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EU Merger Remedies: A Preliminary Empirical Assessment

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  • Tomaso Duso
  • Klaus Gugler
  • Burcin Yurtoglu

Abstract

Mergers that substantially lessen competition are challenged by antitrust authorities. Instead of blocking anticompetitive transitions straight away, authorities might choose to negotiate with the merging parties and allow the transactions to proceed with modifications that restore or preserve the competition in the involved markets. We study a sample of 167 mergers that were under the European Commission’s scrutiny from 1990 to 2002. We use an event study methodology to identify the potential anticompetitive effects of mergers as well as the remedial provisions on these transactions. Stock market reactions around the day of the merger’s announcement provide information on the first question, whereas the stock market reactions around the commission’s final decision day convey information about the outcome of the bargaining process between the authority and the merging parties. We first classify mergers according to their effects on competition and then we develop hypotheses on the effects that remedies are supposed to achieve depending on the merger’s competitive outcome. We isolate several stylized facts. First, we find that remedies were not always appropriately imposed. Second, the market seems to be able to predict remedies’ effectiveness when applied in phase I. Third, the market also seems able to produce a good prior to phase II’s clearances and prohibitions, but not to remedies. This can be due either to a measurement problem or related to the increased merging firms’ bargaining power during the second phase of the merger review. ZUSAMMENFASSUNG - (Auflagen im Fusionskontrollverfahren der EU: Eine erste empirische Bewertung) Fusionen, die den Wettbewerb auf einem Markt vermindern oder verhindern, werden von Antitrustbehörden angefochten. Anstatt wettbewerbswidrige Zusammenschlüsse direkt zu blockieren, können die Behörden beschließen, mit den Parteien zu verhandeln und die Fusion mit Auflagen zu genehmigen, durch die der Wettbewerb in den entsprechenden Märkten wieder hergestellt oder aufrechterhalten wird. Wir analysieren eine Stichprobe von 167 Fusionen, die von der Europäischen Kommission zwischen 1990 und 2002 überprüft worden sind. Wir verwenden eine "event study" - Methodologie, um sowohl die möglichen wettbewerbswidrigen Wirkungen von Fusionen als auch die Wirkung der von der Behörde beschlossenen Auflagen zu untersuchen. Die Reaktion der Aktienpreise der beteiligten Unternehmen - sowohl der fusionierenden als auch der Wettbewerber - um den Tag der Fusionsankündigung liefert Informationen für die erste Frage, während die Reaktionen von Aktienpreisen um den Tag der EU-Kommissionsentscheidung Informationen über das Ergebnis der geheimen Verhandlungen zwischen der Behörde und den involvierten Parteien geben. Zuerst klassifizieren wir Fusionen entsprechend ihrer Effekte auf den Wettbewerb und dann entwickeln wir Hypothesen auf die Wirkung, welche die Auflagen in Abhängigkeit von den Wettbewerbseffekten der Fusion erzielen soll. Unsere Analyse ergibt einige stilisierte Fakten. Zuerst finden wir, dass die Auflagen von der EU-Kommission nicht immer adäquat angewandt wurden. Auflagen scheinen jedoch eine Wirkung auf die fusionierenden Unternehmen zu haben. Sie sind besonders effektiv, wenn sie bereits in Phase I des Fusionskontrollverfahrens eingesetzt werden. Jedoch scheint der Markt unfähig zu sein, eine gute Vorhersage für die Wirkung von Auflagen in Phase II zu produzieren. Dieses Ergebnis kann entweder auf einem Meßproblem beruhen oder es wird durch eine erhöhte Verhandlungsstärke der fusionierenden Unternehmen während der zweiten Phase der Fusionskontrolle verursacht.

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Bibliographic Info

Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number SP II 2005-16.

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Length: 50 pages
Date of creation: Sep 2005
Date of revision:
Publication status: Forthcoming in: J. Stennek/V. Ghosal (eds.): The Political Economy of Antitrust, Contributions to Economic Analysis . North Holland, 2006.
Handle: RePEc:wzb:wzebiv:spii2005-16

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Keywords: Merger Control; Remedies; European Commission; Event Studies.;

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Citations

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Cited by:
  1. Pedro P. Barros & Joseph A. Clougherty & Jo Seldeslachts, 2009. "How to Measure the Deterrence Effects of Merger Policy: Frequency or Composition?," CIG Working Papers SP II 2009-13, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG), revised Oct 2009.
  2. Barros, Pedro Pita & Clougherty, Joseph A & Seldeslachts, Jo, 2007. "Remedy for Now but Prohibit for Tomorrow: The Deterrence Effects of Merger Policy Tools," CEPR Discussion Papers 6437, C.E.P.R. Discussion Papers.
  3. Goran Serdareviæ & Petr Teplý, 2011. "The Efficiency of EU Merger Control During the Period 1990–2008," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 61(3), pages 252-276, July.
  4. Patrice Bougette & Stéphane Turolla, 2006. "Merger Remedies at the European Commission: A Multinomial Logit Analysis," Working Papers 06-08, LAMETA, Universtiy of Montpellier, revised Feb 2008.
  5. Patrice Bougette & Stéphane Turolla, 2008. "Market structures, political surroundings, and merger remedies: an empirical investigation of the EC’s decisions," European Journal of Law and Economics, Springer, vol. 25(2), pages 125-150, April.
  6. Paolo Buccirossi & Lorenzo Ciari & Tomaso Duso & Sven-Olof Fridolfsson & Giancarlo Spagnolo & Cristiana Vitale, 2008. "A Short Overview of a Methodology for the Ex-Post Review of Merger Control Decisions," De Economist, Springer, vol. 156(4), pages 453-475, December.
  7. Joseph A. Clougherty & Tomaso Duso, 2008. "The Impact of Horizontal Mergers on Rivals: Gains to Being Left Outside a Merger," CIG Working Papers SP II 2008-17r, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG), revised Feb 2009.
  8. Gregory Werden, 2008. "Assessing the Effects of Antitrust Enforcement in the United States," De Economist, Springer, vol. 156(4), pages 433-451, December.
  9. Wayne-Roy Gayle & Robert Marshall & Leslie Marx & Jean-François Richard, 2011. "Coordinated Effects in the 2010 Horizontal Merger Guidelines," Review of Industrial Organization, Springer, vol. 39(1), pages 39-56, August.
  10. Duso, Tomaso & Gugler, Klaus & Yurtoglu, Burcin B., 2006. "Is the Event Study Methodology Useful for Merger Analysis? A Comparison of Stock Market and Accounting Data," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 163, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  11. Panagiotis Fotis & Michael Polemis & Nikolaos Zevgolis, 2011. "Robust Event Studies for Derogation from Suspension of Concentrations in Greece during the Period 1995–2008," Journal of Industry, Competition and Trade, Springer, vol. 11(1), pages 67-89, March.

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