Comments on draft CMA Merger Assessment Guidelines

The Draft Revised Merger Assessment Guidelines (DRMAG) represent a very significant shift in the CMA’s approach. Some long-established cornerstones of merger analysis are substantially downgraded (notably, market definition, market shares, concentration, counterfactuals).

Comments on draft CMA Merger Assessment Guidelines
The Draft Revised Merger Assessment Guidelines (DRMAG) represent a very significant shift in the CMA’s approach. Some long-established cornerstones of merger analysis are substantially downgraded (notably, market definition, market shares, concentration, counterfactuals). Some important new issues are helpfully incorporated or further developed (notably, two-sided markets…). Some issues are left underdeveloped (notably, environmental and distributional issues). Simmering underneath is an apparent shift towards a more regulatory approach, and one with less reliance on economic evidence. We develop some of these issues in the following submission. However, the changes are too numerous and our time constraints have been too tight for us to have been able to cover all the issues raised by the draft (either positively or negatively). We would be
happy to discuss the DRMAG further should the CMA wish.

1. Market definition

Market definition has long been the starting point for investigating market power and the
assessment of mergers. This is true for most jurisdictions, including by the CMA and its predecessors
in the UK. There are good economic reasons for this, including the identification of key competitor
firms and the construction of relevant market shares. It is also true that market definition should
only be a starting point. It should not be seen as an end in itself, but rather as providing a useful
framework for the competitive analysis of the merger. Markets have fuzzy boundaries in both
product and geographic dimensions. We also agree that there is no point in duplicating the same
analysis in market definition and competitive assessment (which has afflicted some published
merger decisions by the European Commission in the past). This much is well understood but it
should not be mistaken for justification to dismiss market definition as a starting point.
It is particularly worrying to read in #9.3 that: “measures of concentration can often be interpreted
without concluding on a bright-line market definition. For example, the CMA may calculate
concentration measures on multiple different bases, including and excluding different firms,
depending on which firms the CMA wishes to compare.” This reads as a dangerous carte blanche
for the CMA to define markets on any basis that suits whatever answer it wants to find.
Furthermore, there is a new concern. The CMA now has jurisdiction over large international
mergers that were previously reserved for the European Commission. Running up to this new
responsibility, the CMA has already been increasingly assertive in its geographic jurisdiction (e.g.
Sabre/Farelogix). This combination brings a potentially very large increase in the range and
complexity of international mergers that it may choose to review. The CMA will need a filter for
highlighting the most relevant cases to investigate for anticompetitive effects.
Suppose there are ten European suppliers of a relatively standard product (or bespoke product
made using a standard technology), who compete actively in the European market. Three of these
currently supply to UK, but all ten are equally able to supply. A merger of two of the current
suppliers to the UK would appear as a 3-to-2 merger and would result in a combined share of supply
of 67%. However, this is only 20% of the European market in which effective competition operates.
Of course, further investigation would reveal the wider set of effective competitors, but this is
exactly what market definition achieves. This could become important for deciding which mergers
the CMA needs to investigate independently of the European Commission

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