ABSTRACT
Competition policy is not an end in itself, but one essential tool to achieve efficient market outcomes.1
(Kroes, 2007: 4)
Unlike an abuse of a dominant position or a prohibition of restrictive agreements, which are enforced only when allegation occurs (otherwise ex-post procedure is applied), a merger control is based on an ex-ante system, which is designed to prevent undesirable effects on competition in the future.2 Hence, the merger control for the competition authorities is as a predictive exercise. Since horizontal, vertical and conglomerate merger transactions have both positive and negative consequences for society welfare, the question raised in this chapter will be how the merger control rules of the EU assess these effects. On the one hand, mergers may create or strengthen substantial market power, enabling the merging parties to raise prices unilaterally by restricting output and/or otherwise have a significant impact on market conditions. Merger transactions may also enable the firms participating in the market to collude the pricing and output decisions because of increased market concentration after a transaction. On the other hand, mergers are not always harmful: merger transactions may enable the merging firms to achieve efficiency gains in terms of the process of innovation or production, or other forms, which will lead to lower costs and a decrease in prices (or an increase in quality), and as a result consumers will be better off compared with a pre-merger situation. In order to understand the rationale behind the Merger Regulation in the EU, it is necessary to define the policy and law of competition with reference to a merger control. Since the policy goals determine which mergers are counted as beneficial or harmful, this chapter will discuss the objectives of EU competition law and policy, including the EU approach towards small market economies. The second part of this chapter will analyse the introduction and further evolvement of the merger control regime in the EU providing two basic stages of its development, starting with the Regulation 4064/89 and finishing with the Regulation 139/2004. Although this chapter will cover jurisdictional, procedural and substantive issues, the main empha-
sis will be placed on the substantive issues. Chapter two discussed two countervailing merger effects on competition, namely market power and efficiency gains from the economic perspective, whereas this chapter focuses on these two effects from a legal perspective. A market power for anticompetitive purpose matters, because if a firm obtains a market power, it has an ability to maintain prices significantly above the competitive level for a sustained period of time. In order to measure market power created through merger transactions for competition policy, the Commission has developed a methodology. It involves defining the relevant market, which consists of geographic and product markets, and then assessing possible anticompetitive effects and finally evaluating any counter-balance effects, such as buyer power, new entry barriers or efficiency gains.
