OBSERVATION ON ISSUE 5

1. It is respectfully submitted that the EUMR must be interpreted as entailing a presumption

that all mergers generate ‘standard efficiencies’. These efficiencies arise primarily from
the rationalisation and integration of the merged entities’ manufacturing and distribution
operations, the magnitude of which is dependent upon the external competitive pressure.1

A. EFFICIENCY ANALYSIS UNDER EUMR FOSTERS THE OBJECTIVES OF EU

COMPETITION LAW
2. The EU competition policy must be viewed as a tool for providing high-quality products,
a diverse range of goods and services, and innovation2 to the consumers.3 This means
that the policy does not view competition as an end in itself, but rather as an instrument
for enhancing consumer welfare.4 For that reason, mergers should be evaluated in terms
of actual consumer welfare.
3. It is submitted that mergers generate efficiencies by creating cost synergies, as a result of
the integration and rationalization5 of the merging entities marketing, production and
business processes. Consumers can benefit from such efficiencies in the form of
innovative products and increased availability.6 Hence, if considered from an economic
perspective, merger creates efficiencies in the market which may result in consumer
welfare.
4. Furthermore, corporate reorganisations in the form of mergers can increase the industry
competitiveness by increasing research operations in the direction of industry growth,
which is enabled by the additional funds generated by the merging entities.7 Thereby
improving the conditions of growth and raising the standard of living in the Community.
It is accordingly submitted that the efficiency gains must be presumed in any mergers
analysis, since they may always have the effect of increasing consumer welfare.8

(i) The economic theories suggest presumption of efficiencies in merger analysis.

1
CK Telecom case, para 277, 278.
2
Paragraph 8 of the Horizontal Merger Guidelines, OJ C 31/5, 5.2.2004)
3
ARA and ARGEV, ARO (Case COMP D3/35473) Commission decision 2004/208/EC OJ [2004] L75/59,
¶267.
4
Andreas Strohm, Efficiencies in Merger Control: All you Always Wanted to Know and Were Afraid to Ask.
5
Case M.7018—Telefónica Deutschland/E-Plus.
6
Horizontal Mergers Guidelines, recital 80, 81.
7
Recital 76, Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of
concentrations between undertakings
8
Recital 29 of the Merger Regulation, Recital 74 of the
5. Market economies, as per classic economic theory, are self-regulating systems governed
by production and exchange principles, implying that entities acting in their own self-
interest produce social gains and public good.9 It is contended that the rationalisation and
integration of production and distribution processes by the merged entity will leads to
efficiencies10 such as quality products, availability of choices, lower prices and so forth.
6. The absence of competition between the merging parties, may result in price increases in
an oligopolistic market in the short run. In the long run, however, competition from the
existing market competitors or, from new players, will only drive the merged entity to
lower its prices.11
7. Further according to efficiency theory,12 mergers are planned and carried out to achieve
net gains through synergies; which suggests that financial synergies result in lower cost
of capital while managerial synergies benefit the target’s competitiveness.
8. The different theoretical approaches indicate that merger in any condition will lead to
efficiencies, thus, it is submitted that there should be presumption of merger specific
efficiencies.

(ii) EUMR is indicative of efficiencies created by mergers

9. It is argued that, though Recital 29 EUMR does not establish any presumption of
efficiencies created by mergers based on the market’s oligopolistic structure, it does
indicate that mergers account for efficiency gains and that the efficiency advantages of a
merger could offset the merger’s anti-competitive effects.13
10. Moreover, with respect to EUMR, the Commission has explained that “efficiencies are
assumed for all mergers up to the limit of dominance.”14 Therefore, until a merger results
in creation of a dominant entity, its efficiencies outweigh the negatives in the longer run
and should be assumed.

B. THE FINDING OF AN SIEC OUTSIDE THE DOMINANCE CRITERION IS THE

EXCEPTION NOT THE RULE.

9
Classical Economic Theory and Modern Economy, Steven Kates
10
Supra note 1.
11
Supra note 1.
12
The Economics of Corporate Governance and Mergers, edited by Klaus Gugler & B. Burcin Yurtoglu.
13
Recital 29, EUMR.
14
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, COMPETITION POLICY
AND EFFICIENCY CLAIMS IN HORIZONTAL AGREEMENTS.
11. The purpose of introduction of the SIEC test was to close gaps, which were deemed to
exist outside the dominance test, and the finding of an SIEC, in the absence of a creation
or strengthening of a dominant position, is the exception, not the rule. 15 The test has
implicated that the efficiencies are assumed in merger analysis, and merger can only be
prohibited if—as an exception to the rule—efficiencies are insufficient to outweigh the
negative impact.16
12. Moreover, Article 2(2)17 EUMR provides, ‘a concentration which would not
significantly impede effective competition, in the common market or in a substantial part
of it ... shall be declared compatible with the common market.’ It is clearly indicative of
the fact that where there is a doubt as to whether the transaction will or will not
significantly impede effective competition, the benefit of the doubt in the form of
efficiencies should be given to the merging parties and the transaction must be declared
compatible with the common market.18
13. In the light of arguments presented, it can be concluded that efficiencies created by
merger is one of the prominent factors in assessing the concentration, and that the EUMR
be interpreted as entailing a presumption that all mergers generate ‘standard efficiencies’.

15
Press Release, European Commission.
16
Stefan Thomas, THE KNOWN UNKNOWN: IN SEARCH OF A LEGAL STRUCTURE FOR THE
SIGNIFICANCE CRITERION OF THE SIEC TEST.
17
Article 2(2), EUMR.
18
Lars-Hendrik Röller, Johan Stennek and Frank Verboven, Efficiency gains from mergers.