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The New Substantive Test in the EC Merger Regulation—Bridging the Gap between Economics and Law?

Published online by Cambridge University Press:  27 October 2017

Giorgio Monti
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Extract

In the last 20 years, the application of EC competition law by the Commission has been increasingly informed by economics. However, whilst the Commission has operated an economically enlightened regime in the field of merger control as a whole, its policy on conglomerate mergers and ambiguity over the role of efficiencies have received adverse comment. Several defeats in the Court of First Instance suggested poor handling of economic evidence in the merger review process.

Type
Research Article
Information
Cambridge Yearbook of European Legal Studies , Volume 10 , 2008 , pp. 263 - 285
Copyright
Copyright © Centre for European Legal Studies, Faculty of Law, University of Cambridge 2008

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References

1 For a good overview, see D Neven, ‘Competition economics and antitrust in Europe’ (2006) Economic Policy 741. For the Commission’s views, see Monti, M, ‘European Competition for the 21st Century’ in Hawk, B (ed), International Antitrust Law and Policy: Fordham Corporate Law 2000 (New York, Fordham Corporate Law Institute, 2001) 257 Google Scholar.

2 Patterson, D and Shapiro, C, ‘Transatlantic Divergence in GE/Honeywell: Causes and Lessons’ (2001) 16 Antitrust 18 Google Scholar.

3 Case T-342/99, Airtours Plc v Commission [2002] ECR II-2585; Case T-310/01, Schneider Electric SA v Commission [2002] ECR II-4071; Case T-5/02, Tetra Laval BV v Commission [2002] ECR II-4381 (Art 8(3) prohibition); Case T-80/02, Tetra Laval BV v Commission [2002] ECR II-4519 (Art 8(4) divestiture decision); and Case T-251/00, Lagardère SCA and Canal+ v Commission [2002] ECR II-4825. For comment on the legal implications, see B Vesterdorf, ‘Standard of Proof in Merger Cases: Reflections in the Light of Recent Case law of the Community Courts’ (2005) European Competition Journal 3.

4 Press Release, ‘Commission adopts comprehensive reform of EU merger control’ (IP/02/1856, 11 December 2002).

5 Recital 29, Regulation 139/2004 on the control of concentrations between undertakings, [2004] OJ L24/1. For discussion, see Monti, G, ‘Merger Defences’ in Amato, G and Ehlermann, C-D (eds), EC Competition Law—A Critical Assessment (Oxford, Hart, 2007)CrossRefGoogle Scholar.

6 EC Commission Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of concentrations between undertakings (28 November 2007), available at <http://ec.europa.eu/comm/competition/mergers/legislation/legislation.html> accessed 19 August 2008.

7 The process began with the Green Paper on the Review of Council Regulation (EEC) 4064/89 COM(2001)745 final, 11 December 2001, when the Commission asked if the dominance test should be replaced.

8 Along similar lines, A Christiansen, ‘The “more economic approach” in EU merger control—A critical assessment’, Deutsche Bank Working Paper Series, Research Notes (1 March 2006) 21, available at <http://www.dbresearch.com> accessed 19 August 2008.

9 Article 2(3) Council Regulation (EEC) 4064/89 of 21 December 1989 on the control of concentrations between undertakings, [1989] OJ L395/13 (this was amended in 1997; a consolidated version is available at <http://ec.europa.eu/comm/competition/mergers/legislation/regulation/consolidated/en.pdf> accessed 19 August 2008).

10 Eg Case T-87/05, EDP v Commission [2005] ECR II-3745, paras 45–9.

11 In this instance, the Commission has sometimes applied a causation standard, and sometimes relied on the failing firm defence. For criticism, see Bavasso, A and Lindsay, A, ‘Causation in EC Merger Control’ (2007) 3(2) Journal of Competition Law and Economics 181 CrossRefGoogle Scholar.

12 The literature includes: Horner, N, ‘Unilateral Effects and the EC Merger Regulation— How The Commission Had its Cake and Ate it Too’ (2006)2(1) Hanse Law Review 23 Google Scholar; S Baxter and F Dethmers, ‘Unilateral Effects Under the European Merger Regulation: How Big is the Gap?’ [2005] ECLR 380; S Volcker, ‘Mind the Gap: Unilateral Effects Analysis Arrives in EC Merger Control’ [2004] ECLR 395; Ehlermann, C-D, Volcker, S and Gutermuth, A, ‘Unilateral Effects: The Enforcement Gap under the old ECMR’ (2005) 28(2) World Competition 193 Google Scholar; U Boge and E Müller, ‘From the Market Dominance Test to the SLC Test’ [2002] ECLR 495; L Coppi and M Walker, ‘Substantial Convergence or Parallel Paths? Similarities and differences in the economics of horizontal mergers in US and EU competition law’ [2004] Antitrust Bulletin 101; Fingleton, J, ‘Does Collective Dominance Provide Suitable Housing for all anti-competitive oligopolistic mergers?’ in Hawk, B (ed), International Antitrust Law and Policy: Fordham Corporate Law 2003 (New York, Fordham Corporate Law Institute, 2003) 181 Google Scholar; N von Hinten-Reed and PD Camesasca, ‘European merger control: tougher, softer, clearer?’ [2003] ECLR 458; V Verouden et al, ‘The Draft EU Notice on Horizontal Mergers’ [2004] Antitrust Bulletin 243; Vickers, J, ‘How to Reform the EC Merger Test?’ in Drauz, G and Reynolds, M (eds), EC Merger Control: A Major Reform in Progress (Oxford, Oxford University Press, 2003)Google Scholar.

13 Volvo/Scania [2001] OJ L143/74.

14 Ivaldi, M and Verboven, F, ‘Quantifying the effects from horizontal mergers in European competition policy’ (2005) 23 International Journal of Industrial Organization 669 CrossRefGoogle Scholar; see Christiansen, P, Fountoukakos, K and Sjöblom, D, ‘Mergers’ in Faull, J and Nikpay, A (eds), The EC Law of Competition 2nd edn (Oxford, Oxford University Press, 2007) para 5.234 for an insider’s explanationGoogle Scholar.

15 Enterprise Act 2002 (UK) s 35; Trade Practices Act 1974 (Australia) s 50; and Clayton Act 15 USC 18 (US) s 7.

16 Art 2(3) Council Regulation (EC) 139/2004 of 20 January 2004, [2004] OJ L24/1. Recital 25 clarifies that the only reason for this is to fill the gap in horizontal merger cases.

17 See above n 11 for the key literature.

18 See, eg Case T-210/01 General Electric v Commission [2005] ECR II-5527, para 115; Whish, R, Competition Law 5th edn (Lexis Nexis, 2003) 833 Google Scholar, noting that the expression ‘dominant position’ in the ECMR legitimated the use of the ECJ’s Art 82 case law to develop the substantive assessment in merger cases. The key difference is that in Art 82 cases the enquiry is retrospective (asking if there has been dominance during the period when the abuse took place), while in merger cases the analysis is prospective (exploring whether the merger will cause the creation or strengthening of dominance in the immediate aftermath of the merger). Thus, there is greater emphasis on the role of potential competition in merger cases. See Monti, G, ‘The Scope of Collective Dominance Under Article 82 EC’ (2001) 38 Common Market Law Review 131, 137–138CrossRefGoogle Scholar.

19 Case 27/76, United Brands v Commission [1978] ECR 207; and Case C-95/04 P, British Airways v Commission [2007] 4 CMLR 22.

20 Monti, G, ‘The Concept of Dominance in Article 82’ (2006) 2 European Competition Journal 31 CrossRefGoogle Scholar.

21 Whinston, MD, Lectures on Antitrust Economics (Cambridge (MA), MIT Press, 2006) 100 Google Scholar.

22 Ivaldi, M and Verboven, F, ‘Quantifying the effects from horizontal mergers in European competition policy’ (2005) 23 International Journal of Industrial Organization 669 CrossRefGoogle Scholar.

23 Whinston, above n 20, 100–2.

24 See generally, Eckbo, BE, ‘Horizontal Mergers, Collusion and Stockholder Wealth’ (1983) 11 Journal of Financial Economics 241 CrossRefGoogle Scholar; and Stillman, R, ‘Examining antitrust policy towards Horizontal mergers’ (1983) 11 Journal of Financial Economics 225 CrossRefGoogle Scholar.

25 Röller, L-H and de la Mano, M, ‘The Impact of the New Substantive Test in European merger Control’ (2006) 2(1) European Competition Journal 9 CrossRefGoogle Scholar (the decision is Case M.3696, O.EON/MOL, 21 December 2005).

26 That said, there are some interesting suggestions in their article, for instance that a merger in a market characterised by collective dominance that leads to the creation of single dominance should be cleared because single dominance is preferable in that the non-merging parties will now be eager to compete against the merged entity.

27 Admittedly, the Commission’s position shifted during the period of review: see K Fountoukakos and S Ryan, ‘A new substantive test for EU merger Control’ [2005] ECLR 277.

28 Winckler, A and Hansen, M, ‘Collective Dominance Under the EC merger Regulation’ (1993) 30 CML Rev 787 Google Scholar; and JF Briones Alonso, ‘Economic Assessment of Oligopolies under the Community Merger Regulation’ (1993) European Competition Law Review 118.

29 D Ridyard, ‘Joint Dominance Under the EC Merger Regulation’ (1992) European Competition Law Review 161.

30 Case M.190, Nestlé/Perrier [1992] OJ L356/1, paras 113–5. For criticism, see Monti, G, ‘Oligopoly’ (1996) 19 World Competition 59, 97–8Google Scholar.

31 Joined Cases C-68/94 & 30/95, France and SCPA v Commission [1998] ECR I-1375, paras 168–78; Case T-102/96, Gencor Ltd v Commission [1999] ECR II-753; Case T-342/99, Airtours v Commission [2002] ECR II-2585; and Case T-464/04, Impala v Commission [2006] ECR II-2289.

32 Airtours, ibid, para 62. This exhaustive formulation also prevented the Commission from stretching the notion of collective dominance to address the unilateral effects resulting in a Bay foods-type merger. See Horner, above n 12.

33 Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings, [2004] OJ C31/5, paras 39–57.

34 Art 2(2) EC Commission Proposal for a Council Regulation on the control of concentrations between undertakings, COM(2002)711 final, [2003] OJ C20/4; see also para 55 of the explanatory memorandum.

35 Commission Notice on the appraisal of horizontal merges under the Council Regulation on the control of concentrations between undertakings, 11 December 2002, available at <http://ec.europa.eu/comm/competition/mergers/review/> accessed 20 August 2008.

36 Ibid, para 11.

37 Ibid, paras 30–9.

38 See in particular the helpful commentary from the American Bar Association, available at <http://ec.europa.eu/comm/competition/mergers/review/> accessed 20 August 2008.

39 In a similar vein, Boyce, J, Loukas, D and Tubs, A, ‘Merger Control’ in Roth, P and Rose, V (eds), Bellamy & Child European Community Law of Competition (Oxford, Oxford University Press, 2007) 623, 751 (fn 603)Google Scholar.

40 In addition to the examples discussed in this section, see: Siemens/Dragerwerk (Case COMP/M 2861) Commission Decision 2003/777/EC, [2003] OJ L291/1 (dominance plus parties are each other’s closest competitors); Oracle/PeopleSoft (Case COMP/M 3216) Commission Decision 2005/621/EC, [2005] OJ L218/6, paras 187–205 (inconclusive market shares, but bidding studies showed remaining competitor would prevent price increases by the merged entity); Bayer Healthcare/Roche (OTC Business) (Case COMP/M 3544) Commission Decision of 19 November 2004 (high market shares in Austria, but consumer preferences showed goods were not close substitutes); Barilla/BPS/Kamps (Case COMP/M 2817) Commission Decision of 25 June 2002 (narrow market definition to prove dominance plus reference to closeness of competition between the two firms); GE/Instrumentarium (Case COMP/M 3083), Commission Decision 2004/332/EC, [2004] OJ L109/1; Philips/Agilent (Case COMP/M 2256) Commission Decision of 2 March 2001; and Philips/Marconi Medical Systems (Case COMP/M 2537) Commission Decision of 17 October 2001 (use of quantitative evidence to test closeness of competitors).

41 Boyce et al, above n 38, para 8.208.

42 28 March 2008. Seven more decisions reached by this date were only publicised by press release, with insufficient information for analysis.

43 Eg Metso/Aker Kvaerner (Case COMP/M 4187) Commission Decision of 12 December 2006, para 78; Inco/Falconbridge (Case COMP/M 4000), Commission Decision of 4 July 2006; and Omya/Huber PCC (Case COMP/M 3796) Commission Decision of 19 July 2006.

44 ‘Report on Competition Policy 2006’, para 16. Earlier annual reports and issues of the Competition Policy Newsletter published in 2007 do not discuss other cases.

45 Novartis/Hexal (Case COMP/M 3751) Commission Decision of 27 May 2005, para 57.

46 On this basis, Johnson & Johnson/Guidant (Case COMP/M 3687) Commission Decision of 25 August 2005; and Axalto/Gemplus (Case COMP/M 3998) Commission Decision of 19 May 2006 (below) would also be gap cases.

47 Kronospan/Constantia (Case COMP/M 4525) Commission Decision of 19 September 2007, para 44.

48 Case T-210/01, General Electric v Commission [2005] ECR II-5527, para 115.

49 Above n 45, para 41, where the passage cited from the GE judgment is cited, but reinterpreted in the way suggested here.

50 Eg in Universal/BMG Music Publishing (Case COMP/M 4404) Commission Decision of 22 May 2007, a ‘leading position’ in the market for mechanical and performance rights, with market shares around 30%, was not of concern having found buyer power (paras 187–90); the merger would have created a leading player in the online performance rights market, but it seems that here a dominance test would have been equally applicable.

51 Horizontal Merger Guidelines, above n 32, paras 27–38.

52 A particularly striking example is Syngenta CP/Advanta (Case COMP/M 3465) Commission Decision of 17 August 2004, para 49, where the Commission concludes that the merger created a dominant position in some geographical markets or led to non-coordinated effects in a highly concentrated oligopolistic market in other geographical markets without any meaningful examination of the differences (although this is a phase 1 decision so less detail is provided).

53 Department of Justice and Federal trade Commission Horizontal Merger Guidelines 1992 (revised 1997), Sections 2.2.1 and 2.2.2.

54 Horizontal Merger Guidelines, above n 32, paras 28–30 for differentiated products and paras 32–5 for competition based on quantity.

55 Ibid, para 36.

56 Ibid, paras 37–8.

57 Above n 45.

58 Sportech Plc and the Vernons Football Pools Business of Ladbrokes Plc, Commission Decision of 11 October 2007, summary, para 8 (available at <http://www.competition-commission.org.uk> accessed 20 August 2008).

59 US Guidelines, above n 41, para 2.22.

60 Commentary on the Horizontal Merger Guidelines (2006), available at < http://www.usdoj.gov/atr/index.html> accessed 20 August 2008.

61 Linde/BOC (Case COMP/M 4141) Commission Decision of 6 June 2006, para 159.

62 Ibid, paras 160–79.

63 Ibid, paras 180–92.

64 Case 85/76, Hoffmann-La Roche v Commission [1979] ECR 461, paras 38–9.

65 Monti, G, EC Competition Law (Cambridge, Cambridge University Press, 2007) 253–5CrossRefGoogle Scholar.

66 Case C-12/03 P, Commission v Tetra Laval [2005] ECR I-987.

67 Above n 44.

68 T. Mobile Austria/tele.ring (Case COMP/M 3916) Commission Decision of 26 April 2006.

69 Ibid, para 125.

70 A similar theory of harm was explored in Travelport/Worldspan (Case COMP/M 4523) Commission Decision of 21 August 2007, paras 106–28, but found that the target was not a maverick because the target: (i) was not charging lower prices; (ii) had been losing market share; and (iii) and acquirer were not each other’s closest competitors. (The third seems more closely related to the theories explored in section IV above.)

71 J Killick and A Schulz, ‘Horizontal and Vertical mergers’ in Amato and Ehlermann, above n 5, 467.

72 This is in fact noted in the Horizontal Merger Guidelines, above n 32, para 30.

73 Clarke, J, ‘The Dawson Report and Merger Regulation’ (2003) 8 Deakin Law Review 245, 251–60Google Scholar.

74 Above n 63.

75 Schenk, H, ‘Mergers and concentration policy’ in Bianchi, P and Labory, S, International Handbook on Industrial Policy (Cheltenham, Edward Elgar, 2006)Google Scholar, recommending even tougher merger scrutiny as a result of the macroeconomic risks of merger failures.

76 Drawing upon on the excellent analysis by Christiansen, above n 16; see also the approach of the present author in EC Competition Law, above n 64.