Jun 10, 2014
The Guideline: Assessing Efficiencies Gains in Merger Rulings – Marc Ivaldi & Aleksandra Khimich (Toulouse School of Economics)
It has long been recognized that mergers may give rise to efficiency gains that can reinforce firms’ incentives to compete, thereby mitigating or even offsetting their potential negative anticompetitive effects. For instance, a more efficient allocation of production among the firms’ plants may lead to significant cost reductions, which may in turn lead to decreases in prices or improvements in the quality of products.
Many examples illustrate the importance of accounting for efficiency gains in merger evaluations, and hence highlight the risk of under- or over-estimating the impact of merger efficiencies.
The issues of how merger regulation should address the question of efficiency, and how it should account for and evaluate efficiency gains, are crucial for all parties involved, namely, the merging firms, third parties and, ultimately, the courts of appeal. When rules are grounded in sound economic arguments and understood by all participants, the risks of approving anticompetitive mergers or prohibiting competitive ones are lowered and the appropriate evaluation of efficiency-related claims requires much less time and effort.
Competition authorities usually follow three steps in evaluating efficiencies during a merger investigation. First, the competition authority decides what constitute efficiency gains that result fr