The Use of Economic Tools in Merger Analysis: Lessons From US and EU Experience

The importance of economic analysis in the application of competition rules, especially in mergers, has increased over the last few years. Econometric techniques may help competition agencies to assess merger cases quickly and guide them towards better decision making when faced with the increasing complexity of markets. Agencies employ a lot of techniques, from very basic to sophisticated ones. Today it is widely accepted that the use of economics has improved the decisions of competition authorities when it is appropriate. This interest in economic evidence reflects the increasing use of economics and economic analysis in merger control as evidenced first in the US with the Merger Guidelines of 1984 and 1992. In the US the use of economic analysis is evident in the calculation of the significant lessening of competition (SLC) test. Under this test, a merger may have anticompetitive effects if it is likely to substantially lessen competition in the market. Under the aforementioned test, the investigation and assessment of a merger are more concerned with whether prices are likely to rise after the merger is consummated. In the EU, mergers are regulated by the Merger Regulation 139/2004, which came into force in January 2004. The law requires that firms proposing to merge apply for prior approval from the European Commission (EC); specifically, mergers that transcend national borders, and where the annual turnover of the combined business exceeds a worldwide turnover of over e5000 million and a Community-wide turnover of over e250 million, must notify and be examined by the EC. The Merger Regulation thus involves predicting potential market conditions which would pertain after the merger. The standard set by the law is whether a combination would significantly impede effective