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Mergers, Innovation and Remedies’ Design

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Promoting Competition in Innovation Through Merger Control in the ICT Sector

Part of the book series: Munich Studies on Innovation and Competition ((MSIC,volume 10))

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Abstract

This chapter first evaluates how mergers have a positive impact on the incentives to innovate, followed by a discussion on merger remedies. It also discusses key economic and econometric studies that ex-post evaluated the impact of merger control on competition. The chapter concludes by summarising the key set of factors that need to be considered in the design of ICT merger remedies.

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Notes

  1. 1.

    Josef Drexl, ‘Real Knowledge is to Know the extent of One’s Own Ignorance: On the Consumer Harm Approach in Innovation-related Competition Cases’ (2009–2010) 76 Antitrust Law Journal 677, 706.

  2. 2.

    Patrice Bougette and Christian Monet, ‘Doutes sur les remèdes non structurels dans le contrôle des concentrations’ (2005) 2 Revue Lamy de la Concurrence 9, 10.

  3. 3.

    Allocative efficiency refers to a state whereby existing resources in the economy are allocated to their most efficient use. In economic parlance, this is the equivalent of Pareto efficiency as any redistribution will benefit one individual to the detriment of another. Productive efficiency means that each unit of output produced consumes the smallest possible quantity of inputs. Dynamic efficiency is attained when the cost of the last unit of investment in research and development (R&D) is equal to the anticipated revenue generation from this unit. In economic terms, when the marginal cost of R&D is equal to the marginal revenue generated from this investment, a given process is said to be dynamically efficient. See, Ulrich Schwalbe and Daniel Zimmer, Law and Economics in European Merger Control (Oxford University Press, 2009) 3–10.

  4. 4.

    Ulrich Schwalbe and Daniel Zimmer, Law and Economics in European Merger Control (Oxford University Press, 2009).

  5. 5.

    J Gregory Sidak and David J Teece, ‘Dynamic Competition in Antitrust Laws’ (2009) 5 Journal of Competition Law and Economics 581, 584.

  6. 6.

    The term is named after Joseph Schumpeter, who propounded that innovation competition and not static competition is the tour de force of the new age. Thus, temporary incumbent monopolists are replaced by new innovating firms who introduce new and more innovative products in the market. See, Joseph A Schumpeter, Capitalism, Socialism and Democracy (first published 1927, Harper & Row 1942).

  7. 7.

    Oliver Budzinski, ‘Pluralism of Competition Policy Paradigm and the Call for Regulatory Diversity’ [2003] Philipps University of Marburg Volkswirtschaftliche Beitraege No. 14/2003 21–22.

  8. 8.

    Ilene Knable Gotts, Scott Sher and Michelle Lee, Antitrust Merger Analysis in High-Technology Markets, European Competition Journal Vol. 4 No. 2 (December 2008) at pp 465–466. See also the references therein and the discussion on the Portuguese Autoridade da Conorrencia’s conditional clearance of the Sonaecom and Portugal Telecom merger.

  9. 9.

    Mika Oinonen, Does EU Merger Control Discriminate Against Small Market Companies? Diagnosing the Argument with Conclusions (Kluwer Law International 2010) 57.

  10. 10.

    Martti Virtanen, Market Dominance-related Competition Policy: An Eclectic Theory and Analysis of Policy Evolution (Publications of the Turku School of Economics and Business Administration 1998) 41.

  11. 11.

    Friedrich-August von Hayek, ‘Der Wettbewerbs als Entdechungsverfahren’ 1968 lecture sponsored by the Institut für Weltwirtschaft at the University of Kiel, published at No. 56 in the series Kieler Vorträge translated as ‘Competition as a Discovery Procedure’ (Marcellus S. Snow (tr) (Fall 2002) 5(3) The Quarterly Journal of Economics 9).

  12. 12.

    Ibid.

  13. 13.

    Mika Oinonen, Does EU Merger Control Discriminate Against Small Market Companies? Diagnosing the Argument with Conclusions (Kluwer Law International 2010) 57–58.

  14. 14.

    Google/Motorola Mobility (Case COMP/M 6381) [2012] OJ C075/01, paras 62–63.

  15. 15.

    Ilene Knable Gotts, Scott Sher and Michelle Lee, ‘Antitrust Merger Analysis in High-Technology Markets’ (December 2008) 4(2) European Competition Journal 463, 477.

  16. 16.

    See Chap. 13 Remedies in the Telecommunications Sector.

  17. 17.

    Mika Oinonen, Does EU Merger Control Discriminate Against Small Market Companies? Diagnosing the Argument with Conclusions (Kluwer Law International 2010) 65.

  18. 18.

    George B Shepherd, Joanna M Shepherd and William G Shepherd, ‘Antitrust and market dominance’ (Winter 2001) 46(4) The Antitrust Bulletin 835, 850–852.

  19. 19.

    See Chap. 4: Theory of Harm: Unilateral Effects in ICT Mergers.

  20. 20.

    In time series analysis frequency of events are statistically assessed to make interpretations about the trend. The analysis is frequently used in weather forecasting and stock exchange analysis.

  21. 21.

    Mika Oinonen, Does EU Merger Control Discriminate Against Small Market Companies? Diagnosing the Argument with Conclusions (Kluwer Law International 2010) 68.

  22. 22.

    See Chap. 6 Theories of Harm: Conglomerate Effects and Quantitative Analysis in ICT Mergers.

  23. 23.

    Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings [2004] OJ C31/05, para 20.

  24. 24.

    Ibid.

  25. 25.

    See discussion on the effects-based approach under the 2004 Merger Regulation in Chap. 7 Merger Control in the EU and the UK.

  26. 26.

    Clayton Christensen and Michael Overdorf, ‘Meeting the Challenge of Disruptive Change’ [March-April 2000] Harvard Business Review 67.

  27. 27.

    Ibid.

  28. 28.

    Kenneth J Arrow, ‘Economic Welfare and the Allocation of Resources to Invention’ in Richard Nelson (ed), The Rate and Direction of Economic Activity (Princeton University Press 1962) 609, 622–26.

  29. 29.

    Philippe Aghion and Jean Tirole, ‘On the Management of Innovation’ (1994) 109(4) Quarterly Journal of Economics 1185.

  30. 30.

    Gordon M Philips and Alexei Zhdanov, ‘R&D and the Incentives from Merger and Acquisition Activity’ (2013) 26(1) The Review of Financial Studies 34.

  31. 31.

    Kenneth J Arrow, ‘Economic Welfare and the Allocation of Resources to Invention’ in Richard Nelson (ed), The Rate and Direction of Economic Activity (Princeton University Press 1962) 609.

  32. 32.

    Depending upon the current market structure—whether it is a monopoly or oligopoly—the market may currently be served by a different number of players.

  33. 33.

    United States v. Google Inc., No. 1:11-cv-00688, 2011 WL 1338047, Complaint ¶ 42 (D.D.C. Apr. 8, 2011), available at <https://www.justice.gov/atr/case-document/file/497686/download> accessed 06 January 2019.

  34. 34.

    Apple/Beats (Case No COMP/M.7290) [2014] OJ C260/08, para 1.

  35. 35.

    Ibid., at para 2.

  36. 36.

    Ibid.

  37. 37.

    Ibid., at para 3.

  38. 38.

    Ibid., at para 4.

  39. 39.

    Ibid., at paras 11–16.

  40. 40.

    Ibid., at paras 17–21.

  41. 41.

    Robert M Allan Jr, ‘Expansion by Merger’ in William W. Alberts and Joel E. Segall (eds), The Corporate Merger (Chicago and London: The University of Chicago Press, 1969) 102.

  42. 42.

    United States v. Bazaarvoice Inc., Case No. 13-cv-00133-WHO,2014 WL 203966 (N.D. Cal. Jan. 8, 2014) accessed 06 January 2019.

  43. 43.

    Ibid., ¶ 133.

  44. 44.

    Institute of Competition Law research sponsored by Clifford Chance and PricewaterhouseCoopers LLP (the UK firm), ‘The Merger Remedies Matrix’ Concurrences <http://www.concurrences.com/Bulletin/Special-Issues/MergerRemedies-matrix/?lang=fr> accessed 06 January 2019.

  45. 45.

    Mika Oinonen, Does EU Merger Control Discriminate Against Small Market Companies? Diagnosing the Argument with Conclusions (Kluwer Law International 2010) 52.

  46. 46.

    Johannes Lübking, ‘Revision of the Notice on merger remedies’ (2007) 2, 3–4 Competition Policy Newsletter <http://ec.europa.eu/competition/publications/cpn/2007_2_6.pdf> accessed 06 January 2019.

  47. 47.

    Commission Notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004 [2008] OJ C 267/01.

  48. 48.

    Ibid., at para 2.

  49. 49.

    Ioannis Lianos, ‘Competition Law Remedies in Europe Which Limits for Remedial Discretion?’ (January 2013) CLES Research Paper Series 2/2013, 52 <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2235817> accessed 06 January 2019.

  50. 50.

    Case T-158/00, Arbeitsgemeinschaft der öffentlich-rechtlichen Rundfunkanstalten der Bundesrepublik Deutschland (ARD) v Commission, [2003] ECR II-3825, para 328.

  51. 51.

    Case T-119/02, Royal Philips Electronics NV v Commission [2003] ECR I-1433, para 77.

  52. 52.

    Damien Geradin and J Gregory Sidak, ‘European and American Antitrust Approaches to Antitrust Remedies and the Institutional Design of Regulation in Telecommunications’ in Martin E Cave, Sumit K Majumdar and Ingo Vogelsang (eds) Handbook of Telecommunications Economics Vol 2 (Oxford University Press 2006) 530, 530–32.

  53. 53.

    Ibid.

  54. 54.

    Ibid.

  55. 55.

    Daniel J Gifford and Robert T Kudrle, The Atlantic Divide in Antitrust: An Examination of US and EU competition policy (Chicago and London: The University of Chicago Press 2015) 52.

  56. 56.

    Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings [2004] OJ C31/05, paras 71(b)-(c).

  57. 57.

    See Chap. 11 Structural Remedies and Chap. 12 Non-structural Remedies.

  58. 58.

    David A Balto and Richard G Parker, ‘The Evolving Approach To Merger Remedies’ Antitrust Report (May 2000 Washington DC).

  59. 59.

    Antitrust Division Policy Guide to Merger Remedies, U.S. Department of Justice, Antitrust Division, 2 [June 2011] <https://www.justice.gov/sites/default/files/atr/legacy/2011/06/17/272350.pdf> accessed 06 January 2019.

  60. 60.

    United States, ‘Roundtable on Remedies in Merger Cases – Contribution from the United States’ (Working Part No. 3 on Cooperation and Enforcement, June 2011) DAF/COMP/WP3/WD(2011) 58 <https://www.ftc.gov/sites/default/files/attachments/us-submissions-oecd-and-other-international-competition-fora/1106usremediesmergers.pdf> accessed 06 January 2019.

  61. 61.

    Article 5, part IV, Consolidated version of the Treaty on European Union [2012] OJ C 326/13.

  62. 62.

    Commission Notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004 [2008] OJ C 267/01, recital 6.

  63. 63.

    Ibid., at recital 30.

  64. 64.

    Commission Notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004 [2008] OJ C 267/01.

  65. 65.

    The Merger Remedies Matrix is a database consisting of over 600 national merger decisions in various EU member states where in the commission used remedies to alleviate the competition concerns. See Institute of Competition Law research sponsored by Clifford Chance and PricewaterhouseCoopers LLP (the UK firm), ‘The Merger Remedies Matrix’ Concurrences <http://www.concurrences.com/Bulletin/Special-Issues/MergerRemedies-matrix/?lang=fr> accessed 06 January 2019.

  66. 66.

    Commission Notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004 [2008] OJ C 267/01, para 15.

  67. 67.

    Ioannis Lianos, ‘Competition Law Remedies in Europe Which Limits for Remedial Discretion?’ (January 2013) CLES Research Paper Series 2/2013, 49 <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2235817> accessed 06 January 2019.

  68. 68.

    NXP Semiconductors/Freescale Semiconductor (Case M 7585) [2015] OJ C375/2, para 246.

  69. 69.

    Competition Commission, CC8 - Merger Remedies: Competition Commission Guidelines, recital 1.7 [November 2008] <https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/510513/cc8.pdf> accessed 06 January 2019.

  70. 70.

    Ibid., at recital 1.9–1.13.

  71. 71.

    Ibid., at recital 1.

  72. 72.

    Ibid., at recital 1.11.

  73. 73.

    Ibid., at recital 1.15.

  74. 74.

    Federal Trade Commission, ‘A Study of the Commission’s Divestiture Process’ [1999] <http://www.ftc.gov/sites/default/files/attachments/merger-review/divestiture.pdf> accessed 06 January 2019.

  75. 75.

    DG Comp, European Commission, ‘Merger Remedies Study’ [October 2005] <http://ec.europa.eu/competition/mergers/legislation/remedies_study.pdf> accessed 06 January 2019.

  76. 76.

    Federal Trade Commission, ‘The FTC’s Merger Remedies 2006–2012: A Report of the Bureau of Competition and Economics’ [January 2017] <https://www.ftc.gov/system/files/documents/reports/ftcs-merger-remedies-2006-2012-report-bureaus-competition-economics/p143100_ftc_merger_remedies_2006-2012.pdf> accessed 06 January 2019.

  77. 77.

    Ibid., at pp. 1–2.

  78. 78.

    Ibid.

  79. 79.

    Ibid., at p. 2.

  80. 80.

    Tomaso Duso, Klaus Gugler and Burcin Yurtoglu, ‘EU Merger Remedies: A Preliminary Empirical Assessment’ in Vivek Ghosal and Johan Stennek (eds), The Political Economy of Antitrust: Contributions to Economic Analysis (London: Elsevier 2007) 302.

  81. 81.

    Tomaso Duso, Damien J Neven, and Lars-Hendrik Röller, ‘The Political Economy of European Merger Control: Evidence Using Stock Market Data’ (2006) Discussion Paper FS IV 02-34r, Wissenschaftszentrum Berlin <https://www.jstor.org/stable/10.1086/519812> accessed 06 January 2019.

  82. 82.

    Tomaso Duso, Klaus Gugler and Burcin Yurtoglu, ‘EU Merger Remedies: A Preliminary Empirical Assessment’ in Vivek Ghosal and Johan Stennek (eds), The Political Economy of Antitrust: Contributions to Economic Analysis (London: Elsevier 2007) 302, 302–312.

  83. 83.

    When the article was written, the present day European Union was the European Community. The EC is now the EU and European Commission is referred to as the EU Commission.

  84. 84.

    Peter Angelov, Stephanie Rosenkranz and Hans Schenk, ‘Competitive Effects of Merger Remedies in Europe’s High-Tech Industry’ (October 2012) Discussion Paper Series 12–16, Tjalling C. Koopmans Research Institute, 23 <http://ideas.repec.org/p/use/tkiwps/1216.html> accessed 06 January 2019.

  85. 85.

    Ibid.

  86. 86.

    Neurons are the most fundamental components in the human nervous system. They are organised in layers where each neuron performs a specific pre-defined function—as an afferent axons that is the input layer, hidden layer or efferent axons, the output layer. Neural Network Model first developed by the mathematicians McCulloch and Pitts in 1943 to explain how the neurons function, learn and unlearn and respond to signals, the stimuli, was subsequently improved and adapted as a ‘neural network model’, today widely applied in econometric analysis. The model is designed along similar lines as discussed above and is highly useful to explain nonlinear relationships between predictors and target variables.

  87. 87.

    Patrice Bougette and Stéphane Turolla, ‘Merger Remedies at the European Commission: A Multinomial Logit Analysis’ LAMETA Working Paper 2006-08, <http://mpra.ub.uni-muenchen.de/2461/> accessed 06 January 2019. The database constituted phase 1 and phase 2 merger cases in Europe from the 1990 to 2005.

  88. 88.

    John Kwoka, Mergers, Merger Control, and Remedies (The MIT Press 2015) 158.

  89. 89.

    Competition Commission, CC8 - Merger Remedies: Competition Commission Guidelines, recital 1.4 [November 2008] <https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/510513/cc8.pdf> accessed 06 January 2019.

  90. 90.

    Ibid., at recital 1.14.

  91. 91.

    Ibid., at recital 1.19.

  92. 92.

    Ibid., at recital 1.13.

  93. 93.

    In latest mergers, it emerges, that Commission has started to take note of this fact. See for instance, the Microsoft/ LinkedIn merger discussed in Chap. 17.

  94. 94.

    See for instance the Testimony of Kenneth Johnson and Michael Sternklar in Oracle/PeopleSoft who identified it as a ‘continuous investment’, United States v. Oracle Corp., 331 F. Supp. 2d 1098 (N.D. Cal. 2004).

  95. 95.

    Eleanor Morgan, ‘Steering Mergers through the EU’s Regulatory Blocks: Remedies Under the EU Merger Control Regulation’ (October 2002) 20(5) European Management Journal 549, 552.

  96. 96.

    Ibid., pp. 549, 555–56.

  97. 97.

    Ibid., pp. 549, 555.

  98. 98.

    Dušan Popoviü, ‘Merger Remedies and Regulatory Measures in the EU Electronic Communications Sector: A Critical Assessment’ (December 2010) 10(4) European Business Organisation Law Review 575, 586–587.

  99. 99.

    Josef Drexl, ‘Competition Law in Media Markets and its Contributions to Democracy – A Global Perspective’, (2015) 38(3) World Competition 367, 378–79.

  100. 100.

    Ibid., pp. 367, 379.

  101. 101.

    Ibid., pp. 367, 379–80.

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  1. Center for Legal Informatics in the Department of Law, Aarhus Universitet School of Business and Social Sciences, Aarhus, Denmark

    Kalpana Tyagi

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Tyagi, K. (2019). Mergers, Innovation and Remedies’ Design. In: Promoting Competition in Innovation Through Merger Control in the ICT Sector. Munich Studies on Innovation and Competition, vol 10. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-58784-3_9

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