Welfare Standards, Substantive Tests, and Efficiency Considerations in Merger Policy

Posted by D. Daniel Sokol

The latest issue issue of the Journal of Competition Law and Economics has a fascinating article by An Renckens of the University of Antwerp Department of Economics entitled Welfare Standards, Substantive Tests, and Efficiency Considerations in Merger Policy: Defining the Efficiency Defense. 

ABSTRACT: For several years already, the efficiency defense (and its incorporation in the law) has been a much debated issue in merger policy. When discussing the introduction of an efficiency defense in merger control, it is important to define clearly its content and interpretation. However, different approaches to the concept of efficiency defense exist in the literature, and it is not always clear which jurisdictions apply an efficiency defense. Therefore, to improve communication and comparison between jurisdictions, it would be useful to reach agreement on the exact content of an efficiency defense. This paper proposes to define the efficiency defense along two dimensions: a conceptual one—related to the welfare standard—and a procedural one—related to the application of the substantive test. The main conclusion of this paper is that the concept of efficiency defense can only be appropriately applied under a total welfare standard and if efficiencies can be directly balanced against the anticompetitive effects of mergers on a case-by-case basis. Using this definition, only in Canada and Australia (formal review process) would an efficiency defense exist.