The draft EU Merger Guidelines open merger analysis to non-economic considerations, including choice, supply chain resilience, and sustainability. However, they do not yet explain how these considerations will be paired with a traditional consumer welfare analysis of price and quantity. Maciej Bernatt and Simbarashe Tavuyanago look to South Africa to devise a “vulnerable consumer test” that can help bridge these economic and non-economic goals.
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.
Pursuant to the 2004 European Union Merger Regulation (EUMR), the European Commission assesses whether a merger gives rise to a significant impediment to effective competition (SIEC) through the creation or strengthening of a dominant position. Unlike regimes such as that in South Africa, the EUMR does not provide for a parallel, explicit public interest assessment. Consequently, there is in merger analysis, minimal consideration of non-economic effects of a merger, such as choice or sustainability.
Nonetheless, the Commission’s draft revised Merger Guidelines envisage the integration of certain non-competition factors, analogous to “public interest” considerations in other jurisdictions, into the SIEC test. This opens up merger analysis to the consideration of such factors insofar as they are connected to the assessment of competitive effects.
Paragraph 20 of the draft Guidelines delineates the parameters of competition that will be taken into account in the assessment of a proposed merger. In its assessment, the Commission identifies the business models of different market participants and the key price and non-price parameters on which they compete, and examines how the merger affects such parameters negatively or positively. Non-price competition can encompass a variety of parameters to the extent they are relevant for the competitive process in the markets at hand, including output and quality in various aspects, choice (which may include media and cultural diversity), capacity, investment, innovation, privacy, sustainability, and resilience (including security of supply chains).
Many non-price parameters are not readily subject to quantification. Some of them, among other things, may also reflect the objectives of EU policies recognized by the founding treaties. Consequently, the Commission retains a margin of discretion in assigning relative weight to price and non-price parameters of competition within its balancing exercise, for the purpose of arriving at a holistic assessment of the merger’s overall impact on businesses and consumers.
We welcome the Commission’s willingness to take into account additional parameters that have traditionally fallen outside the conventional scope of competition analysis. Nevertheless, although the draft Guidelines set out a substantial analytical framework for the assessment of efficiencies within the SIEC test in Section II.C (paras 291–303), they do not provide further clarification on the manner in which non-price factors are to be incorporated into the overall competition assessment. Paragraph 20 itself is relatively vague and does not explain how the balancing exercise will proceed. In this context, we submit that useful insights may be derived from two South African merger decisions.
South African Merger framework
The South African Competition Act prescribes two distinct legal tests for the assessment of mergers: a competition-based test and a public-interest-based test. The competition test assesses whether a proposed merger is more likely than not to result in a substantial prevention or lessening of competition (SLC). The public interest standard, by contrast, empowers the authorities to approve or prohibit a merger depending on whether it can be justified with reference to a closed list of five specified public interest grounds enumerated in s 12A(3).
Procedurally, the authorities responsible for merger control are required to follow a four-stage assessment. First, determine whether the merger is likely to give rise to an SLC. Second, where an SLC is found, weigh the anticompetitive effects against any merger-specific efficiencies or pro-competitive gains. Third, independently evaluate the five public interest factors, namely, the effect the merger will have on (a) a particular industrial sector or region, (b) employment, (c) the promotion of small and medium businesses, or firms controlled or owned by historically disadvantaged persons (d) the ability of national industries to compete in international markets, and (e) the promotion of a greater spread of ownership to historically disadvantaged persons and workers. Fourth, weigh the conclusion on SLC against the public interest findings to reach an overall, final determination on whether the merger should be approved or prohibited.
Consideration of non-economic factors in the competition assessment
Until as recently as 2021, when the South African Constitutional Court handed down its landmark judgment in Mediclinic, it was generally accepted that where a non‑economic factor fell outside the ambit of the five public interest factors, it could not be taken into account as relevant to the merger assessment. The Mediclinic decision, however, expanded the scope of the competition test (first two stages of the analysis) to encompass certain non‑economic considerations. The case concerned a proposed merger between two private hospital groups, which was prohibited on several grounds, including that it would potentially result in price increases, reduce quality of care, and restrict access to affordable healthcare for the most vulnerable category of consumers, namely those without medical insurance. The issue of access to healthcare, being a constitutionally protected right, fell outside the ambit of s 12A(3), as it is not expressly listed as a public‑interest ground. Instead, it was evaluated within the framework of the competition test, with Chief Justice Mogoeng observing that:
To a wealthy South African, the percentage by which tariffs would go up after the merger is understandably negligible and inconsequential. But, not so to an average South African who is not even a member of any medical scheme […], Maintaining or increasing the scope for choice of essential and much-needed services with particular regard to the plight of the financially under-resourced or the vulnerable, should always be at the back of the decision-makers’ minds when dealing with mergers.
The analytical framework employed in Mediclinic was subsequently adopted in the Competition Appeal Court’s (CAC) recent judgment in Vodacom. The CAC was required to assess the prospective benefits of a merger for consumers characterized as “vulnerable,” typically residing in rural and historically underserved areas. The Court observed, in relation to benefits accruing to such vulnerable consumers, that s 12A(3) enumerates only five discrete public interest grounds. Any purported public interest advantage that does not fall within one of these specified grounds must instead be evaluated within the ambit of the SLC test. Consequently, any conditions proposed in the context of a merger that are likely to benefit consumers, but cannot be properly located within s 12A(3), must be integrated into, and assessed as part of, the enquiry into whether the merger is likely to result in an SLC.
Drawing on the Mediclinic judgment, the CAC determined that, in relation to consumer benefits that are neither price-specific nor encompassed by the public interest test, the Constitution not only informs the interpretation of the public interest provisions, but must also guide the formulation and application of the SLC test. Consequently, the SLC test must be expanded to reflect the constitutional imperative that all statutory interpretation occur through the lens of the Constitution’s normative framework.
In evaluating the impact of the mergers in Mediclinic and Vodacom, over and above the protection of vulnerable consumers in relation to the price-effects of the proposed mergers under the classic competition law framework, the courts also relied on the right of access to essential services, namely, healthcare in Mediclinic and internet infrastructure in Vodacom. The concept of access, in this sense, neither forms part of the conventional competition test nor appears as a listed public interest ground under s 12A(3). Notwithstanding, both courts went to considerable lengths to elucidate the influence of the Constitution, especially s 7(2), which instructs the state to respect, protect, promote and fulfil the rights in the Bill of Rights, and s 39(2), which charges all courts, tribunals and forums to promote the spirit, purport and objects of the Bill of Rights, in their interpretation and application of legislation. They affirmed that there is a constitutional duty to construe and implement statutory provisions in a manner that aligns with the Constitution’s foundational values, specifically human dignity, the attainment of equality, and the advancement of human rights and freedoms. This aligns with comparative findings demonstrating the relevance of national constitutions’ values in competition law field.
In applying the SLC test, it is imperative that these constitutional mandates remain central to the analysis. Accordingly, where the test requires broadening to incorporate non-competition considerations, such an expansive interpretation should be preferred over a narrow and restrictive one. In both instances, access and the protection of vulnerable consumers, each constituting a dimension of substantive equality, were deployed as non-price parameters within the competition assessment. The SLC test, when viewed through a broader constitutional lens, was thus directed at objectives extending beyond conventional consumer welfare. A comparable methodology may be normatively and doctrinally appropriate in determining which non-price factors, and in what manner, should be taken into account under the draft EUMR Guidelines.
In Mediclinic, the non-economic objectives were consistent with the competition-based price effect test, in the sense that prices were expected to increase as accessibility decreased. This gives rise to the broader question of how to proceed when traditional consumer welfare objectives and non-economic objectives are in tension. We propose that the appropriate approach is not to treat these objectives as parallel, competing benchmarks to be weighed against each other in a binary manner. Instead of conceptualizing non-economic factors as overriding or displacing competition objectives, they could be systematically integrated into the assessment of a merger’s impact on traditional welfare metrics. The Vodacom matter illustrates this integrated approach. In that case, there were competition concerns relating to foreclosure and the elimination of an effective competitor in the market. However, considerations of access were embedded within the competitive analysis itself. Although the merger had the potential to remove a competitor, it also promised to enhance access to data services and internet infrastructure for historically disadvantaged and underserved consumers. This expected expansion of access was treated as a factor that could attenuate, and potentially offset, the adverse effects of the merger on competition.
In this regard, we suggest the incorporation of “the most vulnerable consumer test.” The test would specifically be applicable when a proposed merger implicates and negatively affects constitutional rights of those that are the most vulnerable in society. Under the test, the Commission would measure the negative price effects on the most vulnerable consumers, and how the merger would negatively affect their access to essential services, instead of considering broad consumer harm/welfare. The suggested approach would retain the object of the classical competition assessment, albeit tempered with the protection and promotion of constitutional values.
Authors’ Disclosures: The authors report no conflicts of interest. You can read our disclosure policy here.
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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