DOES EC MERGER CONTROL REALLY DISCRIMINATE AGAINST SMALL MARKET COMPANIES? Diagnosing the Argument with Some Tentative Conclusions

Abstract

Varsinkin viimeisen kymmenen vuoden aikana EY:n kilpailupoliittinen yrityskauppojen arvioinnin tasapuolisuus erikokoisten markkinoiden yrityksille on kyseenalaistettu. Esitetyn näkemyksen mukaan sovellettu tapa arvioida yrityskauppoja asettaisi pienten ja suurten markkinoiden yritykset eriarvoiseen asemaan. On puhuttu epäreilusta kilpailupolitiikasta ja sen aiheuttamasta niin sanotusta pienten markkinoiden ongelmasta . Komission taholta kaikenlainen epätasapuolisuus pienten ja suurten markkinoiden yritysten välillä on poikkeuksetta kiistetty.

Tutkimuksessani pyrin arvioimaan väitettä siitä, syrjitäänkö pienten markkinoiden yrityksiä tosiasiallisesti asiattomasti EY:n yrityskauppavalvonnassa sekä esittämään alustavia, normatiivisia johtopäätöksiä aihetta koskien. Tutkimuksen keskeisenä tavoitteena on asettaa asianmukainen agenda, eräänlaiset suuntaviivat, tarkoituksenmukaiselle tavalle keskustella väitteestä.

Tutkimuksessa väitettä syrjinnästä lähestytään markkinavoiman arviointiin liittyvänä ongelmana. Päähuomio tutkimuksessa on sen arvioimisella yliarvioidaanko pienten markkinoiden yritysten markkinavoimaa tosiasiallisesti asiattomasti EY:n sulautuma-asetuksen kilpailupoliittisessa soveltamiskäytännössä. Tähän liittyen tutkimuksen keskeisenä tehtävänä on arvioida niitä seikkoja, joista keskustelu markkinavoiman yliarvioinnin aiheuttamasta ylireagoinnista pienten markkinoiden yrityskauppoihin olisi jatkossa tarkoituksenmukaista rakentaa.

Tutkimus osoittaa, että syrjintäväitteestä keskusteleminen on tarkoituksenmukaisella tavalla mahdollista ainoastaan, mikäli se monimutkaisuus joka liittyy sekä ongelman syihin ja toteuttamiskelpoisiin ratkaisuihin että koko ongelman luonteeseen asianmukaisesti tunnistetaan ja otetaan arvioinnissa huomioon. Kyseessä on vaikea ja monitahoinen ongelma, johon ei ole olemassa sen paremmin yhtä ainoaa oikeaa kysymystä kuin yhtä ainoaa patenttiratkaisuakaan . Ei ole olemassa yhtä yksittäistä yksityiskohtaa, jota tarkastelemalla voitaisiin saavuttaa mielekäs vastaus. Tämä koskee myös usein esille nostettua relevanttien markkinoiden määrittelyä. Relevantti markkina on ainoastaan yksi yksittäiskysymys, eikä tarjoa sen paremmin mielekästä tutkimuskohdetta kuin tutkimustulostakaan.

Tutkimus antaa viitteitä siitä, että pienten markkinoiden yrityskauppoihin kohdistuvaa markkinavoiman yliarviointiin liittyvää tarkastelua voidaan pitää yhtenä perusteltuna tapana lähestyä syrjintäväitettä. Tiettyjen ongelmakysymysten ja niihin liittyvien ratkaisuvaihtoehtojen huomioimatta jättäminen on omiaan johtamaan virheeseen kilpailupoliittisessa arviointijärjestelmässä: Ylläpitämään turhan staattista ja rakenteellisiin tekijöihin jumiutunutta kilpailupolitiikkaa, millä puolestaan on todennäköisiä epäsymmetrisiä vaikutuksia pienten ja suurten markkinoiden yrityksiin.

Toisaalta tutkimus antaa viitteitä siitä, että syrjintä voi itse asiassa toteutua myös vähemmän ilmeisessä muodossa: suurten markkinoiden yrityskauppoihin liittyvänä markkinavoiman virheellisenä aliarviointina. Pitkälti samoilla ongelmakysymyksillä ja ratkaisuvaihtoehdoilla joilla voidaan teoreettisesti arvioiden esittää hyviä syitä ylireagoinnin mahdollisuudelle, voidaan perustella myös alireagointia. Kyseessä olisi siten nimenomaan kaksisuuntainen ongelma.

Tutkimus antaa edelleen viitteitä myös siitä, ettei kyse välttämättä ole pelkästään kilpailupoliittisesta markkinavoiman arvioinnista. Tutkimuksen valossa näyttäisi pikemmin mahdolliselta todeta, että perimmiltään tarve keskustella markkinoiden koon merkityksestä voidaan pitkälti vierittää muiden kuin suoranaisesti kilpailupolitiikan vaikutuspiirissä olevien ongelmakysymysten kontolle. Todellisten sisämarkkinoiden puuttuminen sekä siihen vaikuttavat tekijät muodostavat yhden hyvän esimerkin. Tutkimuksen valossa näyttäisikin tarkoituksenmukaiselta keskustella jatkossa myös siitä, missä määrin muut kuin puhtaasti kilpailupoliittiset toimenpiteet de facto voivat osoittautua tarpeellisiksi tai jopa välttämättömiksi ongelman poistamiseksi.

SUMMARY DOES EC MERGER CONTROL REALLY DISCRIMINATE AGAINST SMALL MARKET COMPANIES? Diagnosing the Argument with Some Tentative Conclusions

1. Background, problem setting and aims of the study The object of this study is EU merger control, with special reference to whether small market companies are effectively, incorrectly discriminated in the application of the EC Merger Regulation.

EU merger control is a part of EU competition policy control system. The purpose of EU merger control is to prevent undertakings from achieving and exploiting such significant - market power which would significantly impede effective competition in the common market or a substantial part of it. There is probably no single universally accepted definition for significant market power, but in light of the literature one may talk either of the firm s (or group of firms ) ability to raise a price significantly above the competitive levels for a sustained period of time, or the firm s (or group of firms ) opportunity to act to a considerable extent independently of the normal restraints of competitive pressure. Merger control complements the policing-arsenal of EU competition policymakers by providing a means to control firms market power by enabling intervention ex ante to such parlous changes in the market structure that would result in the significant impediment of effective competition in the common market or a substantial part thereof.

Assessing when a proposed merger is likely to result in the creation or the strengthening such market power that would necessitate a prohibition decision is not unproblematic. This is even more so in so-called grey zone cases; i.e. cases in which on the basis of preliminary screening there is no black-and-white evidence either that the arrangement is clearly detrimental or clearly not detrimental to effective competition.

The Commission s success in the assessment of mergers has been called into question. Especially during the last decade, the even-handedness of the assessment to companies located in different-sized markets has been questioned in the literature and also in public discussion. It has been said that the manner in which the Commission assesses mergers in its decision-making practice results in small market companies having clearly poorer chances than large market companies to create entities large enough to be competitive in the European or global markets by merging with each other. It has been claimed that merger policy treats mergers between small market companies and mergers between large market companies unequally. There has also been talk an unfair competition policy and the resulting small market problem . The Commission has systematically denied any uneven-handedness between small market and large market companies.

Emblematic of this discussion has been the search of individual reasons and solutions to the argued problem. Largely the discussion has revolved around a tool of the assessment of market power the delineation of relevant market. The argued problem itself, however, has remained relatively little discussed issue. The issue is largely blurred and the discussion still fragmented. Despite several shorter contributions on the relevance of individual issues in casu, no comprehensive study of the argued problem has been made.

The study focuses on rectifying this inadequacy. The study aims giving sidelight and opening new viewpoints on this publicly discussed issue.

In this study the so-called small market problem is approached through discrimination argument: Central to this study is to diagnose the argument over the discrimination against small market companies in the EC merger control and present some supplementary tentative, normative conclusions concerning the issue. The study aims not to prove the existence, or the absence, of the problem, e.g. by means of market-specific empirical observation. Nor is the aim of this study to try to solve the problem (should one actually exist), e.g. by demonstrating the specific need for changes in competition law. Rather, the primary objective of this study is to set a proper stage, a proper agenda, for meaningful discussion.

Two optional ways to approach the issue are particularly paid attention to in the discussion in this study:

False positive a false overreaction to small market mergers (resulting from the overestimation of market power of such mergers). The primary focus in this study is on this option. Central to study in this respect is the issue as to whether we have a reason to believe in light of the objectives of the EC Merger Regulation, its economic foundations and how it is effectively enforced that the market power of small market companies can effectively become incorrectly overestimated in the application of the Regulation. In relation to this, the purpose of this study is particularly to analyse that what issues are actually involved, should the effectively incorrect overestimation of the market power actually exist. As a part of this discussion, the study will diagnose the argument about the relevant markets role concerning the overreaction. Focus in this discussion is in so-called grey zone cases; i.e., arrangements whose competitive assessment in practice require full-scale assessment of market power within the overall arsenal of assessment factors.

False negative a false underreaction to large market mergers (resulting from the underestimation of market power of such mergers). This case that, in terms of discrimination, basically rests on the idea that since there cannot be discrimination there cannot be any privileges either, is also taken into consideration, but merely in secondary, rather supplementary, manner.

2. Method

Competition laws are typically drafted in very broad terms. Economic reality is a complicated and tangled phenomenon, and virtually impossible to exhaustively provide for in the individual provisions of competition laws. In practice, guidance on interpretation is typically sought from case law, as well from different soft law materials, such as the Commission's notices and guidelines. Economics also has an important role. Economics affects not only the formulation of competition laws, but also how they are enforced in practice. Economics plays an important role in virtually all phases of competition policymaking.

Utilising economics in decision-making is not unproblematic. Economics is seldom able to provide consistent solutions and interpretation options for the decision-maker, but in many cases may leave even considerable ambiguity and inconsistency. Many fundamental issues concerning the assessment of market power actually lack a universally accepted, across-the-board valid view. Extremes are dangerous and simple conclusions drawn on the basis of simple assumptions easily misleading. Market power cannot be seen as only detrimental and sustainable; it may also be acceptable, temporary and achieved by accepted means. What is needed is a coherent and logical map that enables us to structure, explain and understand labyrinthine economic reality in practice. Such a map cannot be perfect, but only the best possible solution for the purposes it serves.

The basic method of this study is so-called law and economics. A strong legal dogmatic approach typical of a judicial study manifests not only in the formulation of the problem and in the approach taken to studying it, but also in the discussion. Economics is also prominent in this study. Economics is already considered in the formulation of the problem and the approach taken to studying it. Economics is also largely utilised in the discussion. In fact, the basic frame of analysis discussed and applied in this study is unquestionably economic.

Both the subject and the basic problem discussed in this study are normative; answering also requires a normative approach, but the approach and the discussion in this study are not exclusively normative. Quite the contrary; the diagnostic system presented in this study leans, particularly, on positive economic considerations. Answering the kind of normative subject discussed in this study necessitates diagnostics of competition policy. The discussion must rely on positive theories.

The study does not confine itself to any particular school of thought or line of thinking. In essence, an eclectic approach taking advantage of various positive arguments and counterarguments is applied. Modern real world policymaking is inevitably subject to an eclectic view of the strands of economic theory relevant to the problem at hand. Since the real world market competition can have a variety of manifestations, with respect to the real world competition policymaking at least some sort of eclecticism is arguably sine qua non.

3. Key conclusions

The study shows that discrimination against small market companies is a complex and challenging problem. There is no single question that could lead us a meaningful answer; nor is there any single panacea. Relevant market is merely one detail. Clearly, it does offers neither a meaningful research subject, nor a research result. The discrimination issue expressly concerns the accuracy and suitability of the economic views be they positive or normative on competition law as a whole.

False positive

The study indicates that there is good reason why false positive may be considered a proper way to approach the discrimination argument. The study indicates that ignoring certain problem issues and solution options is likely to result in a flaw in the competition policy assessment system: Maintaining all too static policy clinging to structural elements which in turn is likely to lead to asymmetric effects between the small market and large market mergers. In light of the study, four such issues and solution options can be discerned: 1. Materialization of the market s external potential competition and intra-industry mobility. The first issue relates to the possibility that the detrimental effects generally associated with the concentration are assessed to be too permanent. The study suggests that it might be meaningful to pay more attention to the dynamic aspects of promotion of competition. The existence of detrimental effects is not as such denied, but more attention is paid to the possibility that the detrimental effects may in fact disappear faster than might be generally anticipated.

2. Efficiencies. The second issue relates to the possibility that the necessity and advantageousness of market concentration is underestimated in the weighing up in casu. The study suggests that it might be meaningful to pay more attention to the view that in certain cases (especially small market mergers) concentration may in fact be better and more necessary than generally thought.

3. Consumer surplus versus total surplus. The third issue relates to the need to discuss the appropriateness of consumer surplus standard compared to total surplus standard. This issue is closely related to the second issue. Compared to the second issue, this issue does not, however, relate to how the balancing of efficiency gains with short-term consumer benefits should be done, but indeed, questions the whole appropriateness of the overall choice of balancing efficiency gains with the short-term consumer benefits, and not with the net benefit to the economy. The study suggests that it may be meaningful to discuss whether it in certain (especially small market) cases would be better to tolerate some degree of potential harm to consumers and leave it to the dynamics of the market (since the whole economy benefits).

4. Remedies. The fourth issue relates to the appropriateness and sufficiency of the tools currently applied in remedying mergers that give rise to a competition problem. The study suggests that it would be meaningful to discuss whether the application of insufficient and in certain (small market) cases even clearly inappropriate remedies may in fact result in unnecessary overreaction and be harmful not only to the companies themselves but also to the performance of the small economy.

All four issues presented firmly relate to the findings reported in Chapter 2 as to the positive basic research by means of economic doctrines; they are all conflicting issues that lack a universally accepted, across-the-board valid conception.

The potential solutions proposed are not without problems. Considerable theoretical, practical and possibly even more clearly politically-oriented issues must be faced before these four solution options could provide a solution to the problem. However, the study indicates that we have good reason to believe that each of the discussed four issues is likely to affect the asymmetry between mergers in different-sized markets; changing each of the four issues is likely to have a positive effect on the asymmetry between small market and large market companies. It is a key conclusion of this study that each of the four issues includes one likely theoretical explanation and one possible solution option concerning the overassessment of market power. The four solution options identified form a logical whole. By implementing all four solutions the whole issue of the effect of market size on the overassessment of market power could be ruled out; the whole issue would become logically impossible.

False negative

The study indicates that false positive represents one well-grounded way to discuss the discrimination argument. The four issues discussed above are suggestive of false positive.

On the other hand, there seems to be good reason to believe that with what we are dealing here is expressly a bidirectional issue - that discrimination may also manifest itself in a less apparent way: as an underreaction to large market mergers. The issue is merely approached from a different viewpoint. Largely the same issues that were discussed in terms of false positive also apply concerning false negative. False positive and false negative are basically two sides of the same coin.

Not necessarily only an issue of competition policy (and the assessment of market power)

Good reason may be found to believe that the discrimination argument is well-grounded to approach as a competition policy issue, particularly by means of a false positive / false negative dichotomy. However, the study also indicates that it is not necessarily only an issue of competition policy assessment of market power, but that, in essence, the need to discuss the relevance of market size to the assessment may largely be shifted to the reasons other than those directly related to competition policy. To a considerable extent the problem faced by the small market companies may be associated with failure to develop a true single European market. Competition policy provides a means to foster this process, but it is no panacea; measures other than competition policy are also needed. In light of the study, finding necessary and feasible solutions to the problem may de facto require discussion about the means and measures other than those directly in the sphere of competition policy.

Summa summarum, the study shows that discrimination against small market companies is a complex and a challenging problem, which can be meaningfully discussed only if the complexity inherent in the reasons for the problem, the finding of viable solutions, as well as the nature of the whole problem itself are properly acknowledged and appreciated. The study presents a diagnostic system which enables a meaningful discussion. However, since the agenda inevitably necessitates weighing of various positive and normative economic, judicial, practical and even political arguments, it is very likely that it may hardly ever be feasible to offer black-and-white results. Rather, it gives a fruitful way to assess the discrimination argument.