Widening the ‘gap’ – the substantial lessening of the Commission’s evidentiary burden and the demise of coordinated effects under the SIEC test and §§24/25 of the Horizontal Merger Guidelines

Abstract:

The adoption of the SIEC test coupled with §§24/25 of the EU Horizontal Merger Guidelines has substantially reduced the Commission's evidentiary burden in respect of horizontal mergers in oligopolistic markets. In particular, §§24/25 provide the Commission with a theoretical basis for opposing such mergers on the basis of pre-merger conduct without fully assessing the effects of the merger.

The Commission's 2012 decision in Outokumpu/Inoxum is a good example of a case in which reliance on the economic theory underlying §§24/25 has led to Type 1 error. In Outokumpu, the Commission took the extreme position that market power was being exercised prior to the merger because EEA stainless steel producers, who were operating at or near the break-even point, were not pricing at marginal cost, despite having significant excess capacity. The Commission then used this theoretical ‘evidence' of the lack of pre-merger ‘competition' to support its contention that rivals would not constrain a post-merger price increase.

Post-merger developments suggest that many of the key factual and theoretical assumptions relied on by the Commission concerning new entry, the persistence of low-priced Asian imports and post-merger pricing conduct by the merged firm's rivals were, in fact, incorrect.