Economic analyses are playing an ever more important part in German and European merger control. While economic test cases have long been established on a European level, the importance of economic analyses in Germany has increased in recent years. With the introduction of the SIEC-test in German merger control, it is expected that they will continue to grow in importance.
Where there are tight deadlines in merger-control cases, the early identification of critical competition issues is crucial before the announcement of a merger. This can mean that so-called “Prenotification Talks” with the trust authorities are necessary, in order to identify their concerns prior to an announcement. In such cases, the rule of a specific competition economic “Theory of Harm” is a guiding principle in market tests carried out by the authorities.
An efficient competition economic consultancy deals with identifiable competition concerns at an early stage and appraises their practical relevance. In this way, authority concerns can be identified before the announcement of merger intentions and – where necessary – appropriate corrective measures can be suggested.
Next to product and location-specific market demarcation, direct analysis of unilateral and coordinated price effects is becoming increasingly important. At the same time, newer indication-based approaches such as the “Upward Pricing Pressure Test” (UPP) also become important in economic analysis. However, the probability of foreclosure strategies in the context of vertical-merger intentions can be a key issue, which may be solved with the use of economic methods.
Market demarcations are an essential starting point in merger control proceedings. They make up the framework for an in-depth analysis of the effects of a merger. According to the current test standard – the test of monopolistic price-setting scope (SSNIP = small but significant non-transitory increase in prices) – evasive reactions of the opposite market side regarding long-lasting price increases between five and ten percent are significant; this test, commissioned by the EU as a thought experiment, demands a resilient assessment of own-price elasticity.
In numerous cases, we have successfully applied different market demarcation methods in accordance with specific requirements, such as:
- SSNIP-tests on the basis of real transactional data or survey experiments
- Price correlation analysis
- Critical loss analysis (SSNIP-tests)
- Shipment tests
Anticipated price increases (upward pricing pressure) as a consequence of a merger are central issues in merger-control cases. In this aspect, the competitive adjacency of merging parties, as well as the existence of “mavericks” (market rebels) in a market, plays an important role. A series of economic indicators and test approaches allows us to estimate these effects. Herein pricing-relevant efficiency effects resulting from a merger are examined and included in analysis where necessary. In such cases, we possess the necessary breadth of knowledge, by applying the following techniques case-specifically:
Diversion ratios
- Pricing – hedonic price regressions
- Upward-pricing pressure indices
- Merger Simulation
- Bidding behaviour analysis
The risk of a higher collusion probability is a frequent speculative damage theory that can be easily applied. Dynamic effects of this kind require careful analysis of foreseeable competition dynamics in a given branch.
Examining the factual significance and occurrence probability of coordinated effects can, however, be very difficult – yet our extensive market experience and the application of relevant economic theories allows us to make reliable analyses in such cases. In this way, we can authoritatively study the validity of specific competition concerns in various scenarios.
Non-horizontal damage theories, such as market foreclosures, often begin as theoretically inspired concerns and their practical relevance must therefore be examined. In this way, theoretical market foreclosure potentials can be proven irrelevant in a practical sense, if it can be clearly shown that such strategies would be unprofitable for the merging partners. This can be tested in the context of market simulations.
Appropriate corrective measures or remedies can often solve possible concerns of competition authorities. With the aid of economic analysis, these measures can be precisely identified and the restraints in the context of a merger case minimised to a necessary level.