Professional Documents
Culture Documents
2.
The economic rationale of the 578 efficiency defence The model Refinement of the model The terms of the trade-off Social cost figures The triangle and 579 583 583
geometric 584
2.2.2.1 2.2.2.2
585
The rectangle: strategic 585 behaviour of the merged entity The square: inefficient loss of 587 investments by competitors Efficiencies The rectangle: cost savings Social welfare transfers and 588 588
2.2.2.3
wealth 590
2.3
The efficiency defence in 594 practice: the US and Canadian experience The US experience The Canadian experience 595 598
2.3.1 2.3.2
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3.
The efficiency defence under 600 the EU Merger Regulation The Merger Regulation 600
3.1 3.1.1
The economic basis of the 600 Merger Regulation and the role of efficiency The legal framework The efficiency defence 602 604
The once controversial basis of 604 the efficiency defence: Article 81(3) EC The different language of Article 607 81(3) EC and Article 2(1) of the Merger Regulation The Commission's case law: the 610 different treatment of efficiencies in mergers and cooperative joint ventures Cooperative joint ventures Mergers 611 613
3.1.3.2
3.1.3.3
3.1.3.3.1 3.1.3.3.2
4.
5.
Conclusions
621
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1. INTRODUCTION
In 1989, after more than sixteen years of heated debate in Europe concerning the necessity of introducing a merger control system, the Council of Ministers adopted the Merger Regulation,1 which established a comprehensive mechanism that entrusted the Commission with the power to review concentrations that could harm competition within the Common Market. Although the Treaty of Rome has contained the European Union's core antitrust rules with regard to cooperative practices and unilateral abuses of *E.B.O.R. 575 market power from the very start, the vast majority of scholars, commentators and public officers believed that the European competition system was inherently incomplete. In particular, it was technically impossible to prevent the creation of a dominant position through external growth and there was no system of prior notification of mergers and acquisitions. The Merger Regulation was therefore adopted to fill these gaps and to complete the antitrust regime in the territories of the Member States. Since the introduction of the Merger Regulation, the Commission has developed a huge body of case law on the substantive treatment of concentrations,2 which shows a progressive legal refinement and a tendency on the part of the Commission to rely more heavily on economic analysis in the pre-assessment of mergers than in other areas of EU competition law. In order to reduce uncertainties connected to the application of the Merger Regulation, the Commission has issued various notices concerning the interpretation of key provisions of the Regulation,3 with particular attention to the analysis of productive joint ventures between competitors, on the basis of the experience it has accumulated. These notices, though not amounting to the full-blown merger guidelines that exist in other jurisdictions, form an essential and comprehensive tool for evaluating the antitrust risks connected to a particular concentration. The role that economic analysis plays in the Commission's decision-making process is evident from the most important developments in merger law so far, *E.B.O.R. 576 namely, the introduction of the concept of oligopolistic or collective dominance and the admissibility of the so-called failing firm defence. Although the language of the relevant provisions of the Regulation does not seem, prima facie, to support either concept,4 the Commission5 and, subsequently, the reviewing courts,6 have confirmed that the Merger Regulation applies to collective dominance7 and that a failing firm defence is available in particular circumstances. Both concepts appear to have been introduced partly on the basis of the US experience, as a consequence of the increased role of economics in EU competition law (especially with regard to collective dominance), and partly in order to get around the legal rigidity of the regulation (especially with regard to the failing firm defence), which in some cases does not allow decision makers to pursue the most efficient solution when facing real world problems. In a similar vein, the Commission was criticised to some extent for not having stepped up its reliance on mainstream economic analysis by explicitly admitting the possibility of an efficiency defence in the assessment of concentrations under the Merger Regulation. This, in fact, would have allowed a more thorough assessment of the potential competitive consequences of mergers, while also aligning, at least in principle, EU and US merger control law. In July 2000, the Commission submitted a report to the Council of Ministers on the functioning of the merger review process that highlighted the need for reform. During the subsequent period, the Commission and the antitrust community cooperated actively and transparently in an attempt to produce a reform package that would respond to the increased levels of criticism on both sides of the Atlantic regarding the Merger Regulation.8 One of the main aspects of the EU merger control process that was subject to this criticism was the *E.B.O.R. 577 Commission's treatment (or, rather, non-treatment) of efficiencies in the assessment of mergers. On 11 December 2002, the Commission formally adopted the so-called reform package,9 which contained a proposal for a comprehensive reform of EU merger control that is currently in progress. An important part of this reform package consists of the Draft Notice on the Appraisal of Horizontal Mergers (hereinafter, the Draft Merger Guidelines),10 which represents the Commission's first attempt to provide a complete framework for the analysis of horizontal mergers. The Draft Merger Guidelines are meant to provide guidance to undertakings and their advisors on how the Commission will assess horizontal mergers under the Merger Regulation. In addition, they constitute a dramatic reversal of the Commission's position with regard to the role that efficiencies can play in the assessment of otherwise problematic concentrations. In fact, as more fully discussed below, the Commission's position in this regard had always been that, under the dominance test contained in the Merger Regulation, there was not room to factor in efficiencies when assessing mergers. In contrast, the current version of the
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Draft Merger Guidelines explicitly dedicates a whole section to the treatment of efficiencies,11 thereby admitting for the first time that, under the dominance test contained in the Merger Regulation, parties may affirmatively use an efficiency defence to show that a competitively sensible merger should be cleared. The words of Competition Commissioner Mario Monti in this regard are illuminating: We are of the opinion that an explicit recognition of merger-specific efficiencies is possible without changing the present wording of the substantive test in the Merger Regulation. Article 2(1)(b) of the Merger Regulation provides a clear legal basis in that respect by stating that the Commission shall take account, inter alia, of the development of technical and economic progress provided it is to consumers' advantage and does not form an obstacle to competition.12 This paper is structured as follows. Part II is dedicated to the economic basis of the efficiency defence, with particular attention to its theoretical feasibility and *E.B.O.R. 578 practical workability. Starting from the controversial analytical framework proposed by Oliver Williamson in the late 1960s, this paper attempts to provide a refined version of Williamson's model by trying to incorporate most of the criticism that has been directed at it. The US and Canadian experience on the treatment of efficiencies in the context of merger control will also be considered. Part III assesses the compatibility of the efficiency defence with the goals of EU competition policy and the Merger Regulation. The traditionally negative position of the Commission on the admissibility of the efficiency defence will also be discussed, with particular attention to the limited case law that has touched upon this subject. Part IV summarises the main features of the Draft Merger Guidelines. Part V, finally, provides a few concluding observations.
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of the merger, the decision maker has to trade off the social cost (DWL) against the efficiency gains resulting from the concentration concerned. The immediate insight provided by this simple but compelling model is that whenever the triangle representing the DWL is larger than the rectangle representing the efficiency gains, the net effect of the concentration will be negative in terms of the allocation of resources, and the merger should therefore be blocked or its terms modified. When the opposite is true, however, the concentration should be considered lawful and should not be challenged, regardless of any increase of market power. Williamson notes that even minor increases in the level of cost savings are likely to dominate the dimensions of the social cost. First of all, while the base *E.B.O.R. 581 of the triangle representing the DWL depends on the output that is no longer produced, namely, the units between Q1 and Q2, the side of rectangle xyzB stretches over the entire output that will still be put on the market after the consummation of the merger (Q0 to Q1). Since in the majority of cases the output restriction (on whose basis the DWL is calculated) deriving from the an increase in market power will be much smaller than the total output being produced (over which the cost reduction will be spread), the impact of the efficiencies generated by the concentration on the trade-off is likely to be much more significant. Second, the presence of economies will in most cases affect the profit-maximising price of the resulting entity, thereby reducing the dimensions of the DWL. This can be easily explained, considering how a monopolist sets its profit-maximising price. After the merger, the firm that has acquired or increased its market power will tend to produce output up to a point where marginal revenues equal marginal costs. Whenever the relevant savings lower the marginal costs of the firm, the marginal revenue curve and the marginal cost curve will cross over at a lower point (?), inducing the firm to produce more units of output. The post-merger output will thus be larger and the price will be lower than in situations where the concentration confers market power on the combining entity but does not generate any cost reductions. A further factor affecting the dimensions of the DWL, which is therefore relevant for the trade-off in question, is represented by the degree of elasticity of *E.B.O.R. 582 demand that the resulting entity will face.19 The degree of market power enjoyed by the merging parties, namely, the capacity to reduce output and raise the price for a significant period of time, is in fact a function of the elasticity of demand that exists in the relevant antitrust market. The less elastic the demand, the higher the market power enjoyed by the resulting entity and the larger the area of the DWL. Williamson calculated the relationship between efficiencies and prices following a merger at different levels of elasticity and demonstrated that in most scenarios a minor decrease in costs is likely to offset a significant increase in price.20 According to Williamson's model, as table 1 demonstrates, even a 10 per cent price increase will not generate a social cost as long as the concentration is capable of generating cost reductions of at least 2 per cent with market elasticity between 2 and 3. Table 121 Price increase in Elasticity of Demand % eta = 3 5 10 20 0.44 2.00 10.38 eta = 2 0.27 1.21 5.76 eta = 1 0.13 0.55 2.40 eta = 0.5 0.06 0.26 1.10
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results of his research. Since Williamson's articles were first published, legal scholars and economists have competed with each other to find flaws in the model. Criticism has varied from relatively simple technical arguments contesting the feasibility of Williamson's approach to merger efficiencies21 to highly complex and controversial legal and policy analyses undermining the theoretical correctness of the model. This section briefly considers these criticisms and, where possible, seeks to incorporate them into a refined version of the model.
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monopolistic power over society and therefore the only evil that antitrust law should be concerned with. Notwithstanding the fact that, in practical terms, it appears to be impossible to measure the dimensions of the DWL triangle in most circumstances, economists agree that the loss of social welfare resulting from an increase in market power justifies the existence and enforcement of antitrust law. Depending on the particular antitrust concern that appears to arise in connection with a specific merger (e.g. unilateral dominance or risk of oligopolistic interaction), the dimensions of the DWL may vary. In general, it can be said that, in cases where the consummation of a concentration will lead to a de facto monopoly with significant barriers to entry, the area of the dead weight loss will tend to be larger than in scenarios where the perceived risk is express or tacit collusion.23 However, no one seems to disagree about the fact that the DWL forms the theoretical basis on which antitrust laws have been built and developed around the world. The real question regarding the validity of Williamson's model is thus whether there is something else that should be added to this side of the trade-off or, to put it in geometric terms, whether there are other geometric figures besides the DWL triangle whose dimensions need to be established.
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invested in an attempt to enter or consolidate a position in a particular market may not be recoverable and may therefore be lost. These losses may be graphically represented by a square located outside the price theory diagram in figure 2. However, lost investments frequently occur, even in competitive markets, as this is part of the game. For example, whenever a new entrant has to incur sunk costs in order to penetrate a market, it always runs the risk of loosing its investment if the incumbent is simply more efficient.30 In such cases, it would be contradictory to define such losses as social costs when, in reality, they are a by-product of market efficiency. Conversely, when such losses are caused directly by the incumbent's inefficient practices, it may be appropriate to classify them as a social cost associated with the incumbent's abusive conduct. As in the case of rent-seeking, the dimensions of this potential social cost can only be determined once the abusive conduct has actually taken place, based on the particular circumstances of the case. In a merger review context, it would thus seem arbitrary to include this square within the terms of the trade-off of Williamson's model.
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the trade-off are likely to be those connected to management replacement. In most if not all cases, changing the management does not appear to be specific to a particular acquiring firm, and the same effect may be obtained through different and less anticompetitive means (e.g. removal *E.B.O.R. 590 of executive directors by the shareholders). The extent to which other economies may be considered merger-specific will depend on the circumstances in question. As a general rule, the more complementarities exist between the production and/or distribution systems of the merging firms, the more likely it is that the concentration in question will be reasonably unique with regard to the achievement of the related efficiencies. Another issue related to the ideal contents of rectangle xyzB is whether the efficiencies that are to be included must necessarily be generated in the same market where the increase in market power occurs. In theory, if one accepts consumer welfare as the only goal of antitrust policy and disregards distributional effects, the market where the resource savings take place should be irrelevant, and these efficiencies should enter the trade-off analysis. In practice, however, the very fact that efficiencies are obtained in a different market would reveal that, in most cases, they are not inextricably linked to the increase in market power and therefore not merger-specific. Accordingly, when the two effects may be separated, for example, through asset divestiture in the market where the anticompetitive problem has arisen,36 the trade-off issue tends to fade away. Finally, the different timing of the actual achievement of the relevant efficiencies should not affect their inclusion in the model. In cases where cost savings may be generated solely after a fixed period of time, in order to homogenise them with the other terms of the trade-off, the expected value of such efficiencies will be calculated and then discounted back to their present value. However, it should not be overlooked that the fact that certain efficiencies can only be achieved over the long term can sometimes be an indication of their uncertainty.
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agencies to trace all the potential transfers of wealth occurring in connection with amerger and use them in the trade-off in question.44 However, logically - if not economically - this argument appears to be weak. The only wealth transfers that antitrust law might be concerned with, if at all, are those that stem directly from the exercise of market power by means of a price rise. Simply stating that if rectangle uxBA were to include all wealth transfers connected to a merger they should also be computed simply seems wrong. Technically, the inclusion of rectangle uxBA in such an evaluation should not create more difficulties than the already complex inclusion of the DWL. However, as noted above, such a widening of the terms of the trade-off would substantially affect the outcome of many merger reviews. The likely net result of this would be a stricter application of merger policy, which would cause more concentrations to be blocked than if the DWL45 was the only factor to consider. Another way of taking wealth transfers into account in merger *E.B.O.R. 593 analysis is represented by the passing on requirements imposed by some antitrust laws.46 According to these laws, efficiencies may be utilised as an affirmative defence in merger cases if and only if the resulting cost savings are passed along to the consumers.47 Interestingly, authoritative commentators48 and public officers49 have both argued that [t]he only sure way of making such a showing would be to prove that the merger is taking place in a highly competitive market, and therefore market forces would require that the efficiency would be passed on to consumers.50 If this was the case, as the authors seem to suggest, the efficiency defence would be emptied of any meaning as, in a highly competitive market, there would be no antitrust concerns in the first place. Using this argument, Prof. Pitofsky refers to the passing on requirement as a killer qualification.51 Strikingly, however, this interpretation appears to be at odds with the basic elements of conventional price theory, which suggests that consumers will only benefit directly from a cost reduction if the resulting entity acquires a certain degree of market power.52 In a perfectly competitive market, for example, it is evident that a merged entity will not reduce its prices, despite the cost savings. Instead, it will react to the new scenario by increasing its output in accordance with to its post-merger lower marginal costs. In theory, this would be true if the merged firm operated in a competitive market, facing an almost flat, perfectly *E.B.O.R. 594 elastic demand curve. The resulting entity would thus be a price taker and the only variable it could control would therefore be its rate of output. The cost savings would thus be entirely internalised by the merged parties as efficiency rent, while the market price would remain unchanged and the consumers would not enjoy any benefits from the cost reduction. In contrast, in the case of a merger to monopoly, the resulting entity would equate its marginal revenue curve with its (now lower) marginal cost curve following the realisation of cost savings, thereby determining its production and, hence, the price. As a result, the cost savings would be entirely reflected in the post-merger price and would be passed on to consumers. If this is true, however, the passing on requirement will only be met when the merger in question increases market power. As far as modern price theory is concerned, the wealth transfer preoccupation that presumably led to the creation of the passing-on requirement does not appear to be protected by such a requirement. Ultimately, however, the question whether or not wealth transfers should be considered part of merger analysis has to be resolved on the basis of the interpretation of the applicable law in the relevant jurisdiction. Economic analysis as such is concerned solely with the maximisation of total welfare through allocative and productive efficiencies. The legislature should set the goals of antitrust law and may eventually favour a consumer welfare approach. The question whether distributional considerations have to be included in the pre-assessment of mergers is therefore unrelated to economic analysis and depends exclusively on the legislative intent expressed by the framers of the antitrust law in question. However, it is evident that, if the wealth or distributional effects of a concentration were included in the merger analysis, the scope and practical availability of a merger defence would disappear.
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*E.B.O.R. 595 Interestingly, however, the notion that efficiencies generated by an otherwise anticompetitive merger may be desirable when they are material has been substantially accepted in some jurisdictions, although under different standards and to a different extent. This section aims to provide a brief account of the operation of the efficiency defence in the two most significant countries in this regard, the United States and Canada, in order to describe - briefly and incompletely - the state of the art of the efficiency defence in two jurisdictions where antitrust law has been part of the legal system for decades. The United States is also particularly relevant in this context as most of the criticism concerning the Merger Regulation comes from US authors and because the European Commission appears to have looked to the DOJ/FTC Merger Guidelines (see below) when preparing the Draft Merger Guidelines.
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introduced what has been referred to as a sliding scale approach to efficiencies.63 These Merger Guidelines provide that the mergers that the Agency otherwise might challenge may be reasonably necessary to achieve significant net efficiencies and that such expected net efficiencies must be greater the more significant are the competitive risks identified. If this test is met, the enforcement agencies will not pursue any action against the consummation of an efficiency-enhancing merger. The 1992 Merger Guidelines, as amended in 1997, thus appear to have formally introduced an equivalent of the efficiency defence into US merger law. It is still only an equivalent, because the analysis of the claimed efficiencies takes place during the pre-assessment phase of the merger review, that is, before the concentration is formally challenged, when the prosecutorial discretion of the enforcement agencies is high. Notwithstanding the wording of the guidelines, the actual implementation of this approach by the agencies has substantially narrowed down the extent to which parties may rely on efficiencies to offset competitive concerns.64 First of all, the enforcement agencies appear to have adopted a consumer welfare goal, as opposed to a total welfare goal, in relation to merger policy.65 This is not sufficient, as it is under Williamson's model that the trade off between allocative inefficiency and productive efficiency produces a net gain for society. Instead, it is necessary that the consumers' surplus is not absorbed by the increased market power of the merging entity, at least in the long run.66 In order to comply with this consumer welfare policy, the claimed efficiencies *E.B.O.R. 598 must be substantial, in accordance with the sliding scale approach contained in the Merger Guidelines. Second, in accordance with the standard trade-off model, only merger-specific efficiencies may be taken into account. Cost savings achieved by other - less restrictive - means will be considered irrelevant for the analysis. Third, a necessary condition for meeting the efficiency defence standard is that the benefits associated with the claimed efficiencies must be passed on to consumers. Although this criteria does not appear to effectively protect the interests on which the consumer welfare model is based, as noted above, the enforcement agencies will take into account the price effects of the merger to see whether such efficiencies have been passed on to end-users. Fourth, in recognition of the information asymmetry that exists between the agencies and the merging parties, the burden of proof in relation to the presence of efficiencies is placed on the latter.67 Finally, in accordance with the merger specificity requirement and the economic rationale underlying Williamson's model, the claimed efficiencies must occur in the same market in which the merger produces its anticompetitive effects.68 As discussed below, the same test has been adopted by the European Commission in its Draft Merger Guidelines.
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convey only qualitative weight, while productive efficiencies (such as economies of scale and scope) have to be demonstrated on a quantitative basis. The Bureau assigns probability weightings to different kinds of cost savings as a function of the complexity of their verification, which is carried out mainly through external consultants. The more difficult the verification, the lower the probability weighing assigned to that particular cost saving. Future efficiencies are discounted back to present values. The Bureau has made clear that the trade-off will not boil down to a precise mathematical exercise, but rather that it will consist of a mixed balance of quantitative and qualitative factors,73 in order to compare two orders of magnitude (allocative inefficiencies and production efficiencies). Interestingly, the Bureau's Acting Director of Economics has stated that While it is true that forecasting synergies from a merger is an uncertain and difficult exercise, it has been the Bureau's experience that this often is no more speculative *E.B.O.R. 600 than forecasting the competitive response of rivals or poised entrants to possible price increases by the merged entity.
74
Thus, according to the Canadian experience, the principal argument against the workability of the efficiency defence, namely, the unpredictable and speculative nature of establishing future cost savings, does not appear to be decisive. On the contrary, the possibility of equating the degree of certainty (or uncertainty) inherent to the prediction of the existence/realisation of efficiencies with the one relating to the determination of restrictive effects appears to support the admission of an efficiency defence. In common with the position in the United States and Williamson's model, in order to be admissible, the claimed efficiencies must be merger-specific75 and the respondents must bear the full burden of proving their existence and extent. In a small number of cases, furthermore, the Bureau may even consider efficiencies generated in markets other than the one in which the merger creates anticompetitive concerns.
3. THE EFFICIENCY DEFENCE UNDER THE EU MERGER REGULATION 3.1 The Merger Regulation 3.1.1 The economic basis of the Merger Regulation and the role of efficiency
As mentioned in Part I of this paper, the Merger Regulation was introduced into the EC legal regime in order to complement the competition law system with a concentration review mechanism. This mechanism was considered necessary to allow the Commission to directly supervise the consolidation process that was about to sweep across Europe in connection with the official launch of the Internal Market.76 Industry restructuring and corporate reorganisations were top priorities, warmly sought after even from an antitrust perspective *E.B.O.R. 601 as being in line with the requirements of dynamic competition and capable of increasing the competitiveness of European industry, improving the conditions of growth and raising the standard of living in the Community.77 As in other antitrust regimes, horizontal mergers enjoy better treatment than cooperative horizontal agreements under EU competition law, although they may produce the same economic results under a market power analysis. By definition, a horizontal merger eliminates competition between the merging firms in a similar way to a price-fixing agreement. However, while the latter is likely to be temporary, subject to a strong incentive to deviate cheat and costly to police, a merger is stable and definitive, and the resulting entity has a strong incentive to realise internal efficiencies.78 The different treatment, sometimes referred to as the merger privilege,79 is normally justified on the grounds that experience teaches that, in general, definitive changes in a firm's structure that are brought about by a merger are more likely to generate efficiencies that are otherwise non-attainable on the basis of simple and temporary behavioural restraints. The increase in market power associated with a concentration is therefore accepted in light of the other beneficial consequences that it produces. The merger privilege is thus based on an ex ante trade-off between efficiency and market power, similar to the one advanced in Williamson's model. This presumption of merger-generated efficiencies is clearly reflected in the milder antitrust scrutiny of concentrations as compared to horizontal agreements. In fact, efficiency considerations were important to the framers of the Merger Regulation. Based on this reasoning, it was concluded until recently that the efficiency defence was not available
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under the Merger Regulation.80 This position, which now appears to have been reversed,81 as discussed below, was based on the fact that efficiency had played an important role in shaping EU merger policy, despite the fact that this role was confined to the much looser *E.B.O.R. 602 dominance test82 applicable to concentrations. As efficiencies were already considered in the context of the Merger Regulation, there was no room for their assessment in relation to otherwise problematic mergers. In fact, this argument summarises the substance of the position long taken by the majority of the commentators on the Merger Regulation.
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despite the clear analogy that could be drawn between this provision and Article 81(3) *E.B.O.R. 604 EC, both in terms of wording and, more importantly, in relation to its substantial function of authorising practices that would appear incompatible with EU competition law.
3.1.3 The efficiency defence 3.1.3.1 The once controversial basis of the efficiency defence: Article 81(3) EC
Like the concept of dominance,86 the notions of development of technical and economic progress, advantage to consumers and the limit represented by the formation of an obstacle to competition introduced in the last clause of Article 2(1)(b) of the Merger Regulation have been borrowed almost literally from Article 81(3) EC (ex Article 85(3) EC). As known, this article lays down the factors that the Commission has to consider when carrying out a balancing test if requested to issue an individual exemption in relation to an otherwise restrictive agreement. On the face of it, the analysis that the Commission must perform in accordance with Article 81(3) in many ways resembles the rule of reason approach adopted by the US courts.87 In a nutshell, the Commission will exempt the agreement if it is demonstrated, after a detailed economic analysis, that it contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, so long as the restrictive aspects of the agreement are indispensable and competition in the relevant market is not eliminated. In other words, the enforcement agency, in determining whether to exempt an otherwise illegal agreement, must balance the restrictive effects associated with the agreement with the pro-competitive benefits it is likely to create. In economic terms, this analysis amounts to a trade-off between allocative inefficiency (i.e. the restrictive aspects) and productive efficiency88 (i.e. the pro-competitive aspects). The balancing test required under Article 81(3) EC thus appears to coincide exactly with the analysis that Williamson's model seems to suggest. Apart from the striking similarity of the words, the identity of the factors that the Commission must consider in the rather different contexts of merger control and the exemption of agreements was expressly confirmed by the Commission from the very start. In the explanatory notes accompanying the Merger Regulation, it declared that: *E.B.O.R. 605 The Commission considers that the concept of technical and economic progress [in the Merger Regulation] must be understood in the light of the principles enshrined in Article 85(3) of the Treaty, as interpreted by the case law of the Court of Justice.89 The Competition Commissioner at the time of the Merger Regulation's entry into force recognised that the words technical and economic progress and the Regulation's implementing principles were borrowed from Article 81(3) EC (then Article 85(3) EC) and that the Commission was expected to make much the same rounded competition policy analysis of cases before it under the Regulation. The technical and economic progress that a merger may bring about will certainly form a part of the Commission's analysis of the reasons for a merger.90 There thus appears to be general agreement about the origin and meaning of this language.91 However, this apparent consensus fell apart as soon as the possibility of an efficiency defence was inferred. A number of important commentators argued that technical and economic progress could not be interpreted as permitting the trade-off suggested by Williamson's model.92 Instead, they claimed that such elements should have been included in the application of the dominance test, but only as a sort of plus factor that in a close competition case would tip the balance in favour of the consummation of the merger. Commission officials informally expressed the same view.93 Others, in contrast, *E.B.O.R. 606 have unconvincingly tried to rely on other factors listed in Article 2(1)(b) of the Merger Regulation to introduce efficiency considerations.94 Strangely enough, despite the clear reference and the substantive identity between the last clause of Article 2(1)(b) and the accepted interpretation of Article 81(3), the Commission never really conceded the possibility of adopting an efficiency defence in its case law. Rather than using legal or economic reasoning, which may now appear somewhat awkward, the firm opposition to this interpretation, which continued until very recently, may be explained on the basis of the interests, stakes and forces that come into play during the merger analysis. In fact, both inside and outside the Commission, a wider interpretation of technical and economic progress based on the admission of an efficiency defence may have been perceived as dangerous, particularly during the
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initial stages of the implementation of the Merger Regulation, as it may have been regarded as the backdoor through which industrial policy considerations could slip into merger control law. Instead, the denial of an autonomous role to technical and economic progress effectively limited the risk of social and political interference with competition policy.95 The private sector was thus assured that industrial policy considerations would not be part of merger control, while, at the same time, the Commission reduced the risk of political interference, which could have ultimately undermined its public legitimacy. Nevertheless, the above-mentioned political motives do not fully explain why similar concerns about the misuse of competition policy did not lead to a similar restrictive interpretation with regard to the balancing test of Article 81(3) EC in relation to individual exemptions (particularly when this article was also applied to full-function cooperative joint ventures). Agreements have been exempted for almost forty years and, on rare occasions, industrial policy has indeed played a part in competition analysis. In the vast majority of cases, however, the Commission has relied exclusively on technical arguments for refusing or granting exemptions. So why was there a difference with regard to the Merger Regulation? While the position recently expressed by the EU Competition Commissioner (which appears in greater detail in the Draft Merger Guidelines) appears to have swept away any doubt as to the admissibility in principle of the efficiency defence in the context of the Merger Regulation, it nevertheless seems important to maintain the link between the newly recognised legal basis for considering efficiencies (i.e. Article 2(1)(b) of the Merger Regulation) and Article 81(3) EC. This will allow the legal and business community to draw on the precedents developed by the Commission and the European courts with regard to individual exemptions, especially the pre-1997 *E.B.O.R. 607 case law concerning full-function cooperative joint ventures), while at the same time maintaining the consistency of EU antitrust law.
3.1.3.2 The different language of Article 81(3) EC and Article 2(1) of the Merger Regulation
Notwithstanding their common origin, a strict legal analysis reveals that Articles 2(1) and 2(1)(b) of the Merger Regulation do not exactly reproduce the balancing test of Article 81(3) EC.96 It is therefore necessary to verify whether the similarities between the two are only apparent, or whether, from a substantive standpoint, they are or should be part of a broader, consistent antitrust system. Two differences are worth mentioning in this context: the absence of any reference to production and distribution improvements in the Merger Regulation and the different wording of the negative condition - significant impediment to competition in the Merger Regulation and elimination of competition in Article 81(3) EC. As for the first difference, it could be argued, on the basis of a rather formalistic approach, that the exclusion of production and distribution improvements from the criteria to be applied during merger control constitutes evidence of a legislative intent not to admit the efficiency defence in the context of merger analysis. Since the most common and important efficiencies that mergers can generate (i.e. economies of scale and scope) are improvements in production and distribution, their absence might reveal the framers' true intention to reject Williamson's model. However, this reading appears to be too narrow and does not make much sense in economic terms. In fact, cost savings may derive from technological innovations as well as from economies of scale or scope. Furthermore, economies of scale and scope may themselves be a *E.B.O.R. 608 direct consequence of the development of new technologies or processes.97 Indeed, the greater the scope of the achievable efficiencies, the more likely this is to be the case. A slightly less conservative approach would be to infer only a limitation on the types of efficiencies that may be included in the trade-off and to consider only those efficiencies that derive directly from technical innovations. In any case, the associated concept of economic progress lends itself to a very broad interpretation and could be used to include other kinds of cost savings. The real question is therefore whether these economies, which are triggered by technological development or reflect economic progress, could be achieved through less anticompetitive means or, in the language of Article 81(3) EC, whether they are truly indispensable and merger-specific. However, this is simply another step in the classic efficiency defence analysis, which cannot replace, let alone reject, the very existence of such a defence. The second difference is related to the scope and extent of the negative condition. Again, this may be interpreted as a substantial rejection of the efficiency defence or, as things stand now, as evidence that Article 2(1)(b) of the Merger Regulation does not have to be construed independently of Article
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81(3) EC. While the latter excludes the possibility of granting individual exemptions in cases in which, regardless of the redeeming virtues, competition is eliminated in the relevant market, Article 2(3) of the Merger Regulation provides that a merger that creates or strengthens a dominant position is illicit if it forms a significant impediment to competition. Accordingly, the opponents of the efficiency defence argue that, since the creation or strengthening of a dominant position certainly forms a significant obstacle to competition, efficiency claims cannot rescue concentrations that are guilty of this. Despite the recent formal admission of the efficiency defence, this means that, in practice, no mergers can be rescued on this basis. Although legally plausible, however, this argument does not appear to take into account that, under the Merger Regulation, the complete substantive test for declaring a concentration compatible *E.B.O.R. 609 with the Common Market does not only require a structural finding of dominance (although this has always been the practice of the Commission). As noted above, the two-prong test contained in Article 2(3) of the Merger Regulation also requires that competition is significantly impeded as a result of the concentration. Dominance alone does not necessarily coincide with the formation of a significant obstacle to competition. The case law of the ECJ under Article 82 EC establishes that a finding of dominance in a particular market is not incompatible with the existence of effective competition.98 By this logic, a correct application of the two-prong test implies that the creation or strengthening of market dominance does not automatically lead to a significant impediment to competition. This is not to deny that it is possible or even probable that the creation or strengthening of a dominant position may in itself constitute a significant impediment to effective competition. However, from a legal and economic standpoint, this significant impediment has to be demonstrated in each case and cannot be presumed to exist simply on the grounds that a dominant position has been created or strengthened. In other words, in order to give any meaning to the second prong of the substantive test, it should be recognised that competition is not always (or automatically) significantly impeded in situations of market dominance.99 When attempting to confer autonomous dignity on the second prong of the dominance test, significant weight should therefore be assigned to dynamic rather than static considerations, such as the role of potential competition, demand trends and market growth expectations, as well as technological innovations. The efficiency defence thus appears to fit perfectly into this scenario, as it grants the decision makers the opportunity to carry out a more complete forward-looking analysis, rather than limiting the assessment to structural and static criteria. In most cases, the level of efficiencies required to offset the dead weight loss associated with the resulting market dominance has to be substantial and may be difficult to realise. This difficulty may be magnified if the *E.B.O.R. 610 related benefits have to be passed on consumers (although, as noted above, this does not appear to be the case under conventional price theory). However, the issue of the level of cost savings generated by a merger is an empirical question that should be resolved on a case-by-case basis and should not affect the theoretical availability of the efficiency defence in merger analysis. In an attempt to pre-empt any role played by efficiency considerations, the opponents of Williamson's model might further point to the qualification accompanying technical and economic progress in the last part of Article 2(1)(b) of the Merger Regulation, namely, that it does not have to form an obstacle to competition to be included in the merger analysis. On this basis, some of these opponents might incorrectly infer that every time a concentration creates a mere obstacle to competition, as opposed to a significant impediment, the presence of efficiencies should be disregarded. Once again, such a formalistic reading fails to distinguish intelligently between the two prongs of the test outlined in Article 2(1) of the Merger Regulation. Even under a formalistic reading, it is evident that the qualification does not refer to the merger under scrutiny but rather to technical and economic progress. In other words, the qualification would appear to limit the possibility of taking technical and economic progress into account to cases where it, and not the concentration in question, does not form an obstacle to competition. Exactly how technical and economic progress could form an obstacle to competition is not clear. There may be circumstances, particularly in high-tech markets, in which achievable economies conflict with the fostering of innovation (e.g. cost reductions that eliminate overlapping R&D activity may decrease the overall level of resources dedicated to innovation).100 In any case, for the purposes of the present analysis, it would seem excessive to use this qualification to support an argument against the admissibility of the efficiency defence.
3.1.3.3 The Commission's case law: the different treatment of efficiencies in mergers and cooperative joint ventures
Having discussed the formal differences and substantial similarities between Article 81(3) EC and Article 2(1)(b) of the Merger Regulation, it might be interesting to examine briefly how the Commission
Page18
has dealt in practice with situations in which efficiencies were claimed and the efficiency defence was invoked under both Article 81 EC and the Merger Regulation. Interestingly, as evident from the case law discussed below, the Commission regarded efficiency gains as a possible counterbalancing factor when called upon to *E.B.O.R. 611 determine the anticompetitive character of a specific transaction, both in relation to the treatment of cooperative joint venture and in the context of merger analysis. However, it stopped short of any clear reference to the admissibility of the efficiency defence.
Page19
individually, it would not be economically feasible to proceed in this way;109 rationalisation and specialisation efficiencies were also taken into account in relation to a JVfor the production and sale of lead-glass tubes110 and a JV destined to produce multi-purpose vehicles that also promoted technical progress;111 a JV for the provision of value-added services in the telecommunications field was granted an exemption because it would promote technical progress in supplying new global services of an advanced nature at lower costs;112 and, in the petrochemical industry, the possibility that customers would use a technologically more advanced and efficient product (linear instead of conventional polyethylene) was deemed sufficient for granting an exemption.113
3.1.3.3.2 Mergers
The Commission's approach to efficiencies changes abruptly if one passes from the framework of Article 81(3) EC to the Merger Regulation. Its position toward efficiencies, as expressed by its officials, clearly denies any relevance to *E.B.O.R. 614 efficiency considerations within the context of merger control. However, the Commission's case law is less clear in this regard. In certain (older) cases, the Commission appears to have considered efficiencies as an additional factor on which to base its finding of dominance.114 In others, it expressly referred to efficiencies as a possible mitigating factor or appeared to take account of the efficiencies that might be generated, but, instead of performing a transparent trade-off between these efficiencies and the potential restrictive effects of the concentrations concerned, it cleared them on the basis that they would not have created or strengthened a dominant position.115 Needless to say, no approval of a concentration has so far been given on the basis of the net benefits that the merger might generate. In light of the above considerations, however, it is worth examining the arguments on which the Commission relied when disregarding efficiency claims. Interestingly, in some of these cases, the Commission never expressly declared or claimed that an efficiency defence was not available in principle. Even more interesting is the fact that the Commission examined efficiencies in relation to technical and economic progress, thereby connecting the balancing test required under Article 81(3) EC and the assessment of concentrations once again.
Accor/Wagon-Lits 118
In this case, the Commission argued that, following the acquisition of CIWLT, Accor would acquire a dominant position in the French motorway catering market. Accor claimed that the concentration and the consequent increase in size would permit the combined entity to realise substantial efficiencies due to the realisation of greater economies of scale. The Commission rejected this argument on the following basis: The Commission observes firstly that the increases in productivity claimed by Accor remain vague, and have not been evaluated. Secondly, supposing that these benefits exist, nothing demonstrates that they will be superior to the running costs created by the larger size of the new entity. Finally, on the motorway restaurant market which has a weak elastic demand structure, the new undertaking with the dominant position that it will hold will have no interest to pass any assumed gains on to the consumer.119 The Commission continued: It is not certain that there would be any improvement in technical and economic progress to the benefit of the consumer. Even if this were the case, the Commission considers that there are other
Page20
possible means of achieving it. At all events, the major obstacle to competition which the concentration would represent on the two markets of catering in the strict sense and light meals would not allow the Commission to al *E.B.O.R. 616 ter its conclusion that the new entity would have a dominant position that would impede significantly competition on the relevant markets.120 In substance, the Commission rebutted the cost saving argument, but did so on the basis of an (implicit) efficiency defence. In fact, the Commission found that the efficiencies and the promotion of technical progress had not been proved, that they might in any case be offset by potential diseconomies of scale, that the cost reductions were not merger-specific, that the concentration would form a significant obstacle to effective competition in the relevant market and, finally, that it was unlikely that the consumers would be able to take advantage of any of the claimed benefits. It may therefore be argued that, had the empirical evidence shown otherwise, the concentration might have passed the Commission's antitrust scrutiny even though it established a position of dominance.
Page21
that it is necessary for a satellite operator to be able to promote its satellite position, but in the view of the Commission the vertical integration of the operation is not necessary in order to do so. The Commission concluded: (151) An infrastructure as described by the parties could be highly efficient and beneficial to consumers []. [However,] in the opinion of the Commission the vertically *E.B.O.R. 618 integrated nature of the proposed operation is not necessary in order to create such an integrated infrastructure. (152) Consequently, the arguments made by the parties with regard to technical and economic progress cannot be accepted since the conditions of Article 2(1)(b) of the Merger Regulation are not met. The non-satisfaction of the indispensability requirement prevented the Commission from carrying out a complete balancing test between the detrimental effects of increased market power and the cost savings that the concentration would generate. Although the Commission's decision concerning the possibility of achieving the same efficiencies through less restrictive means is debatable, it appears that even this decision implicitly admits the admissibility of the efficiency defence.
Page22
the concentration will be cleared. According to the Commission, however, it will not only be necessary to verify whether the incentive mechanisms will not be limited to the realisation of the efficiencies generated directly by the merger, but also whether the resulting entity will continue to enhance efficiency. This in turn presupposes sufficient competitive pressure from the remaining firms and from potential entry. In other words, it appears that the Commission will not carry out a balancing test between the restrictive and pro-competitive effects that are likely to result from the merger, but rather that it will assess whether the resulting entity is dominant or whether its dominant position will be reinforced. Efficiency considerations appear to be limited to the assessment of the incentives that the merged entity will face. In addition, the efficiencies that might be realised as a direct result of the implementation of the merger (i.e. the reduction of inefficient duplications) will not be relevant if the merged *E.B.O.R. 620 entity does not have an incentive to make continuing efforts to enhance efficiencies. This will significantly narrow the scope of any efficiency considerations. The fact that the above-mentioned reversal is more seeming than real, at least on the basis of the current draft, also emerges from the list of factors that the Commission will consider in order to determine the extent of the market power of the merged entity, including: economies of scale and scope,124 which, in order to avoid any doubt, the Commission describes as those that result from the spreading of fixed costs over larger output or a broader set of products,125 and access to leading technologies, which may give the merging firms a strategic advantage over their competitors. Rather than a positive attitude towards efficiencies, this seems to reveal an opposing tendency on the part of the Commission to return to a situation where efficiencies are considered an additional negative factor for condemning mergers - pretty much the situation that existed in the United States in the 1960s following the notorious Brown Shoe Co. v. United States case.126 Conversely, the rest of Section VI seems to be modelled largely on the DOJ/FTC Guidelines (see section C.1 above) and appears to substantiate the idea that cost and dynamic efficiencies will effectively have a role in the future of EU merger control. Paragraph 89 introduces a similar sliding scale approach to efficiencies: the more serious the competition problems, the greater the efficiencies must be. According to paragraph 90, in order to be taken into account, the claimed efficiencies must be merger-specific (i.e. a direct, realistic and attainable consequence of the merger), substantial, verifiable and timely. In addition, they must directly benefit consumers (the so-called killer qualification) in the same market where it is otherwise likely that a dominant position will be created or strengthened. Productive and dynamic efficiencies will both be considered, although variable/marginal costs savings are more relevant than fixed costs, as they have an impact on pricing. The burden of proof will be on the merging parties, both in relation to the demonstration/quantification of the claimed efficiencies and for showing why the efficiencies will counteract any adverse effects on competition that might otherwise result from the merger and therefore directly benefit consumers.127 The DMGs seem to offer conflicting views of the role of efficiencies in merger analysis. On the one hand, they are introduced as part of the dominance analysis, thereby significantly narrowing their scope. On the other hand, however, the list of features that efficiencies must display in order to be *E.B.O.R. 621 considered, which appears to have been borrowed from the guidelines of the US agencies, appears to argue in favour of a more autonomous role for efficiencies under the Merger Regulation.
5. CONCLUSIONS
Williamson's model provides a simple but powerful analytical framework through which enforcement agencies can analyse the social desirability of a concentration from a broad economic perspective. With some adjustments, which necessary to take account of many aspects of real world markets, the trade-off suggested by Williamson appears to be robust in theory and feasible in practice. Williamson's model, providing as it does a systematic method for examining the economic effects of mergers on social welfare, supplies decision makers with a comprehensive framework for translating economic concerns into legal reasoning. However, its practical implementation (the efficiency defence) should not be approached as a purely mathematical exercise. It requires a combination of both quantitative measurements and qualitative assessments. Specialised enforcement agencies have the technical capacity to carry out complex analysis, as demonstrated by the US and, above all, the Canadian experience. It naturally remains a complicated task, but it does not differ substantially from similar issues that the courts and enforcement agencies have to deal with in other areas of antitrust law. The DOJ/FTC Horizontal Mergers Guidelines have recognised the theoretical validity of Williamson's model, explicitly providing that efficiency considerations can play an important role in the assessment of concentrations. The difficulties related to the actual implementation of the efficiency defence, which are connected, in particular, to the ex ante character of merger analysis and the
Page23
limitations on the determination of the terms of the trade-off (i.e. DWL and offsetting efficiencies), appear to have been substantially overestimated, as the Canadian experience, in particular, seems to show. It also appears that the information asymmetry between the enforcement agencies and the parties concerned can be simply resolved through a sensible use of the burden of proof mechanism. Despite the fact that the European Commission has always held that the efficiency defence does not apply in the context of the Merger Regulation, the recent statements of Competition Commissioner Monti and, above all, the Draft Merger Guidelines seem to reflect a substantial change in the Commission's position, at least in principle, towards the admissibility of this defence (although the current draft of the DMGs is still somewhat inconsistent in this regard). The introduction of efficiency considerations in the EU merger control process may raise doubts as to its practical feasibility, but the Commission has already demonstrated that it is able to assess, estimate and set off the same terms of the trade-off suggested by Williamson's refined model in neighbouring areas *E.B.O.R. 622 of antitrust law, such as full-function cooperative JVs.128 The Commission's case law under Articles 81 and 82 EC from the last decade demonstrates this. With the continuing expansion of the role of economics in EU competition enforcement, the admissibility of a defence based on efficiency considerations under the Merger Regulation seems to be an accurate reflection of the Commission's shift from a legalistic to a more substantial approach to antitrust analysis. Freshfields Bruckhaus Deringer. Former officer of the Italian Antitrust Authority. This paper was written during a period of study at Columbia University Law School. The author wishes to thank the following persons for their valuable advice: Victor P. Goldberg, Amitai Aviram, Antonio Capobianco and Antonio Nicita. The usual disclaimers apply. E.B.O.R. 2003, 4(4), 573-622
1.
Council Regulation (EEC) No. 4064/89 of 21 December 1989 on the control of concentrations between undertakings, OJ 1989 L 395/1.
2.
Since the establishment of the EU merger control regime, the Commission has reviewed 1,459 concentrations. During the past ten years, there has been a dramatic increase in the number of mergers and acquisition that have been notified to the Commission - ranging from 12 in 1990 to 279 in 2002 (and 151 in 2003 at the time of writing) - largely due to the consolidation wave that has characterised the second half of the 1990s and the current liberalisation process in Europe. Between 1990 and mid-2003, 2,329 concentrations were notified to the Commission. For further data on the EU merger review process, see: <http://europa.eu.int/comm/competition/mergers/cases/stats.html>.
3.
Commission notice on the concept of full-function joint ventures under Council Regulation (EEC) No. 4064/89 on the control of concentrations between undertakings, OJ 1998 C 66; Commission notice on the concept of concentration under Council Regulation (EEC) No. 4064/89 on the control of concentrations between undertakings, OJ 1998 C 66; Commission notice on the concept of undertakings concerned under Council Regulation (EEC) No. 4064/89 on the control of concentrations between undertakings, OJ 1998 C 66; Commission notice on calculation of turnover under Council Regulation (EEC) No. 4064/89 on the control of concentrations between undertakings, OJ 1998 C 66; Commission notice on remedies acceptable under Council Regulation (EEC) No. 4064/89 and Commission Regulation (EC) No. 447/98, OJ 2001 C 68; Commission notice on restrictions directly related and necessary to concentrations, OJ 2001 C 188; Commission notice on a simplified procedure for treatment of certain concentrations under Council Regulation (EEC) No. 4064/89 on the control of concentrations between undertakings, OJ 2000 C 217; Commission notice on the definition of the relevant market for the purposes of Community competition law, OJ 1997 C 372.
4.
See sections dealing with the legal argument supporting the possibility of an efficiency defence below.
5.
Case No. IV/M.308 - KALI + SALZ/MDK/TREUHAND of 9 July 1998, OJ 1998 C 275, in which the Commission adopted the failing firm defence. As for collective dominance, see Alonso Briones, A Review of Decisions Adopted by the Commission Under the Merger Regulation - Oligopolistic Dominance. Is there a Common Approach in Different Jurisdictions, speech presented at the European Study Conference, Brussels, 18 November 1995.
6.
ECJ, Joined Cases C-68/94 and C-30/95 French Republic and Socit commerciale des potasses et de l'azote (SCPA) and Entreprise minire et chimique (EMC) v. Commission of the European Communities [1998] ECR I-1375, in which the Court upheld the Commission's application of the failing firm defence and the compatibility of the Merger Regulation with a finding of collective dominance.
7.
This notion is similar to the coordinated effects concerns contained in the DOJ/FTC Merger Guidelines.
8.
In 2001, after submitting the aforementioned report to the Council, the Commission issued a Green Paper, which was the subject of numerous (about 120) submissions by legal scholars, practitioners, national authorities and economists, as well as the business community.
Page24
9.
The reform package consists of: (i) a proposal for a revision of the Merger Regulation; (ii) draft guidelines on the appraisal of horizontal mergers, i.e. mergers between competitors; and (iii) a series of non-legislative measures intended to improve the decision-making process, some of which are contained in a set of best practices. All three texts are available on the Commission's competition website: <http://europa.eu.int/comm/competition/index_en.html>.
10.
11.
12.
Speech by Prof. Mario Monti, European Commissioner for Competition Policy, at the European Commission/IBA Conference on EU Merger Control, Brussels, 7 November 2002.
13.
As explained below, for many years the efficiencies generated by a merger played an aggravating rather than a mitigating role in the assessment of concentration in the United States. See the notorious decision of the US Supreme Court in Brown Shoe Co. v. United States, 370 US 294, 315-23 (1962), 82 S.Ct. 1502, 8 L.Ed.2d 510.
14.
15.
O.E. Williamson, Economies as an Antitrust Defense: The Welfare Tradeoffs, 58 Am.Econ.Rev. (1968) p. 18; O.E. Williamson, Economies as an Antitrust Defense Revisited, 1225 U.Pa.L.Rev. (1977) p. 699.
16.
S. Stockum, The Efficiencies Defense for Horizontal Mergers: What Is the Government Standard?, 63 Antitrust L.J. (1993) p. 829; R. Pitofsky, Proposal for Revised United States Merger Enforcement in the Global Economy, 81 Geo. L.J. (1992) p. 195; A. Fisher et al., Price Effects of Horizontal Mergers, 77 Calif. L.Rev. (1989) p. 777; J.F. Brodley, The Economic Goal of Antitrust: Efficiency, Consumer Welfare, and Technological Progress, 62 N.Y.U. L.Rev. (1987) p. 1020; L.H. Rller, J. Stennek and F. Verboven, Efficiency Gains from Mergers, Working Paper No. 543 (Research Institute of Industrial Economics 2000) (this paper was prepared for the Commission and was included in The Efficiency Defence and the European System of Merger Control (European Economy, Reports and Studies, No. 5, 2001); P.D. Camesasca, European Merger Control: Getting the Efficiencies Right (Intersentia-Hart 2000); P.D. Camesasca, The Explicit Efficiency Defence in Merger Control: Does it Make the Difference?, 1 European Competition Law Review (1999); A. Banejeriee and W.E. Eckard, Are Mega-Mergers Anti-competitive? Evidence from the First Merger Wave, 29 Rand Journal of Economics (1998); K. Kinne, The Efficiency Defence in the US American Merger Policy, Discussion Paper No. 67 (Hamburg, HWWA-Institut fur Wirtschaftsforschung 1998); J.D. Akhavein, A.N. Berger and D.B. Humphrey, The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function, 12 Review of Industrial Organization (1997); G.A. Hay and G.J. Werden, Horizontal Mergers: Law, Policy, and Economics, 83 American Economic Review (1993); P.R. McAfee and M.A. Williams, Horizontal Mergers and Antitrust Policy, 40 Journal of Industrial Economics (1992); A. Weiss, Using the Efficiency Defense in Horizontal Mergers, Antitrust Bulletin (1992); J. Farrell and C. Shapiro, Horizontal Mergers: An Equilibrium Analysis, 80 American Economic Review (1990); D.M. Barton and R. Sherma, The Price and Profits Effects of Horizontal Mergers: A Case Study, 33 Journal of Industrial Economics (1984); R. Stillman, Examining Antitrust Policy toward Horizontal Mergers, 11 Journal of Financial Economics (1983).
17.
In most markets, a reliable proxy for overcoming the difficulties related to the determination of marginal costs are average variable costs. See H. Hovenkamp, Federal Antitrust Policy - The Law of Competition and Its Practice (West Publishing 1999) chapters 1-3.
18.
In this paper, consumers in this paper refers to the demand side of a market relationship, while end-users refers to the final users of a particular product or services.
19.
The concept of price elasticity is used by economists to capture the relationship between the price increase of a product and the consequent decrease in demand for that product. As Professor Hovenkamp nicely puts it, [a] simpler way of describing price elasticity of demand is that it is the relationship between the percentage change in quantity of a good demanded when the price of the good changes by a certain percentage. See H. Hovenkamp, op. cit. n. 17, at pp. 5-6. Thus, for example, if the price of a good increases by 10 per cent and there is a corresponding drop in the quantity demanded of 5 per cent, price elasticity would be 0.5 (5:10). Traditionally, when price elasticity is greater than 1, demand is considered elastic and, when the resulting number is lower than 1, demand is considered inelastic. A price elasticity of 0.5 therefore implies that the demand for a product is inelastic. The greater the inelasticity of demand in a particular market, the less a small price increase will generate a large drop in demand. In other words, there is more room for market power in markets where demand is inelastic.
20.
An analogous study by Stockum appears to support Williamson's results. Stockum claims that in most cases a marginal cost reduction of about 1 per cent will suffice to offset a significant price increase. S. Stockum, loc. cit. n. 16, at p. 835. However, Stockum's research differs from Williamson's study because he unrealistically assumes that all the firms in the industry will take advantage of the cost savings once the merger is consummated.
21.
See, for example, R. Bork, The Antitrust Paradox: A Policy at War with Itself (The Free Press 1993), in which the author argues that Williamson's model cannot be applied in practice because it is impossible to predict exactly the terms of the trade-off that the model requires. In the same sense, see also A.A. Fisher and R.H. Lande, Efficiency Considerations in Merger Enforcement, 71 Calif. L. Rev. (1983) p. 1580. Interestingly, Bork uses this argument to support the view that most of the mergers are efficiency-motivated anyway and should almost always be permitted. Fisher and Lande, conversely, argue that a very limited efficiency defence should be admitted.
22.
23.
This is because the price increase in a Cournot oligopoly will be lower than in monopolised markets. Furthermore, in cases in which
Page25
coordination between independent firms is a factor, the incentive to cheat may lead to a reduction of the social costs associated with the DWL. In contrast, oligopolistic outcomes may enlarge the area of the rectangle discussed below. 24.
Rectangle uyzA includes the cost savings generated by merger. If this rectangle has to be counted as a social cost, Williamson's model would lose any meaning. In fact, if the entire rectangle uyzA was wasted in strategic anticompetitive ways, all the cost savings would count as social costs. If only rectangle uxBA was included in the social cost part of the analysis, however, the trade-off would still be possible, although it would be highly unlikely that the merger would be capable of generating enough offsetting efficiencies.
25.
26.
Put simply, limit pricing is the strategy that an incumbent firm may decide to adopt to deter entry: by charging a price lower than its short-run monopoly maximising price (which might attract new entrants) and setting it at a level that will render entry unprofitable for potential entrants (i.e. in cases in which economies of scale are a factor and the new entrant has entry per unit costs that are higher than those of the incumbent).
27.
Predatory pricing may be regarded as a more extreme strategy that an incumbent firm may adopt to raise barriers to entry in relation to its captive market. By showing that, when faced with the potential entry of a competitor, it is likely to retaliate by pricing its products below its average variable costs, the incumbent firm sets an example for the future, indicating that it will aggressively guard its territory.
28.
See V.P. Goldberg, Reflections on the Welfare Loss Rectangle, 4 I.O. Review (1976).
29.
In particular, when the same acquisition has been heavily financed with debt and the resulting entity ends up highly leveraged.
30.
This lost investment represents the social cost of using the market in general (i.e. its competitive process) and not of the concentration in question.
31.
See F.M. Scherer and D. Ross, Industrial Market Structure and Economic Performance, 3d edn. (1990); Donald G. McFetridge, The Efficiencies Defense in Merger Cases, in M. Coate and A. Kleit, eds., Competition Policy Enforcement: The Economics of the Antitrust Process (1996).
32.
In the absence of any efficiency considerations, the dead weight loss generated by a cartel appears smaller than the one deriving from a hypothetical merger of the same members. In a horizontal price-fixing agreement, the members have a strong incentive to cheat and undercut the monopolistic cartel price. For this reason, the cartel needs to set up detection and punishment mechanisms, which increases the risk of exposing the cartel. A merger, conversely, is by definition a stable situation in which the price-fixing effect is certain but the incentive to generate internal counterbalancing efficiencies is very strong.
33.
Production efficiencies are generally represented by product-level, plant-level and multi-plant level economies.
34.
Dynamic efficiencies are represented by general improvements in the effectiveness of a firm in the market and, as such, are less amenable to physical measurement.
35.
While efficiencies reducing variable costs directly affect the profit-maximising price of the merged entity, a reduction in fixed costs will not. The profit-maximising price of the monopolist reflects the intersection of the marginal revenue and marginal costs curves. The latter is normally represented by its best proxy, the average variable costs curve. However, even fixed cost economies should be taken into account because there is still a real resource savings to the merged firms. Ultimately, there is also a resource savings to the economy as well because the merged entity may redirect the previously expended resources to another source. M. Sanderson, Efficiency Analysis in Canadian Merger Cases, 65 Antitrust L.J. (1997) p. 623 at p. 631. Needless to say, however, a reduction in variable costs, and hence in marginal costs, will tend to have a higher weight in the trade-off analysis. In fact, such savings will not only be added to the efficiency part of the model but will also contribute to the reduction of the social cost.
36.
37.
This argument is particularly appealing with regard to the situation that exists in the US capital market, where the fragmentation of shareholdings among millions of investors through active financial institutions gives greater force to the one class argument than in Europe, where blockholders normally consist of a few large groups and families and the distributional issue plays a more significant role.
38.
This is the classic argument used for supporting the view that efficiency should be the only driving factor the court should use, even when deciding cases outside the realm of antitrust policy. See R.A. Posner, The Economics of Justice (Harvard University Press 1981); R.A. Posner, Economic Analysis of Law (Little Brown and Co. 1992); R.A. Posner, The Problems of Jurisprudence (Harvard University Press 1993). For the opposite argument that efficiency is unethical and should therefore not form the basis of the decision-making power of the judicial system, see R. Dworking, Law's Empire (Cambridge 1986).
39.
The neutrality of wealth transfers in the assessment of mergers is also called the total welfare approach, as opposed to the consumer welfare approach, in which the consumers' surplus rectangle is always a term of the trade-off. See M. Sanderson, loc. cit. n. 36, at p. 627. There is confusion in the antitrust literature regarding the use and meaning of both terms. For example, Bork uses consumer welfare to indicate the irrelevance for antitrust purposes of distributional consequences. See R. Bork, op. cit. n. 22.
Page26
40.
In economic terms, the real wealth transfer should be represented by the sum of rectangle xyzB (cost savings) and rectangle uxBA (consumer surplus). It represents the area between the marginal cost curve and the actual monopolistic price. However, since the cost savings must be merger-specific, rectangle xyzB would not exist in the absence of a concentration and the consumer would not benefit from it. Accordingly, the relevant wealth transfer is properly reflected by rectangle uxBA.
41.
The legal foundation of Lande's claim, referring to the legislative history of the Sherman Act, is that Congress in effect gave consumers the property right (or entitlement) to purchase competitively priced goods and therefore declared that higher-than-competitive prices constitute unfair taking or extractions of consumers' property. R.H. Lande, Chicago's False Foundation: Wealth (Not Just Efficiency) Should Guide Antitrust, 58 Antitrust L. J. (1989) p. 632.
42.
In fact, the question of income distribution is not relevant in cases in which the merger does not create any market power or in which the cost savings impede any price raise.
43.
R.H. Lande, loc. cit. n. 42. The practical effect of the inclusion of wealth distribution concerns in Williamson's model would be to render the efficiency defence essentially worthless. In fact, the level of cost reduction necessary to overcome the transfer effect should be of such magnitude as to induce the resulting entity not to raise its price altogether. However, if this is the case, and using the price as it existed before the operation was carried out as a benchmark, the merger would not even produce a dead weight loss and no need for such a defence would therefore arise.
44.
45.
According to Bork, If income redistribution were to be weighed against cases of net efficiency creation on the grounds that consumers are generally poorer than producers (which would be a most dubious ground), then the principle would seem to require that income redistribution be weighed in favor of any economic behavior when producers of a product had generally lower incomes than consumers. This would justify price-fixing by poorly remunerated producers []. See R. Bork, op. cit. n. 22, at p. 112.
46.
See, for example, the interpretation of the FTC/DOJ Merger Guidelines in the Memorandum in Support of Plaintiff's Motion in Limine Relating to Efficiencies, United States v. Archer-Daniels-Midland. Co., 781 F.Supp. 1400 (S.D. Iowa 1991), cited in M. Handler, R. Pitofsky, H. Goldschmid, D.P. Wood, Trade Regulation, 4th edn. (1997) p. 932, footnote 69.
47.
See FTC v. University Health Inc., 938 F.2d 1206, 1222-23 (11th Cir. 1991) (a defendant who seeks to overcome a presumption that a proposed acquisition would substantially lessen competition must demonstrate that the intended acquisition would result in significant economies and that these economies ultimately would benefit competition and, hence, consumers); United States v. United Tote, Inc. , 768 F.Supp. 1074, 1084-85 (D. Del. 1991) (While it appears the merger may produce [efficiencies], those benefits are simply insufficient to counter the Government's strong case of anticompetitive effect particularly since there is no guarantee that these benefits will be passed along).
48.
K.J. Arquit, Perspectives on the 1992 U.S. Government Merger Guidelines, 61 Antitrust L.J. (1992) p. 121 at p. 135.
49.
National Association of Attorneys General, Horizontal Merger Guidelines (1993) para. 2, reprinted in 256 Trade Reg. Rep. (CCH) Supp. (30 March 1993) (When the productive efficiency of a firm increases (its cost of production lowered), a firm in a highly competitive industry may pass on some of the savings to consumers in the form of lower prices. However, to the extent that a merger increases market power, there is less likelihood that any productive efficiencies would be passed along to consumers).
50.
51.
52.
P.L. Yde and M.G. Vita, Merger Efficiencies: Reconsidering the Passing-On Requirement, 64 Antitrust L.J. (1996) p. 742.
53.
D.A. Yao and T.N. Dahdouh, Information Problems in Merger Decision Making and Their Impact on Development of an Efficiencies Defense, 62 Antitrust L.J. (1993) p. 23.
54.
55.
For a basic overview of merger analysis in the United States, see H. Hovenkamp, op. cit. n. 17, at p. 207.
56.
57.
In Brown Shoe, the Supreme Court stated that the operation at hand by eliminating wholesalers and by increasing the volume of purchases from the manufacturing division of the enterprise, can market their own brands at prices below those of competing independent retailers []. Congress appreciated that occasional higher costs and prices might result from the maintenance of fragmented industries and markets. Similarly, in FTC v. Procter & Gamble, 386 US 568, 580 (1967), the Supreme Court held that [p]ossible economies cannot be used as a defense against illegality. Congress was aware that some mergers that lessen competition may also result in economies but it struck the balance in favour of protecting competition.
Page27
58.
See U.S. v. Von's Grocery Co. , 384 US 270 (1966), 86 S.Ct. 1478.
59.
See, for example, RSR Corp. v. FTC, 602 F.2d 1317, 1325 (9th Cir. 1979), in which the Court found that the argument of an efficiency defence had been rejected repeatedly.
60.
See FTC v. University Health, Inc. , 938 F.2d 1206 (11th Cir. 1991), in which the Court stated that evidence that a proposed acquisition would create significant efficiencies benefiting consumers is useful in evaluating the ultimate issue - the acquisition's overall effect on competition. See also United States v. Rockford Memorial Corp., 717 F.Supp. 1251 (N.D. Ill. 1989), aff'd, 898 F.2d 1278 (7th Cir.), cert. denied, 111 S.Ct. 295 (1990).
61.
United States v. Philadelphia Nat'l Bank, 374 US 321 (1963); FTC v. Procter & Gamble, 386 US 568 (1967).
62.
J. Kattan, Efficiencies and Merger Analysis, 62 Antitrust L.J. (1994) p. 517. The author is of the opinion that the era's dismissive attitude toward merger efficiencies has given way to acceptance of efficiencies as a relevant factor in merger analysis.
63.
Ibid., at p. 518.
64.
In a relatively recent case, an efficiency defence was successfully raised by the merging parties in order to defeat the request for an injunction on the part of the FTC. This decision was eventually reversed on appeal, showing that the scope for an efficiency defence is also narrow in the United States. See FTC v. H.J. Heinz Co., 116 F.Supp. 3d 190 (D.D.C. 2000), rev'd, 246 F.3d 708 (D.C. Cir. 2001).
65.
F.H. Easterbrook, Workable Antitrust Policy, 84 Mich. L.Rev. (1986) p. 1696 at p. 1703; D.C. Bok, Section 7 of the Clayton Act and the Merging of Law and Economics, 74 Harv. L.Rev. (1960) p. 226 at p. 318.
66.
67.
See the FTC's decisions in Rockford Memorial, 717 F.Supp. at 1289-1291 and American Medical Int'l, 104 FTC at 219-20.
68.
69.
This paragraph draws heavily on the Contribution of Canada, in Competition Policy and Efficiency Claims in Horizontal Agreements (Paris, OECD 1996) p. 19; M. Sanderson, loc. cit. n. 36.
70.
71.
Director of Investigation and Research, Merger Enforcement Guidelines (1991), reprinted in 60 Antitrust & Trade Reg. Rep. (BNA) Spec. Supp. No. 1513 (25 September 1991).
72.
On this essential point, however, it appears that the Bureau and the Tribunal hold divergent positions. While the enforcement agencies appear to stick to the Williamsonian terms of the trade-off, the Tribunal, as suggested in an obiter dictum, appears to stick to the possibility of a consumer welfare standard. See Director of Investigation and Research v. Hillsdown Holdings (Canada) Ltd. [1992] 41 C.P.R. 3d 289.
73.
Ibid., at p. 292.
74.
75.
In Hillsdown, while the Bureau had argued that efficiencies, in order to be cognisable, have to be unique to the merger, the Tribunal stated in a obiter dictum that it is sufficient to furnish evidence that such cost savings were likely due to the merger.
76.
Recital No. 2 of the Preamble to the Merger Regulation explicitly highlights the importance of the introduction of the new review mechanism, stating that this system is essential for the achievement of the internal market by 1992 and its further development.
77.
78.
In any antitrust regime, there is a tension between the treatment of horizontal mergers and horizontal agreements. Paradoxically, the dead weight loss associated with a merger may, in certain cases, be greater than the social costs generated by a horizontal agreement. The difference in treatment can then be explained exclusively by reference to the likelihood and magnitude of the efficiencies that mergers can generate.
Page28
79.
Contribution of the European Community, in Competition Policy and Efficiency Claims in Horizontal Agreements (Paris, OECD 1996) p. 54.
80.
Ibid., at p. 53.
81.
82.
The idea that the Merger Regulation dominance test is loose may seem far-fetched. However, a concentration should be compared to a horizontal agreement between the same parties to fix their prices. While a hard core cartel between two firms holding an overall market share of 30 per cent will almost certainly be found anticompetitive, a merger between the same parties is very likely to be permitted. This is what is meant by loose.
83.
A concentration is realised when control over an undertaking is transferred. Control is ultimately defined as the capacity to influence the conduct of another undertaking materially (i.e. decisive influence) both by means of legal rights and de facto.
84.
The Community dimension is essentially determined on the basis of worldwide and Community turnover thresholds or, alternatively, on the basis of a combination of turnover realised worldwide, within the Community and in at least three Member States.
85.
Speech by Prof. Mario Monti, European Commissioner for Competition Policy, at the European Commission/IBA Conference on EU Merger Control, Brussels, 7 November 2002 [emphasis added].
86.
87.
European Commission, White Paper on Modernization of the Rules Implementing Articles 85 and 86 of the EC Treaty, Commission Programme 99/027, p. 23, where it is expressly recognised that Article 85(3) contains all the elements of the rule of reason. See also M. Waelbrock and A. Frignani, European Competition Law (1999) p. 202.
88.
As mentioned above, productive efficiencies include any reduction in the costs of producing or distributing goods or services.
89.
Notes on Council Regulation (EEC) No. 4064/89, published in Merger Control Law in the European Union (Brussels-Luxemburg, European Commission 1998).
90.
L. Brittan, Competition Policy and Merger Control in the Single European Market, Hersch Lauterpacht Memorial Lectures Series, No. 10 (Cambridge University Press 1991) p. 35.
91.
J. Cook and C. Kerse, EEC Merger Control: Regulation 4064/89 (Sweet & Maxwell 1991) p. 79.
92.
J.S. Venit, The Evaluation of Concentrations Under Regulation 4064/89: The Nature of the Beast, Fordham Corp. L. Inst. (1990) p. 523; J. Cook and C. Kerse, op. cit. n. 92, at p. 79; M. Waelbrock and A. Frignani, op. cit. n. 88, at p. 689; I. Van Bael and J.-F. Bellis, EC Competition Law Reporter (Sweet & Maxwell 1996) pp. 57-370 (looseleaf); P.D. Camesasca, The Explicit Efficiency Defence in Merger Control: Does it Make a Difference ? 1 European Competition Law Review (1999). The latter was originally presented at the 15th Annual Conference of the European Association of Law and Economics, Utrecht, September 1998.
93.
There is no real legal possibility of justifying an efficiency defence under the Merger Regulation []. Any efficiency issues are considered in the overall assessment to determine whether dominance has been created or strengthened and not to justify or mitigate that dominance in order to clear a concentration which would otherwise be prohibited. Contribution of the European Community, in Competition Policy and Efficiency Claims in Horizontal Agreements (Paris, OECD 1996) p. 53. This document could be found on the OECD website. See also Leon Brittan, op. cit. n. 91, at p. 47, where the former Commissioner stated that no words plucked from the Regulation can give rise to a defence against the finding that there is a dominant position as a result of which competition is significantly impeded.
94.
See the various positions cited in P.D. Camesasca, loc. cit. n. 93, at p. 17.
95.
96.
The relevant part of Article 2(1) provides that [i]n its appraisal of concentrations, the Commission must take into consideration [] the development of technical and economic progress provided that it is to consumers' advantage and does not form an obstacle to competition. The relevant part of Article 81(3), provides that the Commission may exempt an otherwise restrictive agreement which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not: (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.
97.
Page29
CFI, Case T-17/93 Matra Hachette SA v. Commission of the European Communities [1994] ECR II-0595. Interestingly, the Commission argues in paragraph 94 of the decision that [a]s regards, first of all, the contribution of the manufacturing process to technical progress, the Commission insists that its appraisal must take account of the relevant sector of activity and market. In that context, it states that the project facilitates the bringing together of the skills of the two partners in the spheres of engineering and know-how. The Commission, which considers that the applicant takes too narrow a view of the term contribution to technical progress, maintains that, even if not all the technologies employed are in themselves entirely innovative, the fact that they are brought together at one and the same production site undeniably constitutes technical progress. The reduction of production costs constitutes an essential factor to be taken into account when examining the contribution made by an agreement to technical progress. In the present case, the economies achieved by the project which the applicant does not challenge make it possible to reduce production costs [] [emphasis added]. 98.
See ECJ, Case 27/76 United Brands v. Commission [1978] ECR 207.
99.
This point is nicely captured by Sir Leon Brittan, who stated that [o]n the substantive criteria of the Regulation, the question is bound to be asked whether it is sufficient to know what Article 86 means to understand the dominant position test or whether the qualification as a result of which effective competition would be significantly impeded gives rise to a new test altogether. In my view, we are at the beginning of a new legal development and the Council did not wish to create a pure dominant position test. A dominant position as such is not prohibited. You may ask whether a dominant position without the effect of impeding competition is at all conceivable. I think that in most cases it is not. However the dynamic factor of time is again important here. A short-lived market share of some size in a market with no or low barriers to entry is not really a threat to competition at all. The Court of Justice has traditionally defined dominance in Article 86 cases in terms of independence or the ability to act with scant regard to competitive pressures. This is not quite the same as impeding competition and I expect a new line of case law to develop. L Brittan, op. cit. n. 91, at pp. 36-37.
100.
For a view on the role of innovation analysis in the assessment of mergers in the United States, see N. Dahdouh and F. Mongoven, The Shape of Things to Come: Innovation Market Analysis in Merger Cases, 64 Antitrust L.J. (1996) p. 405.
101.
A discussion of the distinction between cooperative and concentrative JVs, or between full-function and partial-function JVs, and the different procedural frameworks under which they are assessed is beyond the scope of this paper. The subject will be dealt with to the extent that its implications are relevant to the availability of the efficiency defence.
102.
It is important to note that, procedurally, EC merger law no longer differentiates between cooperative and concentrative JVs. Both are subject to the strict procedural terms and filing obligations laid down in the Merger Regulation as long as they are full-function JVs. However, full-function cooperative JVs will be subject to both the dominance test and the Article 81 test, while non-full-function cooperative JVs will be subject only to the Article 81 test.
103.
Although the procedural steps for requesting an individual exemption do not mandate a prior notification of the agreement, the structure is such that there is a strong incentive to do so. In fact, once a request for an individual exemption has been filed, the Commission cannot fine the parties, even if it concludes that the agreement is restrictive and does not deserve an exemption. With regard to Articles 81 and 82 EC, it is important to note that the whole EU procedural framework will radically change as a result of the replacement of Council Regulation No. 17/62 with Council Regulation No. 1/2003, which is due to enter into force in May 2004.
104.
105.
106.
107.
108.
Olivetti/Canon, Commission Decision of 22 December 1987, OJ 1988 L 52, in which the Commission stated in paragraph 54(b) that [t]he joint venture enables a transfer of the benefit of advanced technology to Olivetti, a Community undertaking, in markets where technology is of crucial importance. An important part of the transferred technology comes from an undertaking, Canon, which is a leader of innovation and whose policy is R&D-oriented, as is shown by the percentage of the turnover and work force involved in R&D and its significant past and present achievements. It is within the scope of the joint venture that this transfer be extended to such highly sophisticated products as facsimile and, even more, laser printers (which are considered products for the future). It is reasonable to expect that the combination of this technology with that of an also R&D-oriented EEC undertaking will contribute to improving the technological patterns of the EEC industry and ultimately its competitiveness. This will result in improving production and distribution and technical progress.
109.
110.
111.
112.
113.
Page30
114.
AT&T/NCR, Commission Decision of 19 January 1991, OJ 1991 C 16, in which the Commission considered that the costs savings that could be achieved through a concentration as an additional factor that would contribute to the strengthening of the merging parties, thereby acknowledging the anticompetitive character of the same. It is not excluded that potential advantages flowing from synergies may create or strengthen a dominant position. [] The possible advantages which AT&T hopes to gain from this concentration are for the moment theoretical and have yet to be proved in a future market place. To date, similar attempts to combine computer and telecommunications business have all failed or at least not yet fulfilled the expectations which motivated the participants. [] these potential benefits to AT&T/NCR do not lead to the conclusion that the concentration will result in the creation or strengthening of a dominant position.
115.
The following cases seem to fall into this category: Case No. IV/M.42 - Alcatel/Telettra of 4 April 1991, OJ 1991 L 122; Case No. IV/M.315 - Mannesmann/Valourec/Ilva of 31 January 1994, OJ 1994 L 102; Case No. IV/M.477 - Mercedes-Benz/Kassbohrer of 14 February 1995, OJ 1995 L 211; Case No. IV/M.580 - ABB/Daimler-Benz of 15 October 1995, OJ 1997 L 011; Case No. IV/M.877 - Boeing/McDonnel Douglas of 30 July 1997, OJ 1997 C 372. These decisions and the observation that that they reflect a between the lines treatment of efficiencies by the Commission are discussed in P.D. Camesasca, loc. cit. n. 93, at pp. 14-28.
116.
117.
The Commission continues by indicating that [t]here is a high risk that in the foreseeable future, the dominant position of ATR/de Havilland would be translated into a monopoly. The Commission appears to have adopted the same approach in a recent case, namely, Case No. COMP/M.2220 - General Electric/Honeywell of 3 July 2001, not yet published in Official Journal, available at: <http://europa.eu.int/comm/competition/mergers/cases/decisions/m2220_en. pdf>.
118.
119.
120.
121.
122.
123.
124.
125.
126.
370 US 294 (1962), 82 S.Ct. 1502, 8 L.Ed.2d 510. See section C.1 of this paper for a discussion of the US attitude towards efficiencies.
127.
128.
And now under the coordinated effects analysis carried out under Article 2(4) of the Merger Regulation. 2012 Sweet & Maxwell and its Contributors