Chris Pike and Pedro Caro de Sousa ‘How Soon Is Now: How to Deal with Uncertainty as regards Potential Competition in Merger Control’ Competition Law and Policy Debate (forthcoming)

While a short time frame of analysis can help build confidence in the conclusions reached on the likely effects of a transaction within that time frame, it misses potential harms and benefits related to longer-term potential competition. To correct this analytical deficiency requires the use of a longer time frame of analysis. However, with a longer time frame comes greater uncertainty on both probabilities and the magnitude of outcomes. Such prospective assessments often imply the balancing of probabilities by decision-makers, which are subject to substantive, evidentiary and practical constraints. In cases involving potential competition, this uncertainty is further heightened, to the point where meeting evidentiary standards designed for a short time frame analysis can become near impossible. This paper, available here, explores avenues to deal with uncertainty under merger control, and advances two proposals. First, one should ensure that the substantive standards for clearing and prohibiting a merger reflect not only the probability but also the potential magnitude of anti-…

Giulio Federico, Fiona Scott Morton and Carl Shapiro ‘Antitrust and Innovation: Welcoming and Protecting Disruption’ in Innovation Policy and the Economy (eds. Josh Lerner and Scott Stern, NBER), Vol. 20, Chapter 4, 125

This paper, available here, focuses on the impact of competition policy on innovation. Disruptive firms drive a significant amount of innovation. By making its offer to customers attractive in a new way, a disruptive firm can destroy a great deal of incumbent profit while creating a large amount of consumer surplus. The resulting churn in products and market shares, as new products enter and old ones exit, and as newer business methods and business models supplant older ones, are typical of a healthy competitive process. If that competitive process is slowed or biased by mergers or by exclusionary conduct, innovation is lessened and consumers are harmed. Competition policy seeks to protect the competitive process by which disruptive firms challenge the status quo, despite the biggest firms being some of the most impressive innovators in many industries experiencing rapid technological change. Innovation is best promoted when market leaders are allowed to exploit their competitive advantages while also facing pressure to perform…

Justus Haucap, Alexander Rasch and Joel Stiebale on ‘How mergers affect innovation: Theory and evidence’ (2019) International Journal of Industrial Organization 63 283

This article, available here, argues that a complete analysis of potential efficiencies from mergers should not only analyse how the merged entity’s prices, quantities and innovation incentives change (i.e., the direct effects of a merger), but also how these change for rival firms (indirect effects). While competition authorities sometimes analyse how mergers directly affect the merged firm’s innovation incentives, especially in high-tech industries, impacts on rivals’ innovation incentives have been rarely mentioned in merger guidelines or competition cases. This is unfortunate, since the effects of mergers on innovation in the relevant market depend on the reactions of non-merging competitors. While there is a growing literature on the effects of mergers on the innovation of the merging firms, evidence on the effects of mergers on outsiders’ innovation incentives is scarce. Thus, this paper studies how horizontal mergers affect the innovation efforts of both the merged entity and its non-merging competitors. Using data on horizontal mergers among pharmaceutical firms in Europe, it…

Tommaso Valletti and Hans Zenger on ‘Mergers with differentiated products: Where do we stand?’

This paper, available here, provides an overview of the state of economic analysis of unilateral effects in mergers with differentiated products. It discusses both static and dynamic competition. Section 2 focuses on price competition and discusses the calibration of unilateral effects using diversion-based tools such as upward pricing pressure. One of the most prominent developments of the past decades was to put closeness of substitution at the heart of unilateral effects analysis. It is well known that market shares can be off the mark in trying to account for consumers’ heterogeneous switching patterns between differentiated products. When robust data is available, it is therefore more sensible to assess competitive overlaps directly via diversion ratios than to rely on market shares as an imperfect proxy. Obtaining an estimate of diversion is feasible in many, though far from all, significant mergers (e.g., through switching data, bidding data, customer surveys, event studies or demand estimation). While diversion ratios provide a good indication of…

Pauline Affeldty, Tomaso Dusoz and Florian Szücs on ‘25 Years of European Merger Control’ (2019) DIW Berlin Discussion Paper 179

The first European merger control regime came into force in 1990. Since then, merger control has evolved significantly. This paper, available here, employs a new dataset, comprising all merger cases until 2014 that led to a decision by DG Comp (more than 5,000 individual decisions). The goal of the paper is to evaluate the time dynamics of the European Commission’s decision procedures. Specifically, the paper assesses how consistently different arguments related to so-called structural market parameters – market shares, concentration, likelihood of entry and foreclosure – were deployed by the Commission over time. The paper first estimates the probability of intervention as a function of merger characteristics. It finds that the existence of barriers to entry, increases in concentration and, in particular, the share of product markets with competitive concerns are positively associated with intervention by the Commission. After the reform of 2004, an effects-based approach centred on a clearly stated theory of harm became a cornerstone of EU merger…

Julian Nowag and Liisa Tarkkila on ‘How much effectiveness for the EU Damages Directive? Contractual clauses and antitrust damages’ (2020) Common Market Law Review 57 433

Market actors often include clauses in contracts which determine the jurisdiction, and/or forum in which any claim arising from the contract may be heard; or clauses which prohibit reassigning a claim or joining a class action. In some situations, these clauses may make it more difficult to obtain full compensation for a competition law infringement. Antitrust victims can be forced to bring damages actions in jurisdictions or before arbitrational tribunals that have less favourable cost and evidential rules; they may also encounter language-related problems. Similarly, preventing forms of collective redress has obvious benefits for defendants whenever a large number of victims only suffered very small individual harm. This paper, available here, explores the extent to which the aims of the Damages Directive and development of a strong EU private enforcement system in Member States’ courts might be undercut by such contractual arrangements. It argues that EU law protects consumers against clauses that could hinder the full effectiveness of the right to compensation…

Michal Gal ‘The Case for Limiting Private Litigation of Excessive Pricing’ (2020) Journal of Competition Law and Economics 15(2-3) 298

Excessive pricing raises strong concerns for private competition litigation, for three reasons: (1) the inherent difficulty of defining what constitutes an unfair price; (2) additional challenges inherent to private excessive pricing litigation, such as the need to pinpoint when exactly a price becomes unfair in order to calculate damages; and (3) the institutional features of general courts in EU member states. Given that private litigation of competition law violations is only beginning to develop in the EU, and collective redress mechanisms are still viewed with caution by many member states, this is exactly the time to ensure that, as private litigation expands, it will increase welfare. This is the purpose of this paper, which is available here. Section 2 addresses the inherent difficulty of determining when a price becomes unfair. The excessive pricing prohibition, though longstanding, suffers from serious and inherent difficulties in its implementation. In particular, it lacks clear and workable criteria. The challenges can be summarised as follows: to decide…

Jean-François Laborde ‘Cartel damages actions in Europe: How courts have assessed cartel overcharges’ (2019) Concurrences

The primary objective of this study, available here, is to analyse how national European courts have assessed cartel overcharges. In addition, it also provides figures on the development of cartel damages actions in Europe (how many cases were decided, in which countries, with which outcomes, etc.). It was completed with the help of lawyers, law professors, economists, national competition authorities and national judges from 30 European countries.   Now in its fourth edition, this study shows that national courts in Europe have handed down judgments in at least 239 cartel damages actions in 13 countries, relating to more than 63 cartels. In these judgments, courts have given many insights into how to assess cartel overcharges. Section I describes the methodology followed. The process employed for this research involved four steps. The cases were identified; copies of judgments were gathered; using a recent automatic translation service, judgments were translated into English; their content was then analysed. To identify cases, contributors were asked whether they…