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This article is written by Gurkaran Babrah, a first year law student at Symbiosis Law School. Noida. This article provides an overview of European Union Competition Law and mergers under European Union Competition Law.


Merger is a legal agreement between two or more existing companies to get together and form a company. In other words, it’s a combination of two companies to form one legal entity. Mergers and acquisitions come under competition law. In some countries, it’s also called Antitrust laws. For example: the U.S. European competition law regulates and controls the activities within the European Union. The objective of European Union competition law is to maintain the competition within the European single market. It does by regulating anti-competitive conduct by companies, to ensure that they do not create cartels and monopolies as it would damage the interest of the others.                    

Under European Union, there is a treaty called The Treaty On The Functioning Of The European Union (TFEU). This treaty is the basis of European Union law. Articles 101 – 109 of this treaty comprises a series of regulations and directives of European competition law. There are four main policy areas:                    

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  • Control over cartels, collusion and other anti-competitive practices under Article 101 of TFEU;
  • Dominant market positions under Article 102 of the TFEU;
  • Control over mergers, acquisitions and joint ventures;
  • Control of direct and indirect aid given by members of the European Union under Article 107 of TFEU.


The meaning of ‘merger’ and ‘concentration’


Merger is a voluntary activity by two companies to get together and set up one legal entity. Companies which merge together are usually equal in terms of size, customers, scale of operations, etc. Generally companies merge to increase their market share, reduce their production and operating costs, expand their territories, unite common products, grow revenues and increase their overall profits. 


Under EU competition law, a concentration arises when there is a change in the control of an entity engaged in economic activity, which the European Commission calls an undertaking, on a lasting basis. It either involves:

  • The merger of two or more previously independent undertakings;
  • The acquisition of direct or indirect control of an undertaking; or
  • The acquisition of joint control over a “full-function joint venture”.

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The Horizontal, Vertical and Conglomerate Mergers 

Horizontal Merger 

When two companies operating in the same type of industry mutually agree and merge together to form one legal entity is known as a horizontal merger. It’s a part of consolidation between two competitors offering the same kind of products or services. The goal of the merger is to have a large business, large market share and large scale of economies. The synergy formed by the merger enhances the efficiency of the business performance and financial gains. The cost-efficiency also leads to increased margins of the company. For example – The merger of Daimler-Benz and Chrysler.

But it has its effects. These kinds of mergers tend to reduce competition in the market. It usually emerges as a monopolist agenda from the combinations of powerful enterprises, along with the unemployment which has a very adverse effect on the economy of the country. As the competition is reduced, it gives companies the power to fix prices as per their wish. They can charge unnecessarily high prices from the consumers. Therefore, these kinds of mergers are often scrutinised for the above-given reasons.

Vertical Merger

A vertical merger is a merger between companies that have an actual Supplier-customer relationship. It’s a merger between players that are complementary to each other. Vertical mergers also have their effects but are different from horizontal mergers. Examples of vertical mergers are – Producer and retailer, car parts producer and car producer, cement producer and concrete producer.

Vertical mergers have their effects and they are not without controversy. Whenever, vertical mergers are planned, antitrust laws or competition law are always taken into consideration. Vertical mergers can reduce competition in the market. They can block their rival firms from accessing raw materials or completing certain stages within the supply chain.

Conglomerate Merger 

Conglomerate merger is a merger which is neither horizontal nor vertical. It is a different kind of merger. It is a merger between the firms which are non-competitive in nature. The firms may operate in different industries or geographical regions. For example – Walt Disney Company and The American Broadcasting Company. Conglomerate merger is further divided into two categories. These are Pure conglomerate merger and mixed conglomerate merger.  

A pure conglomerate merger involves the merger of two firms that have nothing in common. They are involved in different kinds of business. Whereas a mixed merger involves the merger of companies which are looking for product extensions or market expansions. Their main purpose of the merger is to expand their market.

Merger Activity

As stated above, companies combining with each other is known as merger or merger activity. Merger activity helps to expand markets, bring benefits to them and to the economy, but some combinations may reduce competition. Merger activity further helps to develop new products more efficiently and to reduce production and distribution costs. Through the increased efficiency the market may become more competitive and consumers may benefit from higher quality goods at fair prices. 

As mentioned above, some mergers may reduce the competition in the market by creating a dominant player in the market. This is likely to harm the consumers as it will give the companies the right to exploit consumers by charging high prices and reducing the consumer’s choice. Mergers are capable of increasing competition in the European industry, improving the conditions of growth and raising the standard of European Union (EU). Reorganisations or mergers are welcome but they should not violate competition laws and should not impede the fair competition.            

The Proliferation of Systems of Merger Control

The proliferation of merger review around the world has given rise to a broad number of commercial and strategic issues. These issues are for those parties who intend to engage in merger activities. The process of merger at an international level has added significant layers of complexity and has made the merger process very bewildering and expensive.

A large number of jurisdictions are now involved in the merger review process. The thresholds for merger filings are many, the timing of merger review is different and it is subject to different levels of procedural complexity. 

Why do firms merge?

Economics of scale and scope

Economies of scale are the cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output decreases with increasing scale. The merger will help the company to increase the scale of operations and economies of large scale can be achieved. A merged company will have more resources as compared to an individual company.. A large economy can occur because of intensive utilisation of production facilities, distribution network, research and development facilities. These economies will be in horizontal mergers because the companies will be dealing in the same line of products, where the scope of more intensive use of resources will be great. These economies can occur only to a certain point. That point is known as the optimal point. It’s a point where the production cost is minimum. If the production will increase from this point then the cost per unit will also increase.

Other efficiencies

Mergers help the firms to increase their efficiency in different ways. They help to expand research and development opportunities or more robust manufacturing operations. Sometimes companies may want to combine to leverage costly manufacturing operations. By merging, companies complement a current product or service. Two firms may be able to combine their products and services to gain a competitive edge over the others in the market.

National champions

National champion is a government policy in which large organisations seek profits and advance the interests of the nation. They usually set the policies which favour these organisations. By giving an unfair advantage against market competition, the policy promotes economic nationalism domestically and global pre-eminence abroad contrary to the free market. This policy is mostly practised in every country’s sector. 

Greed, vanity, fear and drugs

Sometimes mergers are fuelled by the speculative greed of individuals or companies or the personal vanity of a particular swashbuckling senior executive. Some mergers seem to be motivated by fear. If an undertaking in a particular sector appears to be involved in mergers, it may be considered important not to be left behind in the process of industry consolidation. For some individuals, the deal-making process can be the same as the feet of mood-changing drugs, altogether more exciting than the mundane task of managing a firm well.

Increasing market power

One of the reasons behind the merger is increasing market power. By merging the companies they eliminate competition, increase their market share, control over demand and supply and raise prices according to their own wish. These kinds of mergers tends to reduce competition in the market. It usually emerges as a monopolist agenda from the combinations of powerful enterprises, along with the unemployment which has a very adverse effect on the economy of the country. As the competition is reduced, it gives companies the power to fix prices as per their wish. They can charge unnecessary higher prices from the consumers. Therefore, these kinds of mergers are often scrutinised.

What is the Purpose of Merger Control?

The fundamental question which arises here: is there a need to control the mergers in the market? There are many reasons why governments, shareholders, consumers, and firms may object to these mergers. A government may not like the merger of a foreign firm with the native firm, or a merger may not fit with the industrial policy of the government, or if a merger leads to unemployment the government may not approve that.  A firm may object to the merger because it can become a target of a hostile bid, or a merger can give an edge to the other firms. Shareholders may think that the merger may have an effect on the value of their shares. These are individual interests of different entities but the competition law focuses on maintaining the competition with the aim of maximizing consumer welfare. 

Merger control is the process of reviewing the mergers under competition/antitrust law. More than 100 countries throughout the world have adopted the process to control the mergers. The European Union Commission and The US Antitrust laws are mostly entrusted with the role of reviewing mergers. Merger control regimes are adopted to prevent anti-competitive consequences of mergers. There are different types of mergers under the competition law and these mergers have adverse effects on competition in the market. Majority of significant issues are associated with the horizontal mergers. Companies which are involved in the same process either of production or of distribution they come together and merge into each other. This usually leads to the emergence of a monopoly. Competition in the market is reduced. Companies start exploiting customers by charging unnecessary high prices.

Is Merger Control Necessary?

The article 102 under TFEU strongly forbids the abuse of market power. The article not only focuses on simply preventing future abuses but it talks about maintaining competitive market structures which leads to better outcomes for consumers.

Therefore, Article 102 of the TFEU says that –

Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States.

Such abuse  may, in particular, consist of:

(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;

(b) limiting production, markets or technical development to the prejudice of consumers;

(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

This article strongly forbids the abuse of market power. It’s not about simply preventing future abuses but it is maintaining competitive market structures which leads to better outcomes for consumers.

Assessing the competitive effects of mergers 

Theories of competitive harm

Unilateral or non-coordinated effects

Unilateral effects are also known as non-coordinated effects. These arise when the competition between the products of the merging firms is eliminated. It allows the entity to unilaterally exercise power over the market like a dominant entity. It can raise the price of the one or both merging parties’ products. 

Consider this example:

Assume that if firm A is going to acquire a competitor, firm B. But before the merger, if firm A raises its price, it will lose customers to other firms in the market, including firm B. The fear of losing those customers and suffering lower profits limited firm A’s incentive to raise prices. After the merger, however, firm A has different pricing incentives. Firm A’s customers that switched (or diverted) to firm B in light of an increase in A’s prices are now effectively recaptured because they are still purchasing from the merged entity. This recapture of diverted customers makes a price increase more likely to be profitable. The greater the number of sales diverted from firm A to firm B, the greater the recapture and the more profitable that price increase is likely to be. This is the essence of why a merger creates incentives for the merged firm to unilaterally increase price.

Coordinated effects

Coordination does not require a written or explicit agreement. It is an implied understanding among the market participants. Coordinated effects talks about whether the merger will make it more likely for a group of firms to coordinate and raise prices or not. There are a number of factors whether the participants are able to:

  • Align their incentives and reach a common understanding 
  • Collectively raise market prices
  • Monitor and detect deviations
  • Punish deviations from the common understanding or agreement.

Vertical effects

In microeconomics and management vertical merger is an arrangement in which a supply chain of a company is owned by that company. Each member of the chain supplies a different product and combine it to satisfy a common need.

Consider this example – if a car manufacturer purchases tires from a particular shop who further supplies to many car manufacturers. Eventually, that car manufacturer purchases the shop or merges with the tire supplier. Then, the car manufacturer may control the supply of tires to the market and may destroy fair competition.

Vertical merger leads to lower transaction costs, lower uncertainty and higher investment, ability to monopolize market throughout the chain by market foreclosure and strategic independence.

Conglomerate effects

Conglomerate merger is a merger in which firms are involved in totally unrelated business activities. These types of mergers have several effects. They lead to diversification, an expanded customer base, and increased efficiency. As the companies diversifies the risk of loss also lessens.

For example – if one business unit performs poor or not up to the mark, other units of the company can compensate for losses. For example – if A company is specialised in radio and merges with company B specialised in manufacturing watches to form company C, company C will then have access to a large customer base to which it can sell its different products

The Counterfactual

The counterfactual method can be used to assess the effects of an actual event. It has always played an important role in EU competition law. Counterfactuals are discussed under Article 101 guidelines and Article 102 guidance paper of TFEU.

The term counterfactual refers to the hypothetical situation in which merger could not take place. If the commission finds the counterfactual to be significantly more pro-competitive than the merger situation, it would oppose the transaction unless the parties offer adequate remedies. Because EU merger control takes place prior to the implementation of the merger, the counterfactual in merger cases is usually the status quo ante (previously existing state of affairs). However, in certain circumstances, the commission has adopted a more dynamic interpretation of the counterfactual.


There are a number of guidelines on the substantive assessment of mergers. Many competition authorities have published guidelines on substantive assessment. Horizontal guidelines of the US, joint guidelines of the OFT (Office of fair trading) and competition commission in the EU are some important guidelines. The European Commission has published guidelines on the assessment of horizontal mergers and guidelines on the assessment of non-horizontal mergers. Guidelines must strike a balance between providing guidance for firms and their advisers as to what might be expected of a system of merger control and avoiding too much speculation, which can lead to a loss of certainty.

A specific problem in systems of merger control is whether a merger which reduces competition but which leads to gain in efficiency should be permitted or not. In certain circumstances, the European commission’s horizontal guidelines take efficiencies into account within the overall assessment of a merger. Another issue that sometimes arises is whether a merger should be allowed in order to save a failing firm even though there will be less competition in the market after the merger than before. A failing firm defence does exist in US law has been applied under the EUMR and is recognised in an appropriate case under the guidelines of the Uk competition authorities.


It is very common that most aspects of a particular merger gives rise to no competition concerns. However, it can be possible that there are certain parts of the businesses of A and B that may overlap horizontally. In that case a competition authority, rather prohibiting the entire transaction, may look for a remedy whereby its competition concern is relieved and the rest of the deal is allowed to proceed. Some cases may require a complex remedy, for example, a right of access to an essential facility or the licensing of technology to competitors on reasonable and non-discriminatory terms. The OECD published Merger remedies in 2004 following roundtable discussions in which a number of recommendations as to best practice were made. In 2005 the European Commission published a merger remedies study in which it reviewed the effectiveness of 96 remedies.

Evaluation of merger decisions

Competition authorities increasingly evaluate the impact of their decisions to clear or modify mergers. This process of self- evaluation enables authorities to test the accuracy of their predictions about individual mergers and to improve the quality of future decision making.

Merger Control and the Public Interest

A number of arguments can be made against the mergers that have nothing to do with the maintenance of competitive markets. It would be possible to conceive a system of merger control that allows intervention for non-competition reasons. 

Loss of efficiency and ‘short-termism’

Some commentators argue that mergers, far from promoting economic efficiency, have a disruptive effect upon the management of one or both of the merged firms and may be detrimental to their long term projects. This claim is made in particular of contested takeover bids, where it is possible that the management of the target company will either be removed by the new shareholders or will resign rather than stay on in the new conditions. Sceptics of the way in which the market for corporate control functions would argue that it is not inevitable that the decisions of shareholders will produce the best result in the public interest, although it may yield the best financial deal for the shareholders themselves. In particular, many would argue that a problem with takeovers is that they are motivated more by short-term profit-taking than by genuine concern for the long term prospects of the company. 

Concentration of wealth

Some may object mergers on the grounds that they lead to firms of such size with such power as to be contrary to a balanced distribution of wealth. This is a socio-political argument, but one which has become more widely accepted as aggregate industrial concentration (it is concerned with the measurement of large enterprises) with has increased. In the US the merger control provisions laws were strengthened at a time when this problem was a dominant concern.

Unemployment and regional policy

This is another objection to mergers. Some say that mergers lead to the closure of factories or offices and result in serious unemployment. Mergers that appear to have no regard for the social problems that may follow attract particular opprobrium (criticism) from the sceptics of the free market. 

Overseas control

Mergers may result in the control of indigenous firms passing to overseas companies, in which case any economic advantages of the merger may be thought to be outweighed by the desirability of maintaining the decision-making process and profits at home. Strong opposition was expressed in the US 2006 when the possibility of seaports there coming under the control of Dubai ports became known. Many Uk firms have expanded abroad, in particular into the US. the case for intervention against foreign takeovers may be more compelling where there is a lack of reciprocity between the laws of the two countries: if the law of the country A prevents inward investment, whereas country B permits it, there may be a case for blocking a takeover by a firm from A of a firm in B.

Special sectors

Some sectors of the economy – for example, the electronic and print media – are especially sensitive and this may mean that concentration of ownership within them requires special consideration. In the UK, as in several other countries, media mergers are subject to special provisions and mergers in industries such as oil, banking, and defence may be particularly closely scrutinised; the UK also has a special regime for mergers in the water industry and the Communications Act, 2003 contains special provision on change of control. Article 21 (4) of the EUMR specifically recognises that member states may have a legitimate interest in investigating a merger other than the grounds of harm to competition.

Designing a system of merger control

Whenever a country decides as a matter of policy to adopt a system of merger control, a number of issues have to be addressed. The following are some of the issues that must be confronted while designing a system of merger control.

  • Which transactions should be characterised as mergers? How should the acquisition of minority shareholdings and of assets be dealt with?
  • Will joint ventures be considered as a matter of merger control or under the legal provisions that prohibit cartels and other anti-competitive agreements?
  • To what extent should a system of merger control should apply to transactions consummated outside a country but which have effects within it?
  • What should be the time period within which a merger investigation must be completed?
  • Who should make decisions in merger cases? A commission, A court, or A minister in the government?


As discussed in the article, it can be observed that there are many outcomes of mergers under EU competition law. There are always a number of reasons behind the mergers. Therefore, it is important to figure out the possible outcomes, both negative and positive before merging. If not properly examined and evaluated, it may lead to huge losses. 



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