The uneven playing field: How to deal with foreign subsidies when assessing mergers?

It is sometimes argued that the European Commission should take into greater consideration foreign subsidies when assessing mergers under the EU Merger Regulation. However, the Commission’s decision-making practice confirms that foreign subsidies may be relevant for the assessment of mergers but only under strict conditions. First, sufficient evidence should be put forward to prove the existence of the said subsidies. Second, subsidized competitors must have the ability and incentive to successfully engage in deep-pocket predation. This relatively high standard of proof explains why foreign subsidies have not yet played any decisive role in practice. Yet, these conditions are consistent with the economic literature and lowering this standard may lead to type I and type II errors. Accordingly, to fully address the distortions arising from foreign subsidies, it seems preferable to introduce a new dedicated tool than to lower the standard of proof applicable in the field of merger control.