Mergers and acquisition

Mergers and acquisitions

Main article: European Union merger law
Under the authority of Article 82 TEC, the European Commission became able not only to regulate the behaviour of large firms it claims abuse their dominant positions or market power, but also the possibility of firms gaining the position within the market structure that enables them to behave abusively in the first place. Regulation 139/2004 deals with mergers that have a "Community dimension" and lays out a procedure whereby all "concentrations" (i.e. mergers, acquisitions, takeovers) between undertakings are subject to approval by the European Commission.

A merger or acquisition involves, from a competition law perspective, the concentration of economic power in the hands of fewer than before. In the European Union, under the Merger Regulation 139/2004. This is known as the "ECMR", and the authority for the Commission to pass this regulation is found under Art. 83 TEC. Competition law requires that firms proposing to merge gain authorisation from the relevant government authority, or simply go ahead but face the prospect of demerger should the concentration later be found to lessen competition. The theory behind mergers is that transaction costs can be reduced compared to operating on an open market through bilateral contracts. Concentrations can increase economies of scale and scope. However, often firms take advantage of their increase in market power, their increased market share and decreased number of competitors, which can have a knock on effect on the deal that consumers get. Merger control is about predicting what the market might be like, not knowing and making a judgment. Hence the central provision under EU law asks whether a concentration would if it went ahead "significantly impede effective competition... in particular as a result of the creation or strengthening of a dominant position..."