Mergers and EC Merger Policy By Kevin Hinde
Dec 10, 2015
Mergers and EC Merger Policy
By Kevin Hinde
Aims
Aims– To explore the rationale for and impact of
mergers in Europe.– To demonstrate the role of regulators in
controlling merger developments
Learning Outcomes
By the end of this session you will be able to– describe and analyse trends in merger activity
in the EC in recent times.– analyse the rationale for merger activity and
assess their welfare implications using Williamson’s trade off model.
– critically assess the institutional framework controlling European mergers.
Data
TABLE 3 3
Motives for Merger
Market Power. Efficiency. Financial Motives Risk Reduction Empire Building, Failing Firms and Ageing
Owners EC policy developments and Globalisation
Welfare Effects
Horizontal Mergers Vertical Mergers Conglomerate Mergers
P
0 Q
AC=MC
AC1=MC1
P2
P1
Q2 Q1
d
a
e
C f b
Welfare Effects
Mergers can– offer cost savings– improve long term viability of investment– enhance economic integration
But they can also– raise prices– deter actual competition– prevent potential competition
EC Merger Policy
1990 EC introduced a new Merger Regulation. An EC taskforce must discover whether a merger/joint venture
creates a concentration has a community dimension
– World wide annual turnover of > 2.5bn ECU– EU Annual Sales of >100 Million ECU
Action 1990 to 1999
1027 cleared at phase 1(45 with undertakings) 51 withdrawn 51 fall outside the scope 9 full referral back to national authorities 58 required a phase 2 examination
Of the latter 36 were compatible with conditions and obligations 11 compatible without obligation 11 were prohibited
Evaluation
A distinct procedure has emerged for assessing notified mergers once Community jurisdiction has been established.– determine the relevant product market– determine the relevant geographical market– assess whether a merger creates or strengthens
a dominant position
Evaluation
Four elements are examined:– the market position of the merged firm (market
share and other competitive advantages)– strength of the remaining competitors– customers’ buying power– potential competition
Prohibitions to 1999
Aerospace/De Havilland (1991) MSG Media Service (1994) Nordic Satellite Distribution (1995) RTL/Veronica/Endemol (1995) Gencor/Lonrho (1996) Kesko/Tuko (1996) Saint Gobain/Wacker Chemie/NOM (1996) Blokker/ Toys ‘R’ Us (1997) Bertelsmann/Kirch/Premiere (1998) Deutsche Telekom/Betaresearch (1998) Air Tours/ First Choice (1999)
Issues
Only large mergers being caught.– Threshold levels still considered high– Dominance may persist in smaller industries.
Most mergers occurring in technologically dynamic industries. To what extent will this bring benefits?
Concerns about the relationship between member states and EC.
Test
List three trends in EC merger development over the past decade or so.
List the reasons why mergers occur. What are the costs and benefits of mergers? What are the main problems for regulators?
Any Questions?