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Merger Policy

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Michal Dropko

on 15 January 2013

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Transcript of Merger Policy

by Michał Dropko and
Carolina Cifuentes Henao
for firms and the economy as a whole? Structure Anti-competitive effects of Mergers Mergers in Industrial Economic Theory Theoretical efficiency gains of Mergers Purchasing economies Rise of X-ineficiencies Mergers of big companies can sometimes lead to diseconomies of scale but also create positive externalities

Horizontal mergers are justified by increasing economies to scale and variable cost savings Mergers in Industrial Economic Theory A merger occurs when two (or more) companies combine to form a single firm

Horizontal Merger
Vertical Merger
Conglomerate Merger
Market Extension Merger
Product Extension Merger Theoretical Welfare Effects Werden and Froeb (1998) Empirical Studies Goldberg and Verboven (1998) European Union Merger Regulation Concentration Merger between previously independent undertakings or parts of undertakings Community dimension
Special Rules for Financial Institutions Merger Control Procedure In-Depth (Phase II) Investigation General Turnover Thresholds The combined aggregate worldwide turnover exceeds € 5 bln; and

the Community-wide turnover of each of at least two undertakings exceeds € 250 mln; unless

each of the undertakings achieves more than 2/3 of its aggregate Community-wide turnover within one Member State The Substantive Test Defining the Relevant Market Cases Case No COMP/M.3280 Air France/KLM

Case No COMP/M.1745 EADS

Case No COMP/M.4439 Ryanair/Aer Lingus Berger and Humphrey (1992) Ravenscraft and Scherer (1987) Concentration Community dimension Acquisition of control of the whole or parts of one or more undertakings Creation of a full-function joint venture Turnover Thresholds: Conclusions Up till now, estimating passed on effects to consumers has been unfeasible

Mergers create purchasing economies and rise bargaining power

European Commission has focused strongly on consumer welfare considerations Conclusions Final Conclusions EU Merger Regulation and Case Studies Theoretical Welfare Effects Vs Empirical Studies Rationalization Economies of scale and scope Technological progress Slack Increase Market Power Reduce Competition Decrease Product Variety Lower R&D investment incentives Williamson’s analysis (1968) Farrell and Shapiro (1990) Amir, Diamantoudi and Xue (2009) Definition Calculation Geographical Allocation Pre-Notification Consultation with Directorate General for Competition Notification of the Transaction Initial (Phase I) Investigation Remedies/Commitments Significant Impediment of Effective Competition Are RS always beneficial before the Commission Fines
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