Saturday, August 16, 2008
Was the Change of the Test for Merger Control in Europe Justified? An Assessment (Four Years after the Introduction of SIEC)
Posted by D. Daniel Sokol
Alberto Heimler of the Autorita Garante della Concorrenza e del Mercato (Italy) asks, Was the Change of the Test for Merger Control in Europe Justified? An Assessment (Four Years after the Introduction of SIEC).
ABSTRACT: Under the 1989 EEC Merger Regulation, a merger was prohibited when it led to the creation and strengthening of a dominant position such that effective competition was impeded in the common market. After a very long debate (and the annulment by the Court of First Instance (CFI) of three prohibition decisions by the Commission), in 2004 the Regulation was revised and a new substantive test was introduced. Now a merger is prohibited when it would "significantly impede effective competition (SIEC) in the common market, in particular as a result of the creation or strengthening of a dominant position". The change was considered necessary to address mergers in differentiated market oligopolies where, it was argued, a merger may lead to a restriction of competition short of dominance.
In the course of that debate I defended the dominance test. The main arguments that I used are still valid, especially after the experience of these years when, to my knowledge, no use has ever been made of the significant impediment of effective competition test in differentiated product oligopolies. In particular, I argue in this paper that the significant impediment of effective competition test adds very little to the dominance test (in terms of the risk of false negatives), but may add a lot in terms of the risk of false positives.
Contrary to what I argued in 2003, when I thought that the characterization of joint dominance was the same as coordinated effects in the US, the change in the test can indeed bring some needed flexibility in the treatment of coordinated effects, stiffened today by the tight checklist proposed by the CFI in the Airtours/First Choice judgment.