The Treatment of Efficiencies in Merger Review: An International Comparison

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6 Concluding Thoughts

Our survey of these four jurisdictions has revealed some commonality but many differences in their approaches toward the incorporation of efficiencies into merger review. The one important and strikingly common feature is change - all four jurisdictions have either recently issued new guidelines with respect to efficiencies (U.S.), are formally planning for revisions (U.K.) or are in the throws of a debate about making revisions to their approaches (Australia and the EU). It would seem that all are struggling in particular with the question of how to weigh efficiencies against a lessening of competition.

It is also true of all four regimes that efficiencies matter - and matter positively in general. That is, there is a place for efficiency arguments to be made that could persuade any of these agencies to permit a merger that might have some potential for anticompetitive harm. The scope for these efficiency arguments varies considerably, however. We return to this shortly.

Other similarities come in pairs, and we offer three examples. First, both the U.S. and Australia apply a substantial lessening of competition (SLC) test to determine whether mergers should be enjoined. In contrast, the EU applies a dominance test (as Australia did previously) and the U.K. a public interest test. As the EU embraces joint dominance as a legitimate concern, however, its standard will come closer to the SLC test. Second, both the U.S. and the EU have in the past had experiences in which efficiencies apparently weighed against a merger out of a fear that the efficiencies would make it difficult for other firms to compete. Significantly, the U.S. has quite clearly retreated from this view and the EU would appear to be trying to distance itself as well. Third, both Australia and the U.K. employ a public interest or benefits standard for at least some of their merger reviews. In neither case does the legislation spell out precisely what is meant by "public interest" or "public benefit", giving the authorities potentially great scope for action (or reason for non-action). That said, both jurisdictions would appear to be heading toward a treatment of public benefits/interests as very close to the promotion of competition and efficiency. Other considerations, such as employment or increasing exports seem to be waning in importance.

As mentioned, the scope for using efficiencies to support a possibly anticompetitive merger varies across these jurisdictions. While the EU has probably been the least sympathetic to efficiency arguments when they have been raised in the past, it should be noted that its dominance test is probably less restrictive of mergers generally than the American SLC standard.²⁰⁶ In a sense it could be said that they have incorporated efficiencies, at least to some extent, by raising the thresholds for merger review. The EU Merger Regulation also directs the European Commission to consider "the development of technical and economic progress, provided that it is to consumers' advantage and does not form an obstacle to competition" (Article 2(1)(b)). This commands the Commission to give at least some consideration to efficiencies as long as consumers benefit. Similarly, the U.S. Guidelines clearly demonstrate a willingness to consider efficiencies as part of the determination of whether there has been an SLC. Again, however, consumers will have to benefit (or at least not be hurt) before they can rescue a merger that increases market power.

In principle, the jurisdictions which could give the greatest respect to efficiencies would be Australia and the U.K. through their public interest/benefits tests. However, even as their "public benefits/interests" seem to be have become more focused on competition and efficiency, it is difficult to say how generous these two countries will be toward efficiencies when competition is lessened. In Australia, at least, there is a recognition that public benefits can outweigh the detriment to the public due to a lessening of competition.

None of these jurisdictions has an explicit efficiency defense built into its antitrust policy the way Canada does. Furthermore, none of them apply a total surplus standard. That said, and to return to a previous theme, the treatment of efficiencies continues to evolve in all of these jurisdictions and the trend is toward a greater role for efficiencies. For example, as discussed above, the 1997 American merger guidelines contemplate tolerating harm to some consumers as long as other consumers benefit more. Similarly, the Australian authorities seem willing to permit the loss of some consumer surplus if public benefits (which may be largely efficiencies) are great enough.

Clearly, the incorporation of efficiencies in merger review is an area of competition policy posing difficult questions with which many jurisdictions continue to struggle. We will be watching developments with a keen interest.

²⁰⁶ To put this another way: any merger in the U.S. that involved concentration levels and other conditions such that (under European standards) there would be a dominance situation would likely not be one in which efficiency arguments were any more warmly received than they would be in the EU