GORE Daniel, LEWIS Stephen, LOFARO Andrea et DETHMERS Frances Cambridge University Press, 2013, 540 p.

The Economic Assessment of Mergers under European Competition Law, Daniel GORE, Stephen LEWIS, Andrea LOFARO et Frances DETHMERS

Daniel Gore, Stephen Lewis, Andrea Lofaro, Frances Dethmers

The growing relevance of economic analysis in the assessment of merger cases in Europe has become increasingly obvious in recent years. As stated by Alexander Italianer, Director-General for Competition at the European Commission: “Competition cases are an intricate combination of legal arguments backed by solid economic analysis. The interplay between law and economics has never been greater.” [1]

The increased importance of economic analysis in merger control is also confirmed by Commission practice as a large number of merger cases have been decided after a very detailed and in-depth analysis was carried out from an economic perspective.

In fact, in an effort to respond to the EU Court’s requirement to perform sound economics based on hard evidence, the Commission’s scrutiny has become increasingly sophisticated and nowadays it routinely carries out in-depth economic analyses. Commission Vice-President Joaquín Almunia has rightly emphasized that assessing merger cases is inevitably complex and explained: “[t]his is why we have introduced economic analysis as an integral part of our process, which allows us to go well beyond market shares in our assessment of a merger and to look at other factors as well.” [2]

While disagreement on individual cases is inevitable, the overall progress made by the Commission in the techniques used to scrutinise proposed mergers is indisputable, in particular following the introduction of a Chief Competition Economist supported by a team of experts. Recognising that the consequences of an inaccurate assessment can be far-reaching, the Commission has increasingly relied on economic analysis as a faithful ally in its merger assessment.

In this context, the newly published book by Daniel Gore, Stephen Lewis, Andrea Lofaro and Frances Dethmers aims to highlight the interplay between law and economics in merger analysis and helps lawyers to fully understand the fundamental concepts and techniques used by economists.

With this ambitious goal in mind, the authors explain in their preface that the book is addressed to “lawyers who do not have a background in economics with an overview of the economic foundations of merger analysis, and of the analytical techniques and evidence used to appraise the competitive impact of mergers.” As such, acknowledging that nowadays no antitrust lawyer can ignore the economic foundations of merger analysis, the authors in a way seek to bring lawyers and economists closer together with this book. They are highly successful and, indeed, the great value of this book lies in its ability to make non-economists confident in managing concepts and principles traditionally mainly dealt with by economists.

Following a step-by-step approach, the authors enable their readers to familiarize themselves with difficult concepts and to understand the issues more thoroughly. Helpfully, each chapter starts with a very clear explanation of the relevant economic notions, some of which at first may be daunting to non-economists. This is reflective of a scientific approach coupled with great clarity of style throughout this book, which is particularly helpful as it allows the reader to keep each relevant concept in mind throughout all chapters.

In each chapter’s introduction the basic economic concepts are explained in simple terms and the reader is introduced to the fundamental tools and techniques which the Commission uses to scrutinise mergers. Furthermore, the authors make detailed references to an impressively vast array of merger cases that have been decided by the Commission, which means this book will be a very helpful reference work on many antitrust lawyers’ shelves.

The book’s success in explaining economic concepts in a clear and accessible way is apparent in each of its different chapters, which are discussed in more detail below.

Market definition

Following a traditional approach, the authors start with an analysis of market definition, which is one of the topics most often queried by competition enforcers. They correctly point out that: “although its importance in some merger control regimes has diminished in recent years due to the increasing use of analytical techniques and evidence that may to some extent bypass market definition [upward pricing pressure and illustrative process rise methodologies] (…) in practice the topic remains centrally important to the assessment of most European merger investigations.”

The authors first discuss the theoretical basis of market definition by dealing with the logic and purposes of the traditional SSNIP test and by discussing subsequently a number of issues and complications that can arise in the practical application of this test. The style is technical but very fluent with a number of examples which help the reader understand the relevant concepts. This approach is extremely helpful with regard to issues such as the Cellophane Fallacy, asymmetry and the role of indirect constraints.

The authors then go on to describe eight empirical techniques used to assess market definition. What makes this section unique is an overview table representing a quantitative analysis of market definition assessments carried out by the Commission in Phase II merger cases since 2004. Moreover, references to a multitude of merger cases are also provided for each of the eight empirical techniques discussed.

The authors particularly focus on price correlation analysis but also other techniques like surveys, shock analysis and demand estimation.

Theories of harm

In dealing with the substantive assessment of mergers, the authors discuss in an innovative way the traditional theories of harm: unilateral and coordinated effects of horizontal mergers and non-horizontal mergers.

Unilateral effects

The chapter on the unilateral effects analysis of horizontal mergers starts with a useful introduction to conceptual models such as the Cournot and Bertrand models. The authors then expand on this and provide a concise but thorough overview of the main theoretical models of unilateral effects that can be drawn from the industrial economics literature.

Nevertheless, this chapter, like the rest of the book, does not read like an academic text as the authors are always conscious of the fact that their book is addressed to legal practitioners. As such, the authors immediately clarify what sometimes is not properly grasped by antitrust lawyers: unilateral effects arise where the merger would eliminate important competitive constraints which the parties to the merger previously exerted upon one another. The core of the unilateral effects analysis is therefore an examination of the presence of pre-existing competitive constraints which the merger would eliminate (or reduce). In conducting this analysis, needless to say, a number of empirical techniques have been developed and the authors describe each of them in a very clear and detailed way.

Based on an overview of merger cases, the authors explain how the Commission has applied these techniques. In doing so, the authors make every effort to identify recent cases where, although the combined market shares had indicated dominance, the Commission cleared the merger on the basis that other competitive constraints were still present on the relevant market. This chapter then goes on to describe the instances where the Commission has considered the role of potential competition.

The final section of this chapter focuses on a number of factors which may materially reduce the risk of significant post-merger price increases, even in a situation where the merging parties are found to exert an important competitive constraint on each other pre-merger. In this section, lawyers will find very solid and convincing arguments to defend their merger cases, even where the situation seems prima facie complicated. The reader will find useful cases in which the Commission recognised the presence of various countervailing factors.

Coordinated effects

The chapter on coordinated effects in horizontal mergers presents an equally balanced and accessible mix of theory and practice.

In the chapter’s introduction the authors explain the concept of tacit coordination in simple terms as “a situation in which firms’ prices are higher than some competitive benchmark,” followed by a number of very effective examples. The authors explain the elements required for tacit coordination to arise and be sustained in a clear and simple manner.

In addition, fully aware of the complexity of this topic the authors set out to provide the reader with some helpful guidelines that aim to draw out the essence of the EC Horizontal Merger Guidelines on the assessment of coordinated effects (reference to which is made throughout the chapter). In their view, the issue can be simply summarised by asking three recurring questions: (i) “will the merged entity and remaining competitors be able to reach a tacit understanding?”; (ii) “are market characteristics such that any tacit understanding would likely be sustained?”; (iii) “will the proposed transaction make it significantly more likely that tacit coordination will occur or make tacit coordination more effective?” By presenting the reader with responses given by the Commission to these three questions in a number of merger cases, the authors clarify how insights gained from economic theory can be organised into a coherent framework for assessing coordinated effects.

Non-horizontal mergers

The chapter on non-horizontal mergers also covers a broad range of cases. Acknowledging that traditionally these kinds of mergers give rise to fewer competitive concerns, the authors analyse “how the potential for a non-horizontal merger to give rise to consumer harm can be assessed in practice.”

The discussion of non-horizontal mergers begins with a description of their pro-competitive effects. Then, the possible negative effects on competition are described, namely, input foreclosure and customer foreclosure, which are each dealt with in two separate and very exhaustive sections. The reader will particularly appreciate the complete overview of upstream market share levels that triggered a detailed examination of input foreclosure concerns in Phase II cases between 2004 and 2011. Furthermore, the chapter deals with conglomerate mergers by presenting three very interesting case studies.

Appendices – A more technical approach

More technical topics such as regression analysis, econometrics and models for demand estimation are dealt with in two appendices. A more technical style is adopted by the authors in the appendices, which departs from the more conversational and informal approach of the previous chapters. However, this difference can only make the reader aware of the authors’ great effort and, ultimately, very successful attempt to simplify very complex topics.

This book describes the economic analysis of merger cases in a clear and logical way. It is a “must-read” for antitrust practitioners.


[1The interplay between law and economics, Charles River Associates Annual Conference, Brussels, 8 December 2010.

[2Policy EU merger control has come of age Merger Regulation in the EU after 20 years, co-presented by the IBA Antitrust Committee and the European Commission, Brussels, 10 March 2011.

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Isidoro Niola, Thomas Janssens, The Economic Assessment of Mergers under European Competition Law, Daniel GORE, Stephen LEWIS, Andrea LOFARO et Frances DETHMERS , September 2013, Concurrences Review N° 3-2013, Art. N° 53027, p. 213

Editor Cambridge University Press

Date 10 June 2013

Number of pages 560

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