German, UK and Australian Competition authorities call for rigorous merger enforcement
The German Federal Cartel Office, UK Competition and Markets Authority (CMA) and Australian Competition and Consumer Commission (ACCC) released a joint statement on merger control enforcement to businesses, advisers, courts and governments on 20 April 2021. The statement argues for rigorous and effective merger enforcement globally, explaining that consistent merger enforcement is the key to preserving competition and diversity for the benefit of the consumer – especially in a fast-developing digital world.
What are some of the key messages?
Merger control remains one of the most effective tools for competition authorities: Competition increases consumer trust in markets and drives the functioning of market economies and economic prosperity. Merger control prevents competition being impeded by market concentration and prevents anti-competitive situations from arising. “We see particularly strong market concentration in the digital economy. Further takeovers and mergers can cause tipping in the market or create ecosystems which are almost incontestable for competitors. Stringent merger control is therefore indispensable”, observes Andreas Mundt (President of the Federal Cartel Office).
Increased enforcement, in the form of either decisions to block or remedies, is encouraged: Competition authorities face a number of challenges when reviewing transactions – some long-standing and well known, some more recent. The joint statement mentions two key challenges in particular, namely:
- the uncertainty inherent in merger control, given that it is a forward-looking process and competition authorities have to evaluate future market developments, based on current information; and
- the rising complexity of transactions due to the number of markets involved (as large companies involved in transactions are often active across a wide variety of products and services) or the dynamic nature of some of the markets, including technology markets. While technology markets are often perceived as being highly dynamic and subject to change, the statement highlights the possibility of technology markets being highly concentrated and their ability to create high barriers to entry.
Despite these challenges, the statement encourages competition agencies globally to protect competition in order to “ensure the interests of consumers are promoted over the profits of the merging firms” and to:
- “challenge the presumption often promoted by merging firms that mergers are generally efficiency-enhancing”, and not by default adopt a clearance decision; but instead
- impose remedies more stringently – and in particular structural rather than behavioural ones – or block decisions, even where some small degree of uncertainty remains.
One of the reasons for this call for more stringent reviews is the collective experience of the three agencies which suggests that merging firms, advised by lawyers and economists, often overstate the apparent efficiency benefits of mergers and how these will translate into more competitive outcomes for markets. In this context, the authorities reiterate a general well-known preference for structural remedies over behavioural ones, a key tenet that over the last few years has been difficult to apply in technology-related transactions, such as Facebook/WhatsApp or more recently in Google/Fitbit.
Lastly, the joint statement advises against accepting Covid-19 as an argument for bringing about a relaxation of the merger review standards. It says that merger review should continue to focus on the long-term consequences and not (unduly) focus on short-term market features.
Overall, the joint statement indicates that high concentration levels will not be accepted as the new normal and that transactions will be assessed more critically.
While the three authorities seem to have clearly wanted to make a statement of force, advocating both (i) a shift to a more critical and sceptical review of transactions, as well as (ii) the imposition of stricter (structural) remedies or even blocking transactions wherever mergers may lead to long-term structural changes and a loss of competition, it remains to be seen whether this will lead to a change in practice.
Only recently, the European General Court held in its landmark decision CK Telecoms UK Investments v Commission that the European Commission had failed to establish with a sufficient degree of certainty that the transaction would constitute a significant impediment to effective competition. The judgment therefore contravenes the stated goal of the joint statement. While the European Court’s judgment is in no way binding on the national competition authorities of Germany, the UK or Australia, it shows the difficulty enforcers face when dealing with complex theories of harm and the appropriateness of remedies.
Similarly, when it comes to remedies, the three competition enforcers may argue for more structural remedies, but recent history has shown a resurgence in behavioural remedies when it comes to large tech-transactions. While structural remedies have long been accepted as the norm in transactions relating to traditional industries (the German Federal Cartel Office is legally not even allowed to accept long-running behavioural remedies), large transactions in the tech industry have mostly been subject to the behavioural variety of remedies. Prime examples are Facebook/WhatsApp and more recently Google/Fitbit.
Nevertheless, merging parties, especially in dynamic and fast-paced markets, will be well advised to ensure that their submissions to the authorities properly consider the characteristics of the dynamic market and their digital business model. They should anticipate a sceptical reception of efficiency statements, reflect on potential arguments of their competitors and customers in respect to an envisaged merger, and maybe even conflicting outcomes of investigations by different authorities.
Any questions? Please contact: Dr Jens Peter Schmidt, Dr Fabian Hübener or Philipp Studt-Tartarotti
Practice group: Antitrust & Competition