• Mergers can generate positive spillovers
• Change in incentives take centre stage
• Efficiencies to be explored earlier

Central to the European Commission’s work on revising its merger guidelines is understanding the driving factors for mergers to have a positive impact on future competition and innovation, according to the EC’s chief economist for competition cases.

Emanuele Tarantino was speaking at a conference yesterday (5 February), organised by GSMA and Connect Europe to discuss a new economic study on a “dynamic framework” for the assessment of mergers.

Tarantino said he agrees with the report’s advice to think about merger control “from a new perspective, with an approach that is not relying on market shares or structural indicators, but instead that puts incentives centre stage”.

“We know that mergers, especially when they offer the combination of complementary assets, can generate positive spillovers”, he said.

The competition department’s current efforts, he added, are directed at identifying the conditions under which mergers can spur competition and innovation in the future.

“What economists can do, and what we would like to improve on in these guidelines, is understanding how the merger changes the incentives to invest in the future, now,” Tarantino said.

Further, he said the guidelines, and the predictability they aim to offer, can themselves be a “very important element in spurring innovation and investment”.

One procedural element the Commission wants to change is how it interacts with deal parties, encouraging them to engage earlier in the process on efficiencies.

“It’s important to listen early about what can be the efficiencies, in the forms of spillovers or externalities that can be generated thanks to the merger, and then assess the way through which these innovations could change the strategic incentives of companies,” he said.

Tarantino added that this early engagement would also help address concerns raised in the report about an asymmetry in the Commission’s assessment of static effects, with the authors arguing that the standard of proof for those has been lower than for efficiencies.

“We want to avoid this kind of perceived asymmetry and show that we are serious about the examination of these effects,” he said.

At the same time, Tarantino still insisted on the importance of affordability for consumers.

“How do we reconcile the general interest of firms in merging, with the general interest of consumers in not having double the price?” he asked.

“We know also that absent efficiencies, spillovers or externalities, it’s more difficult to have mergers that are pro-competitive. This is what the research shows. It’s not my opinion,” he said.

That in mind, companies coming forward to communicate these elements that absent the merger they could not achieve, is essential to the Commission’s assessment, he said.

Finally, Tarantino welcomed the fact that the report, although commissioned by associations representing the telecom industry, took a pan-industry approach.

“These are patterns that will apply to all industries, and all firms,” he said.

“The guidelines need to be modern, flexible, predictable – but also applicable to everybody.”