As part of our response to the European Commission’s consultation on possible reforms to its merger guidelines,[1] we provided our views on Topic Paper B – Assessing Market Power.
The Commission seeks to understand whether market power should play a larger role in the Revised Guidelines. We caution against undue reliance on the existence of market power – and the structural features and other indicators used to assess it – in the substantive appraisal of mergers without a holistic assessment of whether such market power could harm consumer welfare.
A. Key Considerations
Any undue reliance on market power in the substantive appraisal of mergers – or the structural indicators used to assess it – without a holistic assessment of effects would skew the balance against mergers without a thorough and context-specific assessment of the facts and increase the risk of Type I errors (false positives) in merger review. It would also unjustifiably increase the evidentiary, administrative, and financial burden on merging parties.
Instead, the Consultation provides a welcome opportunity for the Commission to codify its nuanced, flexible, and effects-based decisional practice in the Revised Guidelines. Specifically, in line with the Commission decisions and EU Courts’ precedents, the revised guidelines should:
- Set out a comprehensive framework that relies on alternative approaches to assessing market power beyond structural indicators;
- Avoid relying on structural presumptions to establish a significant impediment to effective competition;
- Avoid an undue reliance on structural features when assessing the exceptional cases where a SIEC may arise even without the creation or strengthening of dominance;
- Refrain from materially departing from the Guidelines’ nuanced approach to coordinated effects; and
- Continue to uphold the ability-incentive-effect (“AIE”) framework for non-horizontal mergers, subject to additional clarifications.
B. Our Proposals
To address these points, we propose the following refinements:
| Holistic assessment of market power | Adopt a more flexible, holistic approach to assessing market power, combining structural indicators with market-specific metrics to capture the full degree of competition. This means considering not only market shares and concentration levels, but also emerging competitors, tender data, econometric evidence, investment-levels, customer relationships, and cross-border constraints, among others. |
| No rebuttable presumptions | Refrain from adopting rebuttable presumptions of market power or dominance. Structural indicators of market power provide a helpful steer for allocating procedural resources, but should not determine the Commission’s substantive appraisal without a holistic assessment of effects. |
| Effects-based assessment for “gap” cases | Avoid an undue reliance on structural features when assessing the exceptional cases where a SIEC may arise even without the creation or strengthening of dominance. Instead, focus on codifying the Commission’s robust, effects-based, and evidence-backed assessment. |
| No material departure on coordinated effects | Reinforce the existing framework for the assessment of coordinated effects by codifying the EU Courts’ precedents, while also clarifying the exceptional application of the coordinated effects theory in non-horizontal cases. |
| Refinement of the AIE framework | Streamline the application of the AIE framework for the assessment of non-horizontal mergers to increase legal certainty, improve procedural efficiencies, and mitigate unnecessary burdens on the Commission and merging parties alike. |
C. Conclusion
The merger guidelines provide a valuable framework for assessing mergers’ impact on effective competition. The Consultation presents an opportunity to reconfirm the importance of rigorous, effects- and evidence-based, and holistic assessment of market power and competitive dynamics which has served Europe well in the last two decades.
Interested in reading our full response? Please find it here.
[1] See our September 5 alert EU Merger Guideline Consultation – Our Views on Possible Reforms, available on the Cleary Antitrust Watch here.