We need retrospective analysis of Competition Authority decisions
What is the point of merger control? In 11 years, and over 600 deals, Irish regulators have intervened to block four. Some are now asking if this is too few. This is the wrong question.
To be sure, the Competition Authority will block suspect deals if appropriate. Under a 2002 law, it has self-executing power to enjoin transactions that substantially lessened competition.
But few mergers harm competition. At EU level, in 23 years and over 5,000 deals, 24 have been blocked. Ryanair’s bid for Aer Lingus was the last one. US outcomes are similar. In the lingua franca of economists, a deal is harmful solely if it “creates or enhances the merged firm’s ability or incentives to exercise market power either unilaterally or through coordination with rivals”.
The question is what does this mean? Is it gobbledygook – what one critic described as “bureaucratic discretion masquerading as law enforcement”? Or is it a clinical and apolitical assessment, as those (regulators and practitioners) who make a living from it say?
Certainly nobody suggests it is a brightline test. Just issued Competition Authority guidelines say “there are no standard measures of competitive effects”. Every case must be assessed “on its merits and in its own particular circumstances”.
Some also charge that merger control, no matter the substantive test, involves non-economic considerations. Opposing the 2002 merger control law, Pat Rabbitte TD rightly argued “there is, whether the technocrats like it or not, a political and public interest dimension to the issue”.
Take the political consideration first.
A merger or takeover can raise fears of local plant closures and job losses. Or industry consolidation may be championed by government to allow Irish firms the scale to compete on worldwide markets, even if local markets are monopolised.
By law, the Competition Authority must be blind to such considerations. And in practice it is.
There are many examples. In 2007, the Competition Authority required divestment of an overlapping business, in the face of accusation and blame for threatened closure of Erin Foods’ Thurles plant and loss of 95 jobs. On-going consolidation in dairy processing continues to receive close agency scrutiny, though government policy envisages creation of one or two super-dairies.
What about its substantive competition law assessment? By its own apolitical standards, has the Competition Authority generally called it right?
To use industry labels, bad decisions are either “type one” or “type two” errors: blocking a pro-competitive or neutral deal is type one, while allowing an anti-competitive deal is type two. Type two errors are difficult to scope for. Upwards of 595 deals have been cleared since 2003 (a few with mandated divestment or other conditions). Should any of these have been blocked as anti-competitive?