New Report Calls for Modernised Approach to Assessing EU Horizontal Mergers in Dynamic Markets

Independent analysis of current guidelines calls for framework that better accounts for investment, innovation and long-term competitive dynamics in EU merger control

European merger control must evolve to reflect the realities of increasingly dynamic and complex markets according to a new independent report from global consulting firm BRG and Through Line Advisors, produced for GSMA with support from Connect Europe.

The report, coauthored by BRG managing directors Laurent Eymard and Dr Xavier Boutin along with Mark Williams of Through Line Advisors, aims to support the European Commission’s ongoing review of its Horizontal Merger Guidelines (HMG). The report found that merger assessments to date have focused predominantly on short-term price effects and static market shares. In doing so, they have failed to capture how mergers can affect consumer welfare; for example, investment, innovation and market positioning might benefit consumers over time.

To address these concerns and as a constructive contribution to the HMG discussion, the report proposes a unified approach that evaluates adverse and positive effects together within the SIEC (significant impediment to effective competition) framework, organised around the following steps:

• Step 1 – Determine which dimensions of competition drive consumer welfare in the case at hand (price, quality, entry, investment) and the market characteristics around them. Consider non-price dimensions from the outset and do not treat them as countervailing factors.
• Step 2.a – For each relevant dimension, articulate a theory of competitive effects (and not only harm) grounded in economic theory and supported by case-specific evidence (including the merger rationale). Evaluate positive and negative strategic effects together.
• Step 2.b – Treat efficiencies as merger-induced changes in the merging parties’ economic conditions (production and investment costs, technologies, financing conditions and organisational capabilities) which generate indirect strategic effects. This will ensure that the behavioural implications of efficiencies are integrated into the competitive assessment rather than treated as a separate balancing exercise.

Eymard commented: “A modernised approach to merger control within the EU is required to ensure the best possible outcome for consumers. The steps outlined in this report can help the Commission to better address dynamic competition without changing legal standards or reducing procedural efficiency”.

Boutin said: “For a long time, EU merger control has relegated dynamic factors as late-stage countervailing arguments, thereby giving prominence to short-term harm through higher prices, which are easier to establish, and underestimating dynamic benefits, which often contribute greatly to consumer welfare. A more balanced approach is urgently needed to ensure opportunities to positively develop the internal market are not missed”.

Williams added: “Europe urgently needs to address challenges of investment, innovation and competitiveness. Merger control is one tool available to the Commission that influences companies’ incentives to invest and compete. The revision of the HMG provides an opportunity to ensure that the European merger control framework delivers outcomes that maximise consumer welfare over both the short and long terms”.

Download a full copy of the experts’ report.