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Guidelines on the assessment of horizontal mergers
Effective competition brings benefits to consumers, such as low prices, high-quality products, a wide selection of goods and services, and innovation. Through its control of "horizontal mergers", the Commission prevents mergers that would be likely to deprive customers of these benefits by significantly increasing the market power of firms to influence the parameters of competition on the market in which they operate.
Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings [Official Journal C 31 of 05.02.2004].
The purpose of the notice is to provide guidance as to how the Commission assesses "horizontal mergers" where the undertakings concerned are actual or potential competitors on the same relevant market.
The Commission's assessment of mergers normally entails:
- definition of the relevant product and geographic markets;
- competitive assessment of the merger.
In defining the relevant market, the Commission bases itself on the notice of 1997. In assessing the merger from the viewpoint of competition, this notice is applicable only to mergers and acquisitions that increase the power of undertakings on the relevant market in a manner likely to have adverse effects for consumers (higher prices, lower product quality, reduced choice). This might be the case, for example, if the merger eliminates a competitor from the market or makes coordination between the undertakings present more likely.
However, the Commission does not intervene where the merger does not produce on the market levels of concentration exceeding certain levels indicated by market-share percentage or by the Herfindahl-Hirschmann Index (HHI). The HHI, which is calculated on the basis of the market shares of all the firms in the market, gives proportionately greater weight to the market shares of larger firms. While the absolute level of the HHI can give an initial indication of the competitive pressure in the market post-merger, it is above all the change in the HHI that is a useful proxy for the change in concentration directly brought about by the merger.
The Commission will also take account of a number of factors (such as the possibilities for customers of switching supplier or the possibilities for competitors to respond to the merger) may influence the likelihood that a merger will have significant anticompetitive effects. These are very often coordinated effects, which give rise on the market to a common understanding among undertakings on the terms of coordination, to coordinated behaviour and to threats of future retaliation for those who do not adapt to the models. However, for coordination to be successful, the reaction of potential competitors not participating in the coordination and that of customers must not jeopardise the results expected from the coordination.
The Commission also undertakes to take account of efficiency or profitability criteria that undertaking might claim in order to mitigate any adverse impact on competition; in such cases, the undertakings would, of course, have to show that the efficiency was indeed attributable to the merger and would be beneficial for consumers.
This summary is for information only. It is not designed to interpret or replace the reference document, which remains the only binding legal text.