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Efficiency Claims in Horizontal Agreements

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Abstract:



Efficiency claims play a key role in the analysis of mergers and horizontal agreements. Generally speaking the most relevant efficiencies are those associated with the production and distribution of existing products, i.e. static efficiencies. Dynamic efficiencies showing up as improved processes and products are also important, but they are inherently more difficult to estimate. There are significant differences across countries in how efficiencies are factored into merger analysis but there are also broad similarities. Most agencies do not reach consideration of efficiencies unless it is clear that a merger will tend to have anti-competitive effects. Where that happens, the parties usually have a significant responsibility to establish that a seemingly anti-competitive merger should nevertheless be approved because it promises to yield significant efficiencies that cannot be obtained in less anti-competitive ways. Just how significant the efficiencies have to be varies across countries. Some apply a “consumer surplus” standard whereby the efficiencies must be large enough to ensure that there will be no price increase if the merger is permitted. Other countries apply a “total surplus” standard. They will approve a merger as long as the real resource savings attributed to the merger will cause producers to gain more than consumers will lose as a result of the merger. In actual fact, very few cases feature an explicit efficiencies/anti-competitive effects trade-off. As regards horizontal agreements, such as various production, purchasing or research and development joint ventures, some forms of information exchange, and standards setting activity, efficiencies tend to play a larger role than in the case of mergers. Even in initial encounters with competition agencies, the parties to such agreements will typically point out how their agreements are designed to obtain significant efficiencies, which cannot be realised without the agreement. No matter whether efficiency claims arise in a merger or non-merger context, the arguments over efficiencies will essentially turn on the credibility and completeness of information provided by the parties. Given the inherent informational disadvantage facing competition authorities, efficiency claims and supporting evidence must be assessed with caution.

Page Count: 18

Document Type: Review Article

Publication date: 1999-09-01

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