Economic Foundations of Merger Control

This paper briefly reviews the main insights of modern economic analysis on the welfare effects of horizontal, vertical, and conglomerate mergers. It then briefly stresses how the recent changes in the European merger policy have brought merger policy in the EU more in line with economic thinking. More specifically, it is argued that the European merger policy suffered from two main distortions in the treatment of horizontal mergers. Firstly, it prohibited only mergers which create or reinforce dominant positions, whereas economic analysis suggests that there exist mergers which are detrimental to welfare even though they do not raise issues of dominance. Secondly, it did not recognise the role played by efficiency gains, which are crucial in determining the welfare effects of mergers. Currently, the remaining area where European policy would need some rethinking deals with non-horizontal mergers.