Using compensating efficiencies to assess EU merger policy
The majority of large horizontal mergers are unconditionally cleared by antitrust authorities. Since most horizontal mergers generate incentives to increase prices and/or reduce output, the presumption seems to be that the resulting efficiencies must be sizeable to make them good for consumers. This column uses a novel database covering over 1,000 mergers scrutinised by the European Commission and shows that, under certain assumptions, compensating efficiencies appear too large to be achievable for a large part of the mergers in the sample. The Commission's view on required efficiencies might have been too optimistic and it appears to have been too lax in enforcing its merger policy.