A New Era of Merger Guidelines and Controls: Q&A with Leading Economic Experts
As the European Union—and to some extent the US—attempts to modernize competition policy, new questions and challenges arise related to mergers. Two BRG managing directors weigh in.
Former European Central Bank President Mario Draghi’s 2024 report on European competitiveness served as a clarion call for the region to modernize its competition policy to support broader geopolitical objectives. Key aims, as reflected in the European Commission’s (EC) 2025 Competition Compass, include closing the innovation gap with other parts of the world, in particular the US and Asia; a competitiveness-driven approach to decarbonization; and reducing dependencies and enhancing security.
In the area of merger controls, the report specifically highlights the importance of enabling European Union (EU) firms to achieve the scale necessary to compete internationally, facilitating innovation, and using investment commitments as a possible remedy—as well as how improving “resilience” might play a role in competition policy.
On the other side of the Atlantic, the new Trump administration has shown more continuity on merger policy than some expected, largely backing the Department of Justice and Federal Trade Commission’s 2023 Merger Guidelines and challenging several mergers, though with an eye toward accelerating innovation. However, senior leadership is not fully in place, and the direction US merger policy will take is uncertain.
As new developments play out, prospective dealmakers and their attorneys must navigate an increasingly complex regulatory environment. To that end, we connected with two BRG managing directors and competition economists, Brussels-based Dr. Adina Claici and Washington, DC-based Dr. Henry Kahwaty, to discuss the state of play.
To what extent is competition policy, and in particular merger policy, the cause of—or remedy for—the competitiveness problems raised by Draghi?
Adina: Competition policy is not the cause of Europe lagging behind. The fragmentation of the internal market and high regulatory barriers to businesses have been mentioned among the causes.
In terms of remedies to lagging innovation, competition policy is expected to contribute. Although state aid policy is the main area where the EU competition enforcer looks for solutions to the innovation problem, merger enforcement is also part of the discussion. The EC’s Directorate-General for Competition (DG COMP) has been at the forefront of putting forward innovation theories of harm, yet an increase in innovation as a positive effect of mergers has not been considered. This is due to both the possible lack of claims in that direction by merging parties and the lack of a sound economic framework to support the analysis. Encouraging developments on both sides may change the situation and allow DG COMP to assess and hopefully account for innovation efficiencies.
Asymmetries in information between DG COMP and merging parties are a source of risk associated with analyzing innovation-related merger efficiencies. One alternative to reduce risks would be to strengthen remedies policy by introducing strict commitments on implementing anticipated investments claimed by merging parties.
The UK seems to have gone down that path with the Vodafone-Three conditional clearance. In that case it seems like UK enforcers did exactly what Draghi has prescribed in terms of using investment commitments as appropriate remedies. Was it a shift in policy relative to their previous views regarding behavioral commitments? Or did the facts of the case justify a departure from past enforcement policy? It was probably a combination.
Henry: With regard to achieving the scale necessary to compete internationally, the EU population is 50 percent larger than that of the US. It would seem that if mergers were necessary to achieve scale to compete internationally, there should be ample opportunities to achieve scale in Europe consistent with regulations.
Merger control should not inhibit scale—but, of course, that doesn’t mean that all transactions should be approved. For example, how can European telecommunications firms be unable to achieve the scale necessary when they can have so many more customers than US firms?
The answer is market fragmentation. European telecom markets are national, as are spectrum auctions. With further market integration, mergers should allow firms to reach scale. Competition policy can help resolve issues of scale or innovation, but it cannot solve all ills. It is a limited toolset, and we get into trouble if we want competition policy to do more than it is capable of doing.
Dr. Kahwaty, what do you think about the potential for an innovation defense?
Henry: Innovation is just a specific type of efficiency, and efficiencies are considered in merger cases all the time. The potential for an innovation defense does raise a unique issue relative to, for example, the analysis of cost savings: analyzing innovation is difficult. How would you analyze an innovation defense? What could you try to prove, and how would you do it?
Though the analysis may be clear in certain industries, discussions related to innovation issues may come across as speculative or lacking the same rigor to which we are accustomed in other areas of competitive effects analysis. Similarly, how do we analyze innovation from the point of view of a competitive concern? The difficulties in analyzing innovation are not limited to efficiency considerations but rather are a broader issue.
The US Merger Guidelines do not help much, though they do include the following:
“The incentives to compete aggressively on innovation and product variety depend on the capabilities of the firms and on customer reactions to the new offerings. Development of new features depends on having the appropriate expertise and resources. Where firms are two of a small number of companies with specialized employees, development facilities, intellectual property, or research projects in a particular area, competition between them will have a greater impact on their incentives to innovate.”
Thus, a capabilities analysis can be an important part of analyzing innovation-related issues, as it is with potential competition and dynamic competition concerns—which are concerns related to future competition, recognizing that markets change with the introduction of new products and services, development of new technologies, redeployment and recombination of assets, and use of new business models.
Another buzzword used in recent political discourse is “resilience.” How would—or should—regulators take resilience into account in merger assessments?
Adina: In light of recent crises that have hit the EU (e.g., COVID or energy prices), the continent is seeking ways to increase resilience to reduce exposure to risks. Resilience may include diversifying suppliers and reducing reliance on imports from a particular global partner. Resilience is often talked about in a national security context and is subject to foreign direct investment control. Unfortunately, foreign direct investment scrutiny is not consolidated at the EU level, leaving the region at a disadvantage.
Resilience does not figure in the current EU Merger Regulation (EUMR), although noncompetition considerations are mentioned in Article 21(4). They include public security, media plurality, and prudence for the financial sector.
Noncompetition objectives are a common topic in many African jurisdictions that have a public interest test incorporated into their merger regimes. However, its justification has a specific nature: to protect historically disadvantaged groups by safeguarding local employment or supporting small- and medium-sized enterprises. Accounting for such factors in the assessment of a merger is not straightforward. Empirical research shows that invoking public interest objectives negatively impacts merger decisions, leading to longer proceedings and a higher likelihood of additional conditions being imposed.
Perhaps some lessons can be learned from the application of such tests in Africa. Yet due to the stated drawbacks, invoking such objectives in merger control policy should be rather exceptional, in particular when no other regulatory instrument can address them.
What legal framework should set boundaries for these envisaged reforms in the EU?
Adina: Both Draghi and EC President Ursula von der Leyen are proposing to reform the EU’s merger guidelines. The question is whether guidelines revisions are the right approach to incorporate forward-looking policy goals, or whether it would be better to examine the EUMR or other tools.
For now, reforming the guidelines seems like a faster and easier route. If I had to mention one area where the EC could do more, it would be on “efficiencies.” Further guidance on the assessment of efficiencies would hopefully encourage early submissions by merging parties. I would also advocate more flexibility to cater for business specifics, such as the timeline of investment cycles in different industries. Accepting efficiencies only for a couple of years may not account for what is actually relevant in a given industry. The commitments in the UK for the Vodafone-Three merger demonstrate a good understanding of the period necessary for investments to be achieved.
Another important issue involves ensuring that the standards of proof for harm and efficiencies are the same. Having a higher standard for the former than the latter, as is the case currently, is not economically justified; problems related to asymmetries of information between the enforcer and merging parties could be addressed through commitments and remedies. Otherwise, there is a risk of overenforcement, which may result in underinvestment and suboptimal outcomes regarding, for example, innovation.
A radical alternative for DG COMP would be just approving a set of reforms, then letting the courts take (political) blame should they ultimately be quashed. That, however, would be long and expensive for everyone involved.
What role will economics play in these ongoing evolutions?
Adina: Efficiencies and innovation defenses will be taken more into account, hopefully, and with a longer-term perspective aligned with remedies’ policies. At the same time, new efficiency or other public policy objectives (e.g., related to decarbonization and national security) pose challenges, as quantifications are less straightforward. However, empirical and economic tools do exist.
Not least, ex post analyses may become more relevant, and economists are well suited to perform those.
Henry: Measuring innovation and longer-term efficiencies, as Adina noted, may be difficult and require detailed and thorough analysis. Further, accounting for these efficiencies when making specific decisions on merger cases may require a cost/benefit analysis. Accounting for other objectives in merger control policy—such as decarbonization, national security, or resiliency—could be done, but the weights to place on different objectives when they conflict in a specific case are undefined.
Such a balance of conflicting goals could be done, but it arguably takes merger policy too far from its roots of protecting competition and asks it to do more than it is capable of doing. In any case, there’s more work for economists ahead, particularly when it comes to innovation defenses, longer-term analyses, and the assessment and understanding of dynamic competition concerns more broadly.
