Merger remedies: some initial thoughts

Merger Remedies in the European Union:
An Overview
Massimo Motta,
European University Institute (Florence),
Universitat Pompeu Fabra (Barcelona), and
CEPR (London)
Michele Polo,
Univ. of Sassari and
IGIER (Milano)
Helder Vasconcelos,
European University Institute (Florence).
17 February 2002
* Paper presented at the Symposium on “Guidelines for Merger Remedies – Prospects and Principles”,Ecole des Mines, Paris, January 17-18, 2002.
Under the Merger Regulation 4064/89, the European Commission (henceforth, EC)assesses proposed concentrations (the legal term which comprehends mergers andacquisitions, as well as full-function joint ventures) on the basis of whether or notthey “would create or strengthen a dominant position as a result of which effectivecompetition would be significantly impeded in the common market or a substantialpart of it”. In case it raises competition concerns, the EC might block the mergerproposal. If however the parties modify the merger operation in a suitable way, i.e.
they offer “commitments” (or “remedies”), the EC might clear the merger. Aconsiderable and increasing proportion of the mergers reviewed by the EC is actuallyapproved after remedies have been offered, as the table below shows.
Table 1: Merger cases
Cases submitted
Remedies (phase I)
Remedies (phase II)
Source: European Commission, Competition Policy Annual Reports On 21st December 2000, the EC adopted a Notice on merger remedies (EC Noticefrom now on). This Notice sets both the substantial and the procedural requirementsthat merging parties must fulfil when proposing remedies to address competitionconcerns raised by the EC and, therefore, to win regulatory clearance in the EuropeanEconomic Area. It also summarises the main lines of intervention that were offeredin the recent experience, offering a coherent picture for the future implementation ofthe policy. As such, the Notice can be seen as the EC Guidelines on merger remedies.
1 The fact that the EC uses a dominance test rather than the “substantial lessening of competition” testas in the US is obviously of paramount importance when discussing merger remedies in specific cases.
The same is true for the consideration of efficiency gains, that are usually disregarded in the EC mergerpolicy. However, we do not discuss them here. Note that the recent Green Paper on the Review of theMerger Regulation adopted by the EC on 11 December 2001 opens a discussion on both issues.
2 EC “Notice on remedies acceptable under Council Regulation No 4064/89 and under CommissionRegulation No 447/98”. Official Journal 2.3.2001, C 68/3.
3 The Notice stresses that it is the responsibility of the notifying parties to propose ways to eliminatethe competition concerns raised by the EC.
4 For more detailed discussions on single cases, see the Competition Policy Newsletters published bythe EC Competition DG and available at their web site.
5 It will be interesting to observe how the newly created Merger Task Force Unit on the enforcement ofremedies will develop.
It also gives an overview of the main types of remedies that have been accepted inmerger cases up to date (such as divestitures, termination of exclusive agreements andlicensing agreements to provide access to infrastructure and key technology). Inaddition, it confirms a clear preference of the EC for structural remedies rather thanbehavioural remedies which would absorb scarce resources since they requireintensive monitoring by the EC.
In this article, we briefly review the EC policy on merger remedies. In doing so, westress the possible problems and risks associated with the different types of remedies.
Although overall we believe the EC has taken a very sensible approach (its recentpolicy on merger remedies clearly makes treasure of the FTC experience), we are stillnot too optimistic that remedies will be able to restore competition in the majority ofthe cases. Although we acknowledge that the EC has taken a number of steps toguarantee that remedies will be successful in restoring competition, we argue that theEC should make even more attention to the possibility that the divestiture favourscollusion, and we suggest that a more widespread use of the practice of finding an‘upfront buyer’ might also help in this respect.
We shall also emphasise that remedies – including structural ones – modify the task ofthe EC Merger Task Force (MTF), making it closer to a regulator than a CompetitionAuthority (CA). This change is inherently linked to the nature of remedies, that bytheir very nature aim at changing the structure of the industry, and it occurs despitethe MTF is sensibly trying to avoid becoming a regulator. We shall also argue thatthese different tasks objectively raise challenges for the EC, and that economic theorycan so far offer little help to it (or other CAs): more work is needed in this field.
Merger remedies as they have been used in competition policy in the European Union
and the US seem to follow a relatively similar pattern. There are no guidelines for the
US experience, but the paper by Parker and Balto (2000) nicely reviews the evolution
in the US policy and the recent changes after the 1999 Divestiture Report. One can
group merger remedies in two categories.
Structural remedies modify the allocation of property rights and create newfirms: they include divestiture of an entire ongoing business, or partialdivestiture (possibly a mix and match of assets and activities of the differentfirms involved in the merger project).
Non-structural remedies set constraints on the merged firms’ property rights:they might consist of engagements by the merging parties not to abuse ofcertain assets available to them. They might also consist of contractualarrangements such as compulsory licensing or access to intellectual property.
Of course, not all different remedies are applicable to the same merger, that is, theyare not necessarily substitute to each other. Also, it is in principle possible to resolve 6 Parker R., Balto D. (2000), “The Evolving Approach to Merger Remedies”, Antitrust Report, alsoavailable at The EC Notice talks of structural and behavioural remedies, but does not define them. Parker andBalto (2000) distinguish between behavioural measures and contractual arrangements.
8 The emphasis on certain words is in the original text.
competition concerns in a particular merger with a package of different remedies, thatis, they might be complementary measures in certain cases.
When choosing a remedy over others, a CA has in mind the main objective, which isto make sure that the merger does not have anticompetitive effects. However, aremedy that in theory solves a certain problem might not be effective in practice. Thisis because there exist information asymmetries among the merger parties, third partiesand the CA; because certain remedies might be difficult to implement; or becausethey involve parties that have different incentives than the CA. Furthermore, remediesdiffer in the engagement required to the CA. Behavioural remedies and contractualarrangements entail continuous monitoring by the authorities, whereas structuralremedies do not. On the other hand, structural remedies might be more risky, as theyare not reversible: if the wrong buyer is chosen for a certain asset divested by themerging parties, for instance because the acquiring firm is not viable or notcompetitive enough, or because it ends up colluding with the merged firm, thecompetitive damage is there, and cannot be undone.
In what follows, we briefly review the use made of these different remedies in theEuropean merger policy and underline the possible problems associated with eachtype of remedy.
As already mentioned the EC will try to obtain divestments of overlapping assets
where possible. Indeed, the Notice (§13) says that “the most effective way to restore
effective competition, apart from prohibition, is to create the conditions for the
emergence of a new competitive entity or for the strengthening of existing
competitors via divestiture”.
As the quotation indicates, divested assets can either create a new firm or be acquired
by an existing competitor. In the first case, the EC Notice (§14) stresses that “(t)he
divested activities must consist of a viable business that, if operated by a suitable
purchaser, can compete effectively with the merged entity on a lasting basis.
Normally a viable business is an existing one that can operate on a stand-alone basis,
which means independently of the merging parties as regards the supply of input
materials or other forms of cooperation other than during a transitory period.”
This implies that the acquirer will have the possibility to purchase “all the elements ofthe business that are necessary for the business to act as a viable competitor in themarket: tangible (such as R&D, production, distribution, sales and marketingactivities) and intangible (such as intellectual property rights, goodwill) assets,personnel, supply and sales agreements (with appropriate guarantees about thetransferability of these), customer lists, third party service agreements, technicalassistance (scope, duration, cost, quality), and so forth.” (EC Notice, §46) The EC is aware that the viability of a firm is sometimes determined by thepossession of complementary assets, and that economies of scope or (hardware-software) network effects make it profitable to produce a certain good or service only if there is joint production of other goods or services. Accordingly, “(i)n order toassure a viable business, it might be necessary to include in a divestiture thoseactivities which are related to markets where the Commission did not raisecompetition concerns because this would be the only possible way to create aneffective competitor in the affected markets.” (EC Notice, §17) An example of a case which illustrates both these points is the Unilever/Bestfoodscase. To remove the competition concerns raised by the EC, the parties undertook todivest a significant number of brands (such as Lesieur, Royoco and Oxo). First, toensure the viability of the divested businesses, the divestiture package also includedelements such as appropriate supply arrangements, manufacturing facilities, salesforces and intellectual property rights associated with the individual businesses.
Second, in order to assure that the acquirer would be able to fully compete with themerging entity, the merging parties had to divest a full range of products, includingproducts for which the EC had not raised competition concerns.
Another case which is related to this second remark is the Total Fina/Elf Aquitainecase. There, the parties had first proposed to sell several assets to eliminatecompetition concerns in the LPG (liquefied petroleum gases) industry. However, dueto the negative feedback obtained through the EC market test about the viability of theproposed remedy, the merging parties had to divest a full subsidiary, a remedy thatwent clearly beyond the elimination of the identified overlap.
It is conceivable that the acquirer of divested assets is a firm already active in themarket. If this is the case, then it would not need all the assets, resources and contractslisted above, but the divestiture can be limited to particular production plants, or retailoutlets, or brands, or more generally assets that would be integrated in the business ofthe acquirer. However, the EC does not look favourably at this “mix-and-match”approach: “a divestiture consisting of a combination of certain assets from both thepurchaser and the target may create additional risks as to the viability and efficiencyof the resulting business. It will, therefore, be assessed with great care.” (EC Notice,§18) This is certainly a sensible approach, also in the light of the FTC divestiturestudy, that reveals that the likelihood of successful entry was much higher when anentire ongoing business was divested, whereas entry was significantly moreproblematic in case of divestiture of selected assets.
A case which is related to this approach is the one involving the world’s leadingprovider of Internet connectivity (MCI WorldCom) and one of its main competitors,Sprint (MCI WorldCom / Sprint case). The EC concluded that this merger wouldhave resulted in the creation of a dominant position in the market for top-leveluniversal Internet connectivity. To try and remove the EC competition concerns, theparties proposed to divest Sprint’s Internet business. However, the EC decided to 9 This principle is present in the US practice as well. The FTC often asks for divestiture of a greater setof assets than those that participate in the market overlapping, if ancillary assets are required toreplicate economies of scale or economies of scope without which competition could not be restored.
See Parker and Balto (2000).
10 Case No. Comp/M. 1990 – Unilever/Bestfoods; Article 6(2). Decision of 28/09/2000.
11 Case No. Comp/M. 1628 - Total Fina/Elf Aquitaine, Article 8. Decision of 9/02/2000.
12 (Parker and Balto (2000, 6/19).
13 Case No. Comp/M. 1741 - MCI WorldCom / Sprint, Article 8(3). Decision of 28/06/2000.
prohibit the merger since its investigation showed that Sprint’s Internet business wascompletely intertwined with the rest of Sprint’s telecom business. In other words, thedivested business would have never constituted a strong and viable competitor of themerged entity.
Of course, the viability of the business might also depend on the identity of thepurchaser. If the latter does not have any experience in the market, or does not haveappropriate know-how or financial standing, there might be a problem. In normalcircumstances, a Competition Authority is not a consulting firm and should not carewhether a firm is viable or not. However, when it comes to merger remedies, theviability of the acquirer is crucial because the degree of competition of the marketdepends on the competitiveness of the acquirer. Therefore, “(i)n order to ensure theeffectiveness of the commitment, the sale to a proposed purchaser is subject to priorapproval by the Commission. The purchaser is normally required to be a viableexisting or potential competitor, independent of, and unconnected to the parties,possessing the financial resources, proven expertise and having the incentive tomaintain and develop the divested business as an active competitive force incompetition with the parties.” (EC Notice, §49).
For these reasons, the EC Notice states that in some cases the merger will not beauthorised unless “the parties undertake not to complete the notified operation beforehaving entered into a binding agreement with a purchaser for the divested business(known as ‘upfront buyer’), approved by the Commission”. (EC Notice, §20) The first case in which the EC imposed this condition was the Bosch/Rexroth case.The EC investigations revealed that the merged entity would have a dominant positionon the market for hydraulic piston pumps. Rexroth produces only axial piston pumpsand Bosch radial piston pumps. However, the EC’s review showed that there was ahigh degree of substitutability between the two types of products. To address the ECconcerns regarding the potential creation of a dominant position, Bosch proposed tosell its radial piston pumps business to a competitor. None the less, the investigationshowed that to restore effective competition, it was not sufficient to sell. The EC hadto make sure that the acquirer was a strong competitor. Otherwise, over time, Boschwould have been able to win back the market shares lost through the sale. This is sobecause Bosch benefits from strong costumer’s relations in the industrial hydraulicsfield and this could be used to persuade its former consumers to switch from radial toaxial piston pumps.
Structural remedies are, in general, the best corrective measures for potentiallyanticompetitive mergers, and the Commission is right in emphasising it, as well as inpreferring divestment of entire businesses to a mix-and-match approach. Structuralremedies, contrary to the behavioral or quasi-structural measures we shall analysebelow, have also the additional advantage that they do not occupy further the scarceresources of a CA after they have been implemented. Once the buyer has beenidentified and the transaction relative to the divested assets finalised, the EC will nothave to monitor further the deal (unless of course suspected infringements of articles 14 Case No. Comp/M. 2060 – Bosch/Rexroth; Article 8(2). Decision of 4/12/2000.
None the less, this measure is probably trickier than one would think at first sight.
Parker and Balto (2000) and FTC (1999) unveal that structural remedies can go wrongin a number of respects, due to a combination of informational asymmetries andincentives of the parties not in line with the objective of restoring competition.
First of all, it is clear that the merging parties have all the incentive to make sure thatthe purchaser of the divested assets will not be a competitive firm. This might result inseveral problems. For instance, in the period the assets are for sale and it still managesthem, the seller might have an incentive to decrease their value, by transferringvaluable personnel, disposing of certain brands, patents and activities, or notmaintaining properly the production plants or the shop premises. The divesting firmhas also little incentive to find a proper buyer (not so say to sell at all), and it wouldprobably use very different criteria than the CA to select the buyer. The EC is awareof these problems, and to this end the EC Notice establishes the figures of the ‘hold-separate trustee’ and of the ‘divestiture trustee’, that replace the Commission inensuring that the seller does not engage in activities that could reduce the value of theassets or hinder the sales.
Second, as already mentioned above, the FTC ex-post study of merger remediesreveals that the mix-and-match approach is not very successful in fostering entry. Oneof the reasons why this occurs lies in the significant informational asymmetriesbetween the seller and the buyer, and the problem also concerns sales of ongoingbusinesses. The study reveals that when the latter is not already operative in theindustry, it often does not know what are the crucial assets to be an effectivecompetitor in the industry, and it might end up with a package of assets that falls shortof what is needed to be successful. The problem is made more serious by the fact thatthe seller has all the incentive to design a package that does not include the right(from the point of view of the competitor) assets, and that a competition authority is 15 Parker and Balto mention a case where the seller purposedly acted so as to decrease significantly thevalue of the assets to be divested. Although it was later sued and fined, they argue that this strategy wasmore profitable than having a dangerous competitor in the industry.
16 The trustees, as well as their mandate, has to be approved by the Commission. See EC Notice, §50-58, for details.
17 The difficult task of assuring viability of the new firm is usually run by assigning to the mergingfirms the burden of action: if competitive concerns are raised by the enforcer, the merging firms haveto present a remedy plan that will be analysed, discussed, corrected and possibly approved by theauthority. Although this sequencing might be efficient, it is evident that the asymmetry in informationbetween the proposing firms and the Authority is not solved by leaving the firms the first strike.
not an industry regulator and has thus limited expertise in any given sector.
Third, the study underlines that whenever some relationships were needed betweenthe seller and the buyer of the divested assets (for instance, if the buyer needs supplyof certain inputs or technical assistance) the remedy did not manage to restorecompetition. In the FTC study, in thirteen out of the nineteen cases reviewed wherethere existed such a relationship, either the buyer did not manage to operateeffectively, or there was collusion between the two firms. (Parker and Balto (2000,6/19)). The same difficulties arise when technology transfers are an integral part ofthe divestiture: the combination of the informational disadvantage of the buyer, whodoes not know the technology, and the seller’s lack of incentives to provide the buyerwith assistance and know-how, imply that technology transfers often do not achievethe desired results.
Fourth, it is obvious that the merging parties have all the incentives to select a buyerthat does not jeopardise its market position, but – perhaps less obvious – it is far fromclear that an ‘aggressive’ buyer will be the one who will secure the divested assets.
Suppose that there are two potential buyers, identical in other respects but who differin their market attitude. If it secures the assets, one expects that it will use a softpricing policy, share the markets, or (tacitly or overtly) collude with the seller. Theother instead is a firm that is planning an aggressive price strategy. It is likely that theexpected profit of the former is higher than the latter, and it will accordingly bewilling to pay more to obtain the assets. An auction will therefore not guarantee thebest possible outcome from welfare’s point of view. Again, the identity of the buyer istherefore crucial, not only for the viability of the business, but also to make sure thatthe purchaser will be an effective competitor. In order to evaluate these aspects, itseems to us that resorting to an upfront buyer should be systematic: the CA shouldlead a full assessment on whether the buyer is more or less likely to engage ineffective competition, whereas a trustee is not in the position to decide on suchaspects.
18 The EC tries to gather as much information as possible from competitors, buyers and consumers thatare regularly consulted about the likely effectiveness of the remedy (the so-called ‘market testing’ ofthe remedies). This might somehow alleviate its informational disadvantages, but we doubt that all theabove sources have the incentives to truthfully disclose their information to the EC. As for buyers-consumers, they are often not organised and it might accordingly be difficult to perceive the impact onthem of a certain operation.
19 True enough, the Commission has to approve the final sale of the assets, but it is probably verydifficult for it to veto a buyer who fulfills the basic requirements set out in the commitment. If theidentity of the buyer was known upfront, instead, it would be easier for the Commission to assess thelikelihood it would be a serious competitor in the industry.
20 See Compte, O., Jenny, F. and Rey, P. (2000), “Capacity Constraints, Mergers and Collusion”,European Economic Review (forthcoming), Kuhn, K.-U. and Motta, M. (1999), “The Economics ofJoint Dominance”, mimeo, University of Michigan, and Vasconcelos, H. (2001), “Tacit Collusion, CostAsymmetries and Mergers”, mimeo, European University Institute. For empirical evidence, see Barla,P. (2000), “Firm Size Inequality and Market Power”, International Journal of Industrial Organization,18(5), 693-722.
21 Case No. Comp/M. 190 – Nestlè/Perrier; Article 8(2) (b). Decision of 22/07/1992.
Fifth, the use of structural remedies, especially when the divested assets are used tostrengthen an existing competitor, might increase the risk of collusion in the industrydue to two problems: symmetry and multimarket contacts, two features that facilitatecollusion. To understand better this point, recall that to ensure the viability of thebusiness to be formed, a CA would give preference to an existing competitor or to apotential entrant, the latter probably consisting of a firm active in a related productmarket or another geographic market.
Consider first the case where the buyer is a firm already active in the market. Bypurchasing the assets divested by the merging parties, the risk of single-firmdominance decreases, as a competitor is made more powerful. However, to the extentthat capacities, market shares and other assets become more symmetricallydistributed, the risk of a collusive outcome (the so-called joint or collectivedominance) increases. Indeed, that symmetry helps collusion is not unknown tocompetition authorities and courts, and it has been stressed in a series of recentpapers.
One well-known case of a merger involving asset transfers amongst rivals is theNestlè/Perrier case, in the French mineral water industry. The EC authorised(subject to a set of commitments) the purchase of Perrier by Nestlè and thecontemporaneous transfer of ownership of one of the major Perrier brands (Volvic) tothe main rival of Nestlè, BSN. Surprisingly, the EC cleared the concentration as wellas the Volvic parallel sell-off deal, even though it helped Nestlè and BSN to restorethe symmetry in the industry which would have been lost had Volvic not beentransferred to BSN. In a detailed analysis, Compte, Jenny and Rey (2000) argueconvincingly that symmetry was indeed an important issue in this case and concludethat “the proposed takeover of Perrier by Nestlè with the resale of Volvic to BSN wasthe worst possible solution from the point of view of competition.” Consider next the case where the buyer is a firm active in a neighbouring productmarket or in the same product market but in another geographic area. Again, such afirm will probably be a viable market participant if given the appropriate set of assets.
Relative to a new entrant, it should have more expertise and suffers less frominformational disadvantages. However, it is possible that entry into this particularmarket will make the buyer and the seller operate in the same markets. If this is so,there exists the danger that a collusive outcome will arise. Indeed, economic theoryhas showed that multi-market contacts facilitate collusion, and there exists someempirical evidence that this has been the case in some markets. This is perhaps amore serious problem, to the extent that the EC now shows to be aware that symmetry 22 Compte, Jenny and Rey (2000, p. 28).
23 See Bernheim, B. and Whinston, M. (1990), “Multimarket Contact and Collusive Behavior”, RandJournal of Economics, 21(1), 1-26.
24 See for instance Parker, P. and Roller, L.-H. (1997), “Collusive Conduct in Duopolies: MultimarketContact and Cross-Ownership in the Mobile Telephone Industry”, Rand Journal of Economics, 28(2),304-2225 Case No. Comp/M. 1853 – EDF/EnBW; Article 8(2). Decision of 07/02/2001.
helps collusion in its joint dominance decisions, whereas multi-market considerationsappear rarely, if at all, in the EC decisions.
In our view, a case in which a collusive outcome might arise after the merger due tomultimarket contacts is the recent EDF/EnBW case. The case concerns theacquisition by Electricité de France (EDF) of a stake of 34 percent in EnBW,therefore taking joint control with OEW in Germany’s fourth largest electricity firm.
Before the merger, EDF enjoyed a dominant position for the supply of eligiblecustomers (i.e., large customers) in France. EnBW, due to its location, is one of themost likely potential entrants in the French market for eligible customers. Its supplyarea is in the Southwest of Germany, therefore having a long common border withFrance. To solve competition concerns raised by the EC, EDF undertook to makeavailable to competitors 6,000 MW of generation capacity located in France. Accessto this capacity will be granted via auctions prepared and operated by EDF under thesupervision of a trustee and will enable foreign suppliers to have access to a largeshare of the French market. Notice, however, that if this capacity was bought by astrong German competitor there would be the risk of multimarket contacts that mightfavour collusive outcomes.
Therefore, the solutions that seem more easily implementable to solve the problem ofthe viability of the firm created or augmented by the divested assets are often likely tobe conducive to more collusion in the sector. Further, note that the new entity receivesassets, including human capital, that previously were in one of the merging firms. Theinformal linkages with the old firm are therefore very strong, something that mightallow to implement subtle schemes of tacit collusion quite easily.
Moreover, finding the buyer among the existing competitors can give the direction ofthis ‘new’ entity to one of those “good old boys” that have been in the market for along time. Although this is not equivalent to reinforcing the attitude to collude, thedestabilizing role of mavericks is rarely found among the existing long runcompetitors.
All this points to a tension between two problems. On the one hand, CAs have toguarantee the reinforcement or the creation of a viable firm to avoid problems ofunilateral effects (single firm dominance by the merging firm). On the other hand,they also have to avoid pro-collusive effects after the merger (joint dominance). Weargue that the implementable rules to solve unilateral effects emphasise the problemof pro-collusive effects. The EC is probably aware of this danger, when itrecommends (Notice, §24-25), among the ancillary clauses of a remedy, divestiture ofshareholding in joint ventures and minority cross-ownership and the removal ofinterlocking directories. But unfortunately cutting these structural linkages amongcompetitors is only part of the story: divestiture might create a fertile environment forcollusion, for the reasons we have just explained.
26 This capacity amounts to around 30% of the market for eligible customers in France.
27 As will be explained below, in the Vivendi/Canal+/Seagram case the commitments package includedthe elimination of the notifying party shareholding on the British pay-TV company BSkyB. Thisexample confirms the fact that the EC has insisted on eliminating minority shareholdings or linksamongst competitors which could prevent them from effectively competing in certain markets.
An example of a case in which the EC cleared a merger after the merging partiescomplied with the commitment of divesting their shareholdings in a Joint Venture wasthe Kali&Salz MdK/Treuhand case. The EC argued that the proposed concentrationwould create a situation of joint dominance on the part of the merged entity and theFrench (state-owned) producer SCPA. The EC decision was based on three criteria:the degree of post-merger concentration; the structural factors regarding the nature ofthe market and characteristics of the product; and the existence of “structural links”between the two leading firms in the industry. As a result, the EC required themerged entity to eliminate its structural links with SCPA to clear the proposedconcentration. In response to appeals against the EC decision, the European Court ofJustice (ECJ) found, however, that the EC had not proved, using a detailed andprospective economic analysis, that an oligopolistic dominant position would becreated or strengthened by the links and, consequently, annulled the EC decision.
To conclude, we think that the evaluation of merger remedies should follow the sametwofold approach used in merger analysis, that is the evaluation of unilateral effects(or single firm dominance: does the merger reduces the degree of competition in anon-cooperative equilibrium of the market?) and of pro-collusive effects (or jointdominance: does the merger facilitates the condition for a (tacit or overt) collusiveoutcome to arise?). Remedies should be accepted, and the merger proposal cleared,only if both tests are satisfied.
It is also our opinion that the Commission should use its bargaining power to ceasepractices that might foster collusion. For instance, if information exchangeagreements or other practices (basing point pricing, best price clauses, or other) thatfacilitate collusion without proved efficiency reasons are in use in the industry, the ECshould require the merging firm to discontinue its participation in them.
Summing up, whereas structural remedies, if available, are the easiest solution tocompetitive concerns created by a proposed merger, there exist several reasons whysuch measures might have more difficulties in restoring competition than one wouldthink at first sight. Despite the EC shows awareness with some of these difficultiesand it appears to have taken safeguards to face them, these measures might not beenough. In particular, information disadvantages and lack of incentives on the seller’sside to collaborate might result in widespread difficulties for new firms tosuccessfully enter the industry.
Further, successful entry by the acquirer of the divested assets is not synonymous ofrestored competition: first, both the buyer and the seller of the assets have all theincentives not to fiercely compete to each other; second, the new configuration of theindustry assets after divestiture might structurally favour a collusive outcome becauseof more symmetric distribution of the assets or the creation of multimarket contacts.
28 Case No. Comp/M. 308 – Kali&Salz MdK/Treuhand; Article 6(1) (b). Decision of 09/07/1998.
29 These links were the following: (1) the control of a Joint-Venture in Canada (Potacna), in whichKali&Salz and SCPA each had 50% of the shares; (2) cooperation in the export cartel Kali-ExportGmbH, wich coordinated its members’ sales of potash in non-member countries and in whichKali&Salz MdK and EMC/SCPA and the Spanish potash producer Coposa each had a 25% interest;and (3) long established links on the basis of which SCPA distributed almost all of Kali&Salz’ssupplies in France.
30 France and Others vs. Commission (Joined Cases C-68/94 and C-30/95): [1998] E.C.R. I-1375 Therefore, the EC should take extra care not only that the assets go into the hand of aviable firm – as it is rightly emphasised in the Notice – but also that the conditions fora collusive outcome after divestiture are eliminated or alleviated – an aspect that thecurrent EC practice and the Notice does not in our opinion stress enough.
We also argue that a proper assessment of the likelihood that divestiture restorescompetition can be done only if the identity of the buyer is known to the authority. Tothis purpose, the requirement of an upfront buyer should be systematic rather thanoccasional. Otherwise, we are pessimistic that the remedies would be an effectivemeasure to restore competition.
In some situations, divestiture is not feasible, for instance because a buyer for thedivested assets cannot be found (this was the case for instance in Boeing/McDonnellDouglas), cannot solve the problem (the Notice mentions the existence of exclusiveagreements, network effects and the combination of key patents), or would entailinefficiencies (for instance when in a high-technology market where R&D is carriedout on a number of projects that are related but would involve separate markets: inthis case a divestiture might disrupt R&D efforts and licensing might be preferred).It is also possible that divestiture must be complemented by additional measures toensure competition will be restored. In these circumstances, behavioural or quasi-structural remedies might be used.
Behavioural remedies consist mainly of commitments aimed at guaranteeing thatcompetitors enjoy level playing field in the purchase or use of some key assets, inputsor technologies that are owned by the merging parties. Therefore, this situation mainlyarises when the merged entity is vertically integrated. When this is the case, bylinking up positions in the upstream and downstream markets, firms may be able toforeclose the access to existing or potential competitors at both levels of the verticalchain.
Typical remedies might then be purely behavioural, as when the parties ‘commit’ togive access to rivals and/or accept non-discrimination provisions, that is they agreenot to make offers to competitors that are less attractive in quality and price than thosemade to the own subsidiary. In some recent cases, commitments of this type wereoffered by parties to clear the proposed concentration.
A first example is the Vodafone Airtouch/Mannesmann merger. This merger gaverise to the creation of the first single Europe-wide mobile network. The Commissionthought that since after the merger, the new entity would have sole control of mobile 31 According to Parker and Balto (2000, 7/19), upfront buyers are currently used by the FTC in the USin over 60 per cent of the cases where the remedy is non-behavioural, whereas we know only of twocases where the MTF used it in the EU.
32 See Parker and Balto (2000, 8/19) who mention the Ciba-Sandoz case to this purpose.
33 We should emphasise that foreclosure is not as likely to happen as one would think when readingsome EC decisions. Once said so, it might be appropriate that a CA wants to avoid the risk that arelatively unlikely event such a foreclosure of assets might occur, to the detriment of welfare.
34 Case No. Comp/M. 1795 - Vodafone Airtouch/Mannesmann; Article 6(1)(b). Decision of12/04/2000.
operators in eight Member States and joint control in three, it would be in a uniqueposition to build an integrated network which would enable a quick implementation ofseamless pan-European services. Other operators, on the other hand, would not beable, in the short to medium term, to replicate the merged entity network footprintthrough mergers and/or agreements. To grant other mobile operators the possibility toprovide pan-European seamless services, the parties offered access to their integratednetwork, for a period of three years. The idea was that by granting access to itsnetwork on a non-discriminatory or favourable terms, the merged entity would not beable to make third party offerings of advanced seamless services across Europeunattractive or simply not competitive. A second recent example where purely behavioural commitments have been proposedis the Vivendi/Canal+/Seagram case. In this case, competition concerns were raisedregarding the European pay-TV market. Seagram has control over content through itssubsidiary Universal, one of the six major Hollywood studios. Canal +, on the anotherhand, is the largest pay-TV operator and also the first acquirer of premium films forpay-TV signed with the US major studios and in particular with Universal. The ECworried that upstream content providers could deny or limit the access to premiumfilms to some downstream active users or potential entrants. In a first round ofnegotiations, the parties tried to address these concerns by proposing a mechanism tosingle out the winner of an output deal for broadcasting of Universal films whichwould not discriminate against rivals. The EC, however, showed scepticism towardssuch type of ‘essentially behavioural’ remedy and considered it unsatisfactory. Theconcentration was afterwards cleared subject to the parties’ commitment not to grantCanal+ “first-window” rights covering more than 50% of Universal production andco-production. This commitment covers the territories where Canal+ is active, for aperiod of 5 years after the expiration of the current output deals (the EC considered 5years the necessary period rivals need to adapt to the new market structure). The Commission also identified horizontal geographic overlaps regarding the national mobile networks (namely, in Belgium and in the U.K.). In order to remove these competition concerns, theparties undertook to de-merge Orange Plc and all its subsidiaries.
36 We have doubts, however, over the effectiveness of such remedies. The merged entity has committedto the provision of a roaming tariff and/or wholesale services on a non-discriminatory basis betweenoperators of the merged entity's group and other mobile operators. However, it is entitled not to providesuch services in cases of “unavailability of adequate network capacity” and/or “technical unfeasibility”.
In particular, the first exception (unavailability of adequate network capacity) might, be strategicallyused by the merged entity in periods of very high demand. In addition, this undertaking will certainlyturn out to be extremely demanding in terms of ex-post monitoring by the EC.
37 Case No. Comp/M. 2050 - Vivendi/Canal+/Seagram; Article 6(2) Decision of 13/10/2000.
38 Premium films constitute a key quality input to increase the attractiveness of pay-TV and the level ofsubscriptions. They are acquired through the so-called output deals. These output deals include “first-window” agreements signed on an exclusive basis, where first-window is the first period of premiumfilms available on pay-TV.
39 As already mentioned, the notifying party also undertook to divest its stake on the British pay-TVcompany BSkyB, which has links with Fox, another major US film studio.
40 The AOL/Time Warner case (Comp/M. 1845, Decision of 11/10/2000) is another interesting exampleof vertical integration. The merger would create the first Internet vertically integrated content providerdistributing Time Warner’s branded content (music, news, films,.) through AOL’s Internetdistribution network. Because of the structural links and some existing contracts with Bertelsmann, themerged entity would have had access to Bertelsmann content and would have controlled the leadingsource of music publishing rights in Europe. The parties offered a package of commitments whoseultimate goal was to break the links between AOL and Bertelsmann.
Non-structural remedies may also be of a contractual type, and therefore ‘quasi-structural’. For instance, the merging parties might be obliged to license a giventechnology to a rival. Or, in case the merging parties’ key assets are not owned butwere secured by exclusive long-run contracts, the remedy might involve giving up orshortening part or the totality of such contracts. This specific type of commitmentwas used both in the Astra/Zeneca case and in the Lufthansa/SAS case.
In the Astra/Zeneca case, the EC investigations showed that, in the market for plainbetablockers in Sweden and Norway, Zeneca is Astra's main competitor. In particular,Zeneca has been very actively promoting its plain betablockers (Tenormin) as acompetitive alternative to Astra's largest selling betablocker in those countries.
Therefore, a merger between the two companies would certainly rule out thecompetition between these two alternative products. This concern was addressed bythe parties’ undertaking to “grant a viable independent third party exclusivedistribution rights for Tenormin in Sweden and Norway for a period of at least 10years.” The Lufthansa/SAS case, on the other hand, regards a cooperation agreement to createa long-term alliance between the two airlines, establishing an operationally andcommercially integrated air transport system. The agreement provides a setting up ofa joint venture to act on behalf of the two airlines as their exclusive vehicle foroffering integrated air transport services between Scandinavia and Germany. TheEC decided to authorize the cooperation agreement for a period of 10 years subject tocertain conditions. One such condition was that the involved airlines should give upslots at saturated airports in case there were potential entrants. This commitmentclearly intends to diminish the risk of foreclosure by the incumbents. Another category of behavioural remedies might consist of the so-called ‘verticalfirewalls’. When the merger creates a vertically integrated firm, say one where theupstream unit supplies not only the downstream unit but also the rivals, it is possiblethat competitively sensitive information about downstream rivals be passed from theupstream to the downstream unit of the merged entity, thereby distorting thecompetitive process. It might then be required by the CA that no such information is41 Similar provisions might be taken in horizontal cases: if following the merger most of the buyers-distributors were linked to the merged entity by exclusive contracts, a remedy might consist of askingto shorten the length of a proportion of such contracts, or simply to cancel them. We are, however, notaware on any remedy of this type sofar.
42 Case No. Comp/M. 1403 - Astra/Zeneca; Article 6(1)(b). Decision of 26/02/1999.
43 IV/35.545 LH/SAS. Decision of 16/01/1996. This decision was not taken under the MergerRegulation but under article 81. However, since the last revision of the Regulation full-function jointventures are now reviewed as mergers.
44 This integrated transport system involves a joint network planning, a joint pricing policy and theharmonization of product and service levels, without creating however a new common entity.
45 As far as we have understood the decision does not specify who chooses the slots to be attributed,and the details of how this measure was to be implemented and monitored.
46 The EC also imposed that the parties should conclude interlining agreements with new entrants andfreeze the number of frequencies operated to facilitate entry. Since the routes between Scandinavia andGermany are mostly used by businessmen who are locked in through frequent-flyer programs, the ECimposed that Lufthansa and SAS should allow the entrants to participate in their frequent-flyerprogrammes, in case they do not have their own. It is not clear to us to which extent such a measurecould be effective.
47 The sensitive information might be of different type, depending on the industry involved. It is naturalthat in a long-standing relationship between a supplier and a buyer these parties exchange business circulated within the different units of the firm (non-disclosure provisions). We arenot aware of any case where the EC has used this measure (and the Notice does notmention it), but this has been repeatedly used in the US and belongs to the set ofremedies the EC might resort to.
Most of these remedies by their nature require some type of ongoing regulation ormonitoring, and they are therefore likely to engage the resources of a CA long afterthe merger has been cleared and carried out. Some of these measures are relativelyeasy to evade unless there is a careful monitoring and the regulator knows the industryvery well, which is not likely to be the case for a CA.
When the CA identifies the risk of foreclosure, for instance, short of divestiture (thatmight be unfeasible, as the very reason behind the merger might precisely be tointegrate vertically related or complementary activities) behavioural remedies aredifficult to administer and not likely to be successful unless there is heavy monitoring.
Foreclosure or discriminated access might take different forms, from obvious (say,bluntly refusing to supply an input) to more subtle ones (increasing prices, reducingquality, blaming insufficient capacity to justify missed shipments, delaying supplies,reduce accessory services and so on). Therefore, a remedy that calls for an obligationto supply is tantamount to an empty promise, but even a seemingly more sensibleobligation to non-discrimination might not be easily enforceable. As just mentioned,discrimination might often occur at different levels and with different features, and itis probably rare the case where one can just look at transaction prices to determinewhether discrimination has occurred or not.
Furthermore, even when prices were the only relevant variable, it cannot be excludedthat transfer prices, allocation of common costs, or other compensatory measuresmight occur between vertically units of the same firm, so as to hide a differenttreatment between a subsidiary and a rival. Of course, industry regulators – whosemain job is often to guarantee that access is granted to all competitors – are aware ofthese problems, but these are often difficult problems to cope with for a regulator, andthey will a fortiori be for a CA whose expertise lies elsewhere and whose knowledgeof the industry is not like that of a regulator.
Vertical firewalls might be a reasonable remedy to solve the competitive problemsinvolved, but there are some doubts on specific aspects of their implementation. In information (of financial and commercial order, relative to the specification of some products orprocesses, or the units/volumes bought and sold, and so forth) that they wish rivals would not share.
48 Obviously, the same might happen when it is the downstream unit that distributes products not onlyof the upstream unit of the merged firm but also of rivals.
49 U.S. antitrust authorities approved several vertical mergers subject to the imposition of non-disclosure and/or nondiscrimination requirements upon the post-merger vetically integrated entity. Fora very detailed analysis of U.S. merger cases in which these types of commitments have been used seeKlass, M. W. and Salinger, M. A. (1995), “Do New Theories of Vertical Foreclosure Provide SoundGuidance for Consent Agreements in Vertical Merger Cases?”, The Antitrust Bulletin, Vol. XL, No.3,667-698., and Willcox, T. C. (1995), “Behavioral Remedies in a Post-Chicago World: It's Time toRevise the Vertical Merger Guidelines”, The Antitrust Bulletin, Vol. XL, No.1, 227-256.
50 However, notice that firewalls might also have efficiency-destroying effects, as pointed out by Klassand Salinger (1995): “since sensitive information does not necessarily come in neatly labeled packages, particular, it is not clear to us how one can guarantee that no such communication willtake place between different units of the same firm (what about employees meeting inthe cafeteria?), and – if it does – that it will not be misused.
Behavioural remedies may also be problematic when they aim at facilitating marketentry by ensuring competitors will have access to a key technology. Often, theimplementation of this kind of remedy requires a (transitory) period of collaborationbetween the merged entity, on the one hand, and a third party to which access is goingto be provided, on the other. In such cases, this third party is usually an actual orpotential competitor and, therefore, it is extremely difficult to ensure that the mergedentity will have the right incentives to effectively collaborate during a pre-definedtransitory period to make entry by this third party successful.
A good example of a case which illustrates this potential problem is the Astra/Zenecacase. In the market for local anaesthetics, Astra's Bupivacaine is the most widely usedlonger acting local anaesthetic and is already long off patent. In addition, althoughuntil 1998 Zeneca was not present in this market, in March 1998 it concluded anexclusive world-wide (except for Japan) agreement to license-in Chirocaine, a longeracting local anaesthetic. As shown by the EC investigations, due to the inexistence ofother strong competitors in the market, the exclusive license for Chirocaineconstituted the only potential source of competition in this market segment. Toaddress this concern, Astra committed to reverse all the agreements relating toChirocaine (surrender of license, trademark, etc.). Astra also undertook to support athird party, during a transitional period, in the process of launching Chirocaine.
Notice, however, that the merging partners have little incentive to make the buyer ofChirocaine successful. Hence, given that a collaboration between them is necessaryduring the launching period, problems could arise.
At the very least, such behavioural remedies need continuous monitoring, either bythe CA itself, or by an industry regulator. Given the very nature of CAs and their lackof resources, non-discriminatory access or firewalls should be implemented when thefirms involved are subject to the scrutiny of a regulator. It follows that, to guaranteesuccess of such measures, the industry regulator should be involved in the discussionsleading to remedies as soon as possible by the CA.
firewalls could prevent the sort of productive information traditionally thought to be a benefit ofvertical mergers” (p. 690). For a formalised paper that offers a critical view of firewalls, see alsoMilliou (2002), “Vertical Integration and R&D Spillovers: Is There a Need for Firewalls?”, mimeo,European University Institute.
51 It would not be likely that the merger parties would be willing to support and invest in the launchingof a new product which would compete harshly with other products in the merged entity portfolio ofexisting products.
52 Interestingly, this last point is related to the Abbot/ALZA case in the pharmaceutical marketsdiscussed in Parker and Balto (2000, 14-14/19). There, parties proposed to sell several assets to anotherpharmaceutical company and, because of the risks involved in a necessary ongoing relationshipbetween the merged entity and the potential third party, the FTC refused the commitment, leading tothe parties’ withdrawal of the merger proposal… 3. MERGER REMEDIES: A CHALLENGE FOR COMPETITION AUTHORITIES (AND FOR
We have seen that there are different types of remedies that a CA can resort to. Weargue in this section that, in each type or remedies, CAs face new questions andproblems that differ substantially from the approach followed and the tool kit neededin the traditional antitrust enforcement activity. Moreover, we claim that in manysituations they cannot even rely on a strong and consolidated guidance from economictheory, that has hardly devoted effort to these issues.
It is difficult to distinguish in a clearcut way the differences between competitionpolicy and regulation, and between competition authorities and industry regulators.
There are several criteria that one can use to make such a distinction, but for eachcriterion there are probably exceptions and qualifications to be made that make theline of demarcation between the two blurred. We believe that merger remediescontribute to make such line even fuzzier.
Rey (2000) classifies competition policy and regulation along the followingdimensions (among others). 1) Procedures and control rights: whereas CAs generallylimit themselves to checking the lawfulness of firms’ activities, industry regulatorshave more extensive powers, as they can constrain firms’ conduct in several ways, forinstance by capping or fixing their prices, checking their investment decisions,restricting their product choices. They can also modify the structure of the industry byestablishing when new entry in the sector is allowed, and fixing the criteria thatdecide market entry. 2) Timing of oversight. Generally, CAs intervene ex-postwhereas regulators act ex-ante. Also, CAs have usually more time available forinvestigations, whereas regulators have to come up with rapid decisions, as the firms’normal business (such as pricing, investments, launch of new products) might needthe preventive authorisation of the regulators. Regulators’ involvement with aparticular case is long-run and continuous, whereas CAs’ interventions tend to beoccasional. 3) Information intensiveness. Regulators usually have an industry-specificexpertise whereas CAs have not. In part, this is also determined by the fact that theregulators’ relationship with an industry is continuous and of a long-term nature.
The distinction between competition policy and regulation along the lines describedabove only captures part of the story: antitrust intervention is described by thefeatures above mainly when it acts as a law enforcement activity, that is in the areasof agreements and abuse of a dominant position. In these cases the law identifiescertain conducts which are unlawful, and the authority verifies ex-post if suchbehaviour has occurred.
Merger control by itself is already a mixed area. In fact, points 1) and 2) above arecertainly not satisfied in concentration cases: the authority intervenes ex-ante and withshort deadlines, and it has implicitly the power to decide on the structure of theindustry. What still is different with respect to the role of a regulator is that the 53 Patrick Rey (2000), “Towards a Theory of Competition Policy”, presented at the World Meeting ofthe Econometric Society. See page 44 and ff.
antitrust authority deals with concentration projects in any industry of the economy,and it is therefore lacking the specific knowledge of the industries investigated that asectoral regulator accumulates over time.
The regulatory component of antitrust intervention is even more pronounced when welook at merger remedies. To the extent that non-structural remedies are followed, theCAs must monitor the behaviour of the firms long after the merger has beenauthorised and carried out. It is still true that merger remedies do not change thespecialisation of the CAs, but to the extent that behavioural remedies imply that acontinuous relationship is engaged, a better knowledge of the industry monitored willprobably be built over time.
When we consider structural remedies, other regulatory features come in. In atraditional merger case framework, in fact, the authority has the power to decidebetween two industry structures: the status quo and the market that would arise if themerger project is realized. With merger remedies, in a sense, we fill the gap betweenthese two extremes, and many intermediate structures can be implemented as a resultof the bargaining process between the firms and the authority. In other words, theauthority is in the position to fine tune its intervention on industry structures muchmore than in traditional merger cases.
Moreover, we have stressed that the key point in the evaluation of structural remediesis to assess if the divested assets can create a viable competitor. Guaranteeing theviability of a firm is an objective specific to the merger remedy area, as in no otherfield of competition policy the enforcer promotes the creation of a new firm (perhapswith the US exception, rare indeed, of breaking up firms that have been found guiltyof monopolisation). Moreover, the theoretical arguments and tools that are needed toassess the competitive viability of a remedy are in a large part different from thosethat are used by competition authorities in general, and in the evaluation of theoriginal merger project in particular.
Mergers always require a prospective exercise on the equilibria that will arise after thestructural modification of the market; for this reason, merger analysis is moretheoretically based and less dependent on facts findings than other areas ofintervention as agreements or abuse of a dominant position. And the theoretical toolsthat are needed to perform such analysis are those of oligopoly theory, as well as, tothe extent that they can forecast possible impact upon prices, of econometrics.
Whether the merged firm has the ability to make profits and survive in the market isnever a relevant issue in the analysis of the original project.
Structural merger remedies, on the contrary, require to identify and evaluate which arethe competences, assets, know how, personnel and other common resources that mustbe packaged in the new entity to create a competitive enterprise. Hence, the tool kitfor merger remedies is pretty different from that needed for merger analysis.
More importantly, we think that there is no piece of economic theory that offers arobust and consolidated background to such analysis (which are the features needed tocreate a new competitor), as instead oligopoly theory does for the evaluation of theoriginal merger project. In a general sense, creating new enterprises is exactly whatthe market is required to do, and under this respect the formidable task of designing viable structural remedies is something very far from the ‘light’ approach ofcompetition policy.
While structural remedy design is an exercise quite different from the traditionalmerger analysis, we can find some examples in which regulatory policy at large hasbeen recently challenged with relatively similar problems. One case is that of marketdesign in public utilities reforms, notably the electricity industry, and the other is thedesign of auction mechanisms in telecommunications, and specifically the UMTSlicences auctions in the European countries.
Since the pioneering reform of the early Nineties in UK, the electricity industry hasbeen a very interesting workshop for market design in most industrialized countries.
One of the key issues addressed is the possibility to create a competitive market in thegeneration segment of the industry, by divesting assets and power plants of theincumbent monopolist. The theoretical excercise behind this discussion was that ofcreating an industry structure, defined both in terms of number of operators and theircost structures, competitively viable, similarly to the merger remedy problem.
However, this excercise has been performed, in the case of liberalization plans, in amuch more abstract framework than in a merger case, since a very large set ofrelevant elements (including the rules of the bulk energy market, the identity of thecompetitors, etc.) were not usually defined at that stage. This explains why theanalysis focussed on the desirable structural properties of the reformed industry, butdid not address the subsequent step of assessing whether the divested assets were ableto become viable competitive firms. As we claimed above, in a merger remedyanalysis, instead, the market environment is much more defined and the viability ofthe new competitors becomes a more relevant issue.
Evaluating if a potential competitor is viable has been recently an issue also in thedesign of auction rules for UMTS mobile telephone licences in many Europeancountries. Once the auction rules have been set, deciding the number of licences tobe issued has required an evaluation of the incumbent operators as well as of the newentrants, in order to forecast how many bidders will participate. Assessing whethernew entrants with no previous experience were viable competitors turned out to be avery difficult task. But still, this issue was crucial in deciding the number of licencesneeded to ensure a competitive auction.
In the pre-auction phase candidates were examined and some conditions on financialstability (as bank warrantees) and industrial experience were set. Fixing a positive,although relatively small, entry cost allowed in principle to eliminate frivolousparticipants. But the entry fee could not prevent the participation of (and sidepayments to) weak firms colluding with the larger firms just to keep high the numberof (formal participants and) licenses and to soften competition in bidding. The needto consider unilateral effects (the number of paticipants) as well as pro-collusive 54 See Klemperer P. (2000), “What Really Matters in Auction Design”, mimeo, for a discussion of themain issues involved and the comparison of the different auctions used in European countries. See alsoKlemperer, P. (2002), “How (not) to Run Auctions: The European 3G Telecom Auctions.”, EuropeanEconomic Review (forthcoming), and Van Damme, E. (2002), “The European UMTS-Auctions. andNext”, European Economic Review (forthcoming).
effects (the incentives to collude) remind our observations on structural mergerremedies.
It has recently been observed that the Merger Task Force of the EuropeanCommission (EC) has been adopting a tougher stance in merger control, and the oneyear-old Notice on merger remedies, as welbe further proof of its stricter appro(alleged) strictness might still not be enough to restore competition in industrieswhere mergers take place.
If it is well known that behavioural remedies might be problematic, and the EC hasrightly expressed its preference for divestitures, we have stressed that structuralremedies are made difficult by information asymmetries, incentive problems, and thepossibility that divestitures might exacerbate pro-collusive effects. We believe that theEC has paid attention mostly to the issue of the viability of the new firm created withthe divested assets, whereas it has not attached enough importance to the possible pro-collusive effects of divestiture. We suggest therefore that the EC should follow forstructural remedies the same double test it uses to assess mergers in the first place: (1)Single firm dominance will likely not arise after divestiture (unilateral effects) (2)Joint dominance will likely not arise after divestiture (pro-collusive effects).
To understand whether our preoccupations are only theoretical or real, a moreaccurate analysis of the recent EC practice in merger remedies is needed. After someyears of policy in this area, the time is now ripe for the EC to carry out an ex-poststudy on the lines of the recent FTC report.
55 See Ersboll, N. C. (2001), “Commitments under the Merger Regulation”, European CompetitionLaw Review, Issue 9, 357-364; De Matteis, A. (2001), "The Commission Develops its Policy onMerger Cases: the New Notice on Remedies and its Recent Application", International AntitrustBulletin, Fall/Winter 2001, Vol. 4, Issue 3, pp. 21-33.


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