The European Union’s draft Merger Guidelines strengthen competition enforcement by acknowledging the potential harms of market concentration to society, including worker bargaining power and more vulnerable democratic institutions. However, Max von Thun and Claire Lavin argue that this progress is undermined by the introduction of a bias for scale and efficiency loopholes, which give large corporations more paths to complete a merger.
This article is part of a symposium on the European Commission’s draft Guidelines on the assessment of mergers under Council Regulation. The new merger guidelines mark their first systemic update since their first release in two parts in 2004 and 2008. You can read the rest of the contributions to the symposium as we publish them here. We encourage responses to our symposium, which can be submitted to promarket@chicagobooth.edu.
The world has changed, and so should European merger control. The European Commission’s decision to update its merger guidelines for the first time in over two decades is the right one. The draft Merger Guidelines—published in May—are a major step forward in several areas, particularly when it comes to recognizing the broader manifestations and harms of market power. Unfortunately, this progress risks being undermined by a bias toward preferencing the alleged efficiency benefits that come with scale, leaving the draft Guidelines rife with efficiency loopholes ripe for exploitation by large corporations.
Scale can benefit competition in some cases, but the concomitant increase in market concentration harms a slew of other priorities the draft Guidelines now recognize, including labor bargaining power and supply chain resilience. The introduction of these other priorities and the continued discussion of how scale through mergers can increase efficiencies and reduce consumer prices produces discordant regulation. Rather than pursue scale and efficiencies through mergers, which too often fail to deliver their supposed benefits while harming competition, the European Union should prioritize reducing investment and trade barriers between EU member states, allowing companies to grow while keeping market power dispersed.
A shifted approach to mergers
However, let’s first discuss what the draft Guidelines have gotten right.
The former Guidelines took a restrictive price- and consumer-centric approach: the competitive outcome of a merger was assessed largely based on how it was projected to reduce prices or expand output, together known as consumer welfare. The problem of this approach was two-fold. First, the lower prices rarely manifested, and in fact the concentration of market power into fewer companies often raised prices. The second is that a singular approach to what constituted procompetitive market outcomes neglected other valuable goals of merger control.
The draft Guidelines represent a significant and welcome break from this approach. The new draft Guidelines recognize the important role of merger control in, among other things, strengthening the “resilience of the EU economy in the face of shocks and geopolitical shifts,” promoting “sustainability and the transition to low carbon technologies,” supporting “diversity and plurality of information sources,” and “maintaining a balance of power that is essential to democratic societies.”
While it remains to be seen how enforcers will adopt these new objectives in practice, the importance of this new language cannot be overstated. Not only did the previous Guidelines fail to reference any of these broader societal objectives, but, until recently, the mere mention of any goal beyond efficiency and consumer welfare would have been considered an embarrassing faux pas in polite antitrust circles. As a result, the vast majority of EU merger investigations did not consider these broader interests. The shift can be attributed to several factors, including the 2024 report by former Italian Prime Minister Mario Draghi calling for competition policy to take resilience and security into account, academia and civil society’s efforts to promote a societal or “polycentric” approach to enforcement, and the realization that narrow theories of harm have led to problematic mergers being approved, from Google/Fitbit to Bayer Monsanto.
In a world of rising geopolitical tension, frequent supply chain shocks, climate crisis, media consolidation, and weakening democracy, competition policy cannot afford to stay still. This is not to say that merger enforcement should no longer consider the impacts of market consolidation on consumers through higher prices. Such considerations remain crucial, particularly at a time of acute cost-of-living pressures across Europe. But this should no longer be the only consideration.
One important new consideration present in the draft Guidelines is the recognition that market concentration can harm workers, a point that has been made repeatedly by trade unions, academics, and civil society groups. While the previous Guidelines failed to mention workers, the draft Guidelines observe that mergers can create or strengthen monopsony power that may lead to “lower wages or worse working conditions, including lower mobility for workers” and “reduce the incentive of workers to enter a given labour market.” The new language provides an important new avenue for protecting workers from concentrated market power—a critical task at a time when artificial intelligence threatens to disempower workers.
The draft Guidelines also embody a much more sophisticated understanding of market dynamics and corporate power in the 21st century. This includes acknowledging the limitations of assessing competition through traditional horizontal or vertical market definitions when it comes to markets that are closely related through “complementary products, networks, shared technologies, bundling, multi-sided platforms, ecosystems of related services or the dynamic capabilities of different providers to expand across markets.” This perspective comes much closer to capturing how powerful global conglomerates operate in practice, particularly in the technology sector.
When it comes to accurately assessing market power, the Guidelines include a greater emphasis on firm profitability (often a clear indicator of concentrated market power), a recognition of the importance of potential and future competition as well as actual competition (such as in the case of an innovative startup that may eventually challenge incumbents if it is not acquired), the introduction of “entrenchment” as a key analytical concept, and references to the role of minority shareholdings and common ownership in shaping and potentially distorting competitive dynamics.
So far, so good. Unfortunately, these positive aspects of the draft Guidelines are undermined—and potentially even outweighed—by highly problematic measures.
The pro-scale bias
The draft Guidelines are imbued with a pro-scale bias. This includes an entire section of the Guidelines weighing “benefits from scale versus market power,” in which the Commission states that it “regards positively mergers that increase procompetitive scale while maintaining effective competition in the internal market.” The section goes on to highlight the supposed benefits of corporate scale for innovation, investment, growth, global competitiveness, and living standards. The Guidelines fail to balance these claims with proper consideration of the well-documented harms from market concentration, including a comprehensive study the Commission itself published just two years ago.
At a time when research shows how mergers often fail to benefit market competition and competitive outcomes like lower prices or worker wages, it is problematic that the EU’s lead competition regulator is emphasizing tailoring merger control to aid scale. It is even more concerning that the prominence of the language appears to be the consequence not of scholarship or research on competition policy but rather intense lobbying for weaker merger enforcement by large European firms and the explicit quest for national champions by prominent European politicians, including Mario Draghi, Commission President Ursula von der Leyen, French President Emmanuel Macron, and German Chancellor Friedrich Merz. There are many less harmful pathways to scale beyond mergers (as the Guidelines acknowledge), including organic growth, partnerships, joint ventures, IP licensing, and more. A more thoughtful and holistic agenda would consider these pathways rather than push for more mergers. Scale cannot come at the cost of increased market power.
Furthermore, as Olivier Guersent, former head of the EU’s competition department, explained at a conference in Brussels earlier this month, overzealous merger control is not the reason for Europe’s lack of so-called “champions.” Between 2015 and 2024, the European Commission prohibited just nine out of 2,833 mergers (0.3%) and imposed remedies in only 5% of cases. These figures include both EU and non-EU acquirers, so the numbers affecting purely European mergers are even smaller. If anything, the Commission’s failure to stop harmful acquisitions by dominant firms, particularly tech giants from the United States, has deepened Europe’s external dependencies and made it harder for local firms to compete on fair terms.
In the (too) rare instances where the Commission has blocked a European merger, the arguments used to justify consolidation have generally not borne out. In the case of the proposed merger between rail transport companies Siemens and Alstom, which the Commission blocked in 2019 despite intense pressure from the French and German governments, Siemens Mobility subsequently experienced unprecedented growth, while feared competition from Chinese rivals has yet to materialize. Alstom, on the other hand, has been seriously bogged down by its 2021 acquisition of Bombardier Transportation.
While merger control isn’t the villain it is often depicted as, politicians have seized on reform of the Guidelines as a relatively low effort way of showing they are taking action to improve Europe’s economic competitiveness, compared to the much harder (both politically and technically) work of breaking down national barriers. Yet, not only will loosening merger control not boost Europe’s competitiveness, but if it isn’t paired with deeper market integration, the effect will be to create or strengthen national monopolies that can exploit consumers, workers, and small businesses at will.
The case of efficiency loopholes
When it comes to applying this pro-scale bias in practice, the most worrying parts of the draft Guidelines relate to the efficiencies that merging parties can claim to get their deals approved. This is further underpinned by the questionable new concept of a “theory of benefit,” which determines “how specific merger efficiencies occur and maintain or enhance effective competition, to the benefit of consumers.” While such efficiency claims were also permitted under the previous Guidelines, the draft Guidelines significantly expand the scope of what can be claimed. This includes the new notion of “dynamic efficiencies,” which, unlike efficiencies that can be directly connected to a merger, rely on speculative assumptions about the “ability” or “incentives” of merged firms to “invest or innovate” in the future.
While such incentives may exist in some cases, they must be weighed against extensive and robust evidence demonstrating that in most cases meaningful efficiencies do not materialize. Even where they do appear, efficiencies must be weighed against the negative long-term impact that higher market concentration is likely to have on innovation, investment, and growth, beyond the period covered by any efficiencies, commitments, or remedies. Finally, as is already the case in existing merger enforcement, dominant firms with armies of in-house lawyers and external advisers are much better placed than smaller rivals to take advantage of efficiency provisions, even though their acquisitions are far more likely to be harmful. Even if the Commission is successful in distinguishing genuine efficiency claims from bogus ones, this examination still requires precious resources that could otherwise be used to accelerate existing investigations or launch new ones.
The future of the draft Guidelines
The Commission should consider making changes to the draft Guidelines to ensure that they achieve their core objective of strengthening Europe’s democratic foundations, resilience, and economic competitiveness. First, language on dynamic efficiencies and theories of benefit should be removed, and the Commission should focus on restricting rather than expanding the ability of powerful corporations to make efficiency claims. Second, unsubstantiated claims on the benefits of scale should be removed or at least balanced by a similar analysis of the harms and risks associated with market concentration. Third, the final Guidelines should include explicit legal presumptions of illegality for mergers involving dominant firms, as such cases are both the most likely to cause harm and the most burdensome for the regulator to investigate.
The draft Guidelines are an important and necessary evolution in the European Commission’s approach to mergers. As it stands, they risk being exploited by powerful incumbents that seek to entrench their market power. But with some small changes, they could fulfil their promise of empowering Europe to build open, diverse and resilient markets that work in the interests of all.
Author Disclosure: The authors work for the Open Markets Institute Europe, which receives funding from foundations such as the Schöpflin Stiftung, the Adessium Foundation, and the Mercator Stiftung.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
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