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European competition policy - merger control Introduction The control of mergers and acquisitions is one of the pillars of European Union competition policy. Corporate restructuring through mergers and acquisitions is a fact of business life. There is a natural tendency for markets to consolidate over take through a process of horizontal and vertical integration. The main issue is whether a proposed merger leads to a substantial lessening of competitive pressures in the market and risks leading to a level of market concentration when collusive behaviour might become a reality. When companies combine via a merger, an acquisition or the creation of a joint venture, this generally has a positive impact on markets: • Firms usually become more efficient • Competition intensifies • The final consumer will benefit from higher-quality goods at fairer prices However, mergers which create or strengthen a dominant market position are prohibited in order to prevent ensuing abuses. Acquiring a dominant position by buying out competitors is in contravention of EU competition law. Companies are usually able to address the competition problems, normally by offering to divest (sell or offload) part of their businesses. Liberalisation of Markets within the Single Market The main principle of EU Competition Policy is that consumer welfare is best served by introducing competition in markets where monopoly power exists. Frequently, these monopolies have been in network industries for example transport, energy and telecommunications. In these sectors, a distinction must be made between the infrastructure and the services provided directly to consumers over this infrastructure. While it is often difficult to establish a second, competing infrastructure, for reasons linked to investment costs and economic efficiency (i.e. natural monopoly arguments) it is possible and desirable to create competitive conditions in respect of the services provided. Separating infrastructure from services The Commission has developed the concept of separating infrastructure from commercial activities. The infrastructure is thus merely the vehicle of competition. While the right to exclusive ownership may persist as regards the infrastructure (the telephone or electricity network for example), monopolists must grant access to companies wishing to compete with them as regards the services offered on their networks (telephone communications or electricity supply). This is the general principle on which the EC liberalisation directives are based. The EU Commission can initiate the opening-up of markets. It may itself adopt a European liberalisation directive which must be enforced by the Member States. The Commission checks that these objectives are actually achieved. State Aid in Markets By giving certain firms or products favoured treatment to the detriment of other firms or products, state aid seriously disrupts normal competitive forces. Neither the beneficiaries of state aid nor their competitors prosper in the long term. Very often, all government subsidies achieve is to delay inevitable restructuring operations without helping the recipient actually to return to competitiveness. Un-subsidised firms who must compete with those receiving public support may ultimately run into difficulties, causing loss of competitiveness and endangering the jobs of their employees. Ultimately, then, the entire EU market will suffer from state aid, and the general competitiveness of the European economy is imperiled. State aid that distorts competition in the Common Market is prohibited by the EC Treaty. Under the current European state aid rules, a company can be rescued once. However, any restructuring aid offered by a national government must be approved as being part of a feasible and coherent plan to restore the firm’s long-term viability. |