By Pauline Affeldt, Tomaso Duso and Florian Szücs
Competition policy, i.e. the design and enforcement of competition rules ensuring that companies compete fairly with each other, is a cornerstone of the European Union’s program to enhance the European single market and foster growth. Competition policy covers four policy areas ranging from monitoring and blocking anticompetitive agreements, to abuses by dominant firms, to mergers and acquisitions, and state aid. Among these areas of antitrust enforcement, merger control plays a special role, as it is the only area of ex-ante enforcement. Since 1990, when the European Communities Merger Regulation came into force, all major concentrations must be notified and scrutinized by the Directorate-General for Competition (DG Comp) of the European Commission (EC) to ensure that consumers are not harmed. Depending on the existence and intensity of the potential harm caused by the merger, the EC can then either clear, block, or accept modifications to the original transaction that solve the identified competition concerns.
In this paper, BCCP Fellows Pauline Affeldt, Tomaso Duso, and Florian Szücs study the time-dynamics of the EC's merger decision procedure over the first 25 years of European merger control using a relevant market level dataset containing all merger cases with an official decision documented by DG Comp between 1990 and 2014. Specifically, the authors evaluate how consistently different arguments related to the structural market parameters -- market shares, concentration, likelihood of entry, and foreclosure -- put forward to motivate a particular decision are applied over time.
In a first step, the authors estimate the probability of intervention – remedies or blockings – by DG Comp as a function of merger characteristics at the merger level. They find that the existence of barriers to entry, the increase of concentration measures, and, in particular, the share of product markets with competitive concerns increase the likelihood of an intervention. In order to obtain a more fine-grained picture of the decision determinants, the analysis is extended to the specific product and geographic markets concerned by a merger. At the market level, more determinants are found to significantly affect the Commission's competitive concerns than at the merger level. Again, barriers to entry, as well as the risk of foreclosure, play an important role for the competitive analysis. Moreover, while tightly defined (national) markets increase the probability of concerns, the number of active competitors decreases it. Finally, structural indicators of market shares and concentration have the expected effects, which are more relevant than in the merger-level analysis.
After this static analysis, the authors investigate how the impact of these key determinants changes over time. The importance of market shares and concentration generally seems to have declined over time. However, the parametric estimations are quite volatile and do not allow for uncovering clear patterns over time. Therefore, in a final step, the authors use a non-parametric causal forest algorithm, to more precisely explore how the correlation between the structural market parameters and competitive concerns varies with all other merger and market characteristics. They find that concentration as well as the merging parties' market shares have become less important decision determinants over time and are even insignificant in most recent years. On the other hand, the importance of barriers to entry as well as risk of foreclosure has increased over time in DG Comp's merger assessment since the early 2000s. This is in line with the goals of the 2004 merger policy reform, which sought to adopt a more economics based approach of merger assessment, putting less weight on simple structural indicators.
The full paper is available as DIW Discussion Paper 1797 (open access pdf download).