Plugging the Hole

1
Plugging the Hole
New Unilateral Effects Analysis in the EU

• Lorenzo Coppi
• George Mason Law Review Antitrust Symposium
• September 20, 2005

2
The HoleBetter known as the Unilateral Effects
Gap

• Traditional view
• Dominance unilateral effects
• Collective dominance coordinated effects
• Wrinkles in the traditional view
• Collective dominance often stretched beyond
  coordinated effects (e.g. Airtours)
• Dominance did not easily capture localized
  unilateral effects
• The Gap debate
• Could the Commission address localized
  unilateral effects?
• The 2004 Merger Reform closed the Gap

3
Plugging the HoleThe 2004 EC Merger Reform

• The substantive test
• Old test A concentration which creates or
  strengthens a dominant position as a result of
  which effective competition would be
  significantly impeded
• New test A concentration would significantly
  impede effective competition, in particular as a
  result of the creation or strengthening of a
  dominant position
• The EC Guidelines introduce localized unilateral
  effects analysis
• Localized unilateral effects analysis is EUs
  nouvelle vague
• GE/Instrumentarium, Oracle/Peoplesoft
• Interest in sophisticated economic tools
  (econometrics, merger simulation)

• The substantive test
• Old test A concentration which creates or
  strengthens a dominant position as a result of
  which effective competition would be
  significantly impeded
• New test A concentration would significantly
  impede effective competition, in particular as a
  result of the creation or strengthening of a
  dominant position
• The EC Guidelines introduce localized unilateral
  effects analysis
• Localized unilateral effects analysis is EUs
  nouvelle vague
• GE/Instrumentarium, Oracle/Peoplesoft
• Interest in sophisticated economic tools
  (econometrics, merger simulation)

4
Cracks in the plug the US experienceProblems
with simplified localized unilateral effects
analysis

• The analysis can be tricky
• Standard, static models of localized unilateral
  effect analysis always entail a price increase
  (absent efficiencies and/or divestitures)
• Standard analysis ignores countervailing factors
  (buyer power, repositioning, entry)
• More realistic analysis requires very
  sophisticated economic tools
• A word of caution
• Off-the-shelf economic and econometric models
  need to be used with caution
• Sophisticated economic analysis requires
  resources and expertise
• Will the Commission come to the same conclusions?

5
Take-away points

• With differentiated product, focus on localized
  unilateral effects
• The results of over-simplified analyses can be
  tricky
• More sophisticated economic analysis is needed
• Prepare
• Carry out the economic analysis early, so to
  engage the Commission in constructive discussions

6
Plugging the HoleNew UnilateralEffects
Analysis in the EU
Lorenzo Coppi CRA International 1201 F Street
NW Washington, DC 20004 [phone] lcoppi_at_crai
.com