Thursday, September 4, 2008
Posted by D. Daniel Sokol
Giorgio Monti of LSE's Law Department provides some thoughts on The New Substantive Test in the EC Merger Regulation - Bridging the Gap between Economics and Law?
ABSTRACT: The 2004 EC Merger Regulation (ECMR) adopted the substantial impediment of effective competition test, and abandoned the earlier standard that required proof of dominance as a necessary element to intervene in a merger. It is said that this reform was necessary because the dominance test failed to catch unilateral effects absent dominance, so there was a 'gap' in the ECMR. This paper argues that the decision to amend the ECMR was unnecessary. From an economic perspective because the dominance standard was sufficiently flexible to address all anticompetitive mergers. Economists' concerns about merger control (in both the US and EC) was that authorities focused on a structural assessment premised upon market definition and market concentration and failed to give sufficient attention to other means to test for anticompetitive effects in a more direct manner. Economists' support for the new test is that it would place a focus on these other methods for identifying anticompetitive effects. From a legal perspective, it seems that the major motivation for reform was to divorce merger control from the abuse of dominance doctrine in Article 82, so that the two legal provisions would develop independently, the latter only applicable to manifestations of significant market power. Accordingly the view that there was a 'gap' in the dominance test is inaccurate, and lawyers and economists supported the reform for different reasons. This misunderstanding might explain why the Horizontal Merger Guidelines designed to indicate how the new standard applies are insufficiently precise. In an endeavour to offer some precision, the paper reviews a number of decisions and suggests that the Commission applies four distinct theories of harm, but the first major decision applying the new standard is worrying because the Commission appears to regulate the market rather than remove an impediment of competition caused by the merger, with the risk that the new standard is so loose that it allows the Commission to address questions of industrial policy through the ECMR.