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Stennek, Johan; Verboven, Frank --- "Merger Control and Enterprise Competitiveness: Empirical Analysis and Policy Recommendations" [2006] ELECD 90; in IIzkovitz, Fabienne; Meiklejohn, Roderick (eds), "European Merger Control" (Edward Elgar Publishing, 2006)

Book Title: European Merger Control

Editor(s): IIzkovitz, Fabienne; Meiklejohn, Roderick

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781845424916

Section: Chapter 4

Section Title: Merger Control and Enterprise Competitiveness: Empirical Analysis and Policy Recommendations

Author(s): Stennek, Johan; Verboven, Frank

Number of pages: 101

Extract:

4. Merger control and enterprise
competitiveness: empirical analysis
and policy recommendations
Johan Stennek and Frank Verboven

This chapter studies the importance of efficiency gains from horizontal
mergers. A general theme throughout the chapter is that efficiency gains,
and their pass-on to consumers, may vary substantially from merger to
merger. For this reason it seems appropriate to reconsider current practice
in European merger control, which does not allow the merging parties to
appeal to an efficiency defence. We provide a detailed examination of two
main parts of an efficiency analysis. The first part of the chapter considers
the presence of efficiencies from mergers, with a focus on economies of
scale. The second part considers the pass-on of efficiencies to consumers in
the form of lower prices. In a final section, we develop an alternative
approach based on the concept of the diversion ratio.


1. ECONOMIES OF SCALE

1.1 The Importance of Scale Economies

For a horizontal merger to benefit consumers and the economy as a whole
it must reduce the firms' costs or generate some other form of efficiency
gain. Cost savings are also one of many important determinants of enter-
prise competitiveness. One of the most important sources of cost savings is
economies of scale.
The aim of this chapter is to investigate to what extent mergers are likely
to generate cost savings through better exploitation of scale economies.
This information is an important input to the discussion about the pros
and cons of introducing an efficiency ...