for each merger. The two sections follow the same structure, starting with filling in the checklist from Chapter 4, supplemented by some ancillary analysis to derive estimates of demand elasticities. The simulation proper starts with some introductory remarks on how we intend to characterize the merger and remedy, and what this will entail for ex ante and ex post assessment. We then set out what we believe to be the appropriate oligopoly model. The merger and remedies are then simulated ex ante, with sensitivity analysis on the assumptions about nesting, capacity and efficiency savings. This generates our main predictions and simulation results. We close the ex ante simulations with a discussion of alternative remedies that might have been used. Finally, we turn to ex post developments in the market, including, in the KC/S case, information from the DG Competition survey. 6.1 6.1.1 KIMBERLY-CLARK/SCOTT PAPER (1996) – M623 Applying the Checklist The first task is to summarize the key features...

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