European competition policy - merger control


The control of mergers and acquisitions is one of the pillars of European Union
competition policy.

Corporate restructuring through mergers and acquisitions is a fact of business life. There
is a natural tendency for markets to consolidate over take through a process of horizontal
and vertical integration.

The main issue is whether a proposed merger leads to a substantial lessening of
competitive pressures in the market and risks leading to a level of market concentration
when collusive behaviour might become a reality.

When companies combine via a merger, an acquisition or the creation of a joint venture,
this generally has a positive impact on markets:

• Firms usually become more efficient
• Competition intensifies
• The final consumer will benefit from higher-quality goods at fairer prices

However, mergers which create or strengthen a dominant market position are prohibited
in order to prevent ensuing abuses. Acquiring a dominant position by buying out
competitors is in contravention of EU competition law.

Companies are usually able to address the competition problems, normally by offering to
divest (sell or offload) part of their businesses.

Liberalisation of Markets within the Single Market

The main principle of EU Competition Policy is that consumer welfare is best served by
introducing competition in markets where monopoly power exists.
Frequently, these monopolies have been in network industries for example transport,
energy and telecommunications. In these sectors, a distinction must be made between
the infrastructure and the services provided directly to consumers over this

While it is often difficult to establish a second, competing infrastructure, for reasons
linked to investment costs and economic efficiency (i.e. natural monopoly arguments) it is
possible and desirable to create competitive conditions in respect of the services

Separating infrastructure from services

The Commission has developed the concept of separating infrastructure from commercial
activities. The infrastructure is thus merely the vehicle of competition. While the right to
exclusive ownership may persist as regards the infrastructure (the telephone or
electricity network for example), monopolists must grant access to companies wishing to
compete with them as regards the services offered on their networks (telephone
communications or electricity supply).

This is the general principle on which the EC liberalisation directives are based.
The EU Commission can initiate the opening-up of markets. It may itself adopt a
European liberalisation directive which must be enforced by the Member States. The
Commission checks that these objectives are actually achieved.

State Aid in Markets

By giving certain firms or products favoured treatment to the detriment of other firms or
products, state aid seriously disrupts normal competitive forces. Neither the beneficiaries
of state aid nor their competitors prosper in the long term.

Very often, all government subsidies achieve is to delay inevitable restructuring
operations without helping the recipient actually to return to competitiveness.

Un-subsidised firms who must compete with those receiving public support may ultimately
run into difficulties, causing loss of competitiveness and endangering the jobs of their
employees. Ultimately, then, the entire EU market will suffer from state aid, and the
general competitiveness of the European economy is imperiled.

State aid that distorts competition in the Common Market is prohibited by the EC Treaty.
Under the current European state aid rules, a company can be rescued once. However,
any restructuring aid offered by a national government must be approved as being part
of a feasible and coherent plan to restore the firm’s long-term viability.