Co Ordinated Effects Of Mergers

„Reasoned“ summary of a roundtable (US, UK) on co-ordinated effects of mergers


One of the concerns of competition policy is to make sure that mergers do not harm consumers by restricting competition. In fact, since a merger usually removes at least one competitor from the relevant market, it can represent an incentive for the remaining firms in the industry to coordinate their behavior (for instance, by increasing price, reducing output or diminishing innovation) rather than compete properly. Competition law should intervene as long as these coordinated effects occur. For further information on merger policy click here

This paper examines the SLC procedure-based approach applied by the Office of Fair Trading (OFT) and the Competition Commission in the roundtable, according to which coordinated effects are more directly referred to as unlawful (compared to the dominance-based approach). First, I will explain some background concepts to better understand the issue. Then, I will consider the outcomes achieved during the roundtable. Finally, I will try to give the reader a clearer picture about this long-debated topic, also on the basis of the notions acquired during the International Competition Law course.


In order to assess the level of competition in the market after a merger, there are several methods of testing coordination. Competition policies can choose between two main standards of review: the “Substantial Lessening of Competition” or SLC, used for example in the United States, Canada and Australia (and also for the purposes of the present roundtable), and the Dominance Standard, adopted for instance by the German Competition Authority. A third test, the “Collective dominance”, according to which concentrated market can result in joint exercise of dominance, is often taken into consideration.

These ways of testing competitiveness, or better, lack of competitiveness, are getting closer to each other, meaning that, although the starting points are different (the first approach look at the problem by the remaining competitors’ point of view, while the second focus on the merging party), the restrictive consequences on competition due to coordinated effects remain.

Another useful test taken into account in the roundtable is the “Safe harbour” test, which estimates the concentration level below which the Anti-trust Authorities do not worry about anti-competitive effects of the merger, because, for instance, the market share of the merging parties is still small, there are low barriers to entry and/or lack of transparency in the market, the presence of a “maverick firm” (firms that have a greater economic incentive to deviate from the terms of coordination than do most of their rivals) and so on.

These tests are used as indicators, i.e., they work as alarm bells to call Competition Authorities’ attention to cases which are more likely to flow into anti-competitive effects (not necessarily!), and therefore require further investigations.


The economic foundation that justifies the potential risk of coordinated behaviors for competitiveness is particularly clear in the German Guidelines. The theory of collusion is based on the Game theory which refers to competition as a strategic game of action and reaction. Game theory considers the market as a dynamic entity where participants are active at the same time and therefore can influence each other. This theory assumes that every player in the market takes his optimal decision, which is designed in response to the optimal decision of the other market players. For further information on Game theory click here

Game theory implies the fact that the smaller the number of firms within the market, the higher are the incentives to collude, since the number and strength of the remaining competitors are reduced, and also the higher is the possibility to exchange information and monitor each other behavior and, eventually to punish the deviator.

According to the German Guidelines, “an oligopolistic market structure is typically a necessary condition for the creation of coordinated interaction, but is insufficient ground, on its own, for determining that coordinated interaction will exit” . Thus, which are the other factors that affect such condition?


From the roundtable comes out a short list of necessary factors (on which everyone agrees), that includes, beside a high concentration of the market, also:

• barriers to entry (the more difficult is for other firms to entry the market, the more sustainable the collusion will be);
• transparency (the more information is disclosed, the easier it will be for the firms to find common incentives to collude);
• moderate innovation (too much innovation creates disequilibrium in the market and highly innovated firms are discouraged to align themselves with less advanced firms);
• history of collusion (past evidence of concentration is indicative that coordination in that market are more likely to occur).

These indicators show empirical evidence that a merger is likely to result in a coordination and therefore must be primarily taken into account when reviewing mergers.

All the other factors, whose evidence is mixed and therefore are analysed at a second time, are:

• the symmetry in the market structure (firms with similar capacity, cost structure, strategy, market share and undifferentiated products are more likely to coordinate);
• the presence of “maverick firms” (that makes coordination difficult to sustain) or “Wal-mart type” buyers (when the buyer has a strong power, it can limit coordination duration);
• the presence of a collusive agreement (it is not necessarily explicit);
• demand stability (that makes future more predictable).

They are industry-specific (e.g., it is not always true that the higher the symmetry, the more likely is the coordination) and therefore must be applied in a more targeted way, by considering case by case and looking at the specific aspects of the relevant market.


Although any quantitative threshold has been discussed, the fundamental purpose of the discussion, which was to identify those factors which make us starting to consider coordinated effects, has been fulfilled, since the law requires to consider the overall evidence that is before them (i.e., a qualitative threshold analysis has been preferred).

According to that, a certain degree of consensus has been reached around the table on both the theoretical basis and empirical evidence that are helpful to build a clear and essential guidance that drives the merger reviewer step by step, starting by the necessary factors (market-based), going through the factors which are affected by the merger (firm-specific) and environmental factors (which are not affected by the merger but tell you whether collusion is more likely or not). This kind of hierarchy makes the collusion easier to analyse.


The full transcript of the roundtable published by OFT and CC is available here
ICN Merger Guidelines Workbook is available here
“Coordinated effects analysis under international merger regimes” published by ICN is available here

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