| Mergers & Acquisitions Primer |
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Competitive Effects
Market definitions and the evaluation of market shares and concentration provide the starting framework for analyzing the competitive impact of a proposed merger. Under the
Guidelines
, the enforcement agencies will examine whether a lessening of competition through either "coordinated interaction" or "unilateral effects" exists. While the 1984
Guidelines
were principally concerned with collusive price-fixing, the 1992
Guidelines
were expanded to include coordinated interaction between competing firms. This coordinated interaction incorporates parallel or matching conduct by competitors. Coordinated behavior can include tacit or express collusion.
The agencies will also determine whether competition is lessened due to unilateral effects such as a firm unilaterally altering its behavior following an acquisition by elevating price and suppressing output. This examination will include an analysis of product differentiation and production capacity.
Significant Efficiencies
If a merger does not pose a serious threat to competition, it is unlikely to be challenged. If a substantial threat is present, however, the enforcement agencies may exercise prosecutorial discretion in determining whether net efficiencies (
e.g.
, cost reductions and/or product enhancements) outweigh the competitive risks. Examples of efficiencies may include the ability of two previously ineffective (e.g., high cost) competitors to become one effective (e.g., low cost) competitor, the reduction in marginal cost that may lessen the merged firm's incentive to elevate price, or efficiencies that may result in benefits such as new or improved products.
The
Guidelines
recognize certain claimed efficiencies as credible. These include achieving economies of scale, better integration of production facilities, plant specialization, lower transportation costs and similar efficiencies relating to manufacturing, servicing, or distribution operations of the merging firms. Reductions in selling, administrative and overhead expenses may also be considered by the enforcement agencies as credible cost reduction effects of a merger.
Copyright 1999
Robert W. Doyle, Jr.
