Comments on draft EC Guidelines on the Assessment of Non-Horizontal Mergers Under the Council Regulation on the Control of Undertakings Between Undertakings

The observations below complement and build on (a) the comments that ICC provided to the Commission on November 30, 2005 on the report prepared by Professor Jeffrey Church (hereafter the “Church Report”), and (b) the report that was prepared by and on behalf of ICC Taskforce on Non-Horizontal Mergers.

The November 30, 2005 presentation and ICC’s comments on the Church Report are attached hereto for your convenience.

As described in our presentation and discussion paper, the view of ICC is that the EC should draft a set of Guidelines that can bridge the gap between public policy and economic theory in a manner that would not create unnecessary uncertainty, thereby deterring pro-competitive transactions. In this regard, we expressed our concern that, because the “post-Chicago” literature generally focuses more on the competitive harm associated with non-horizontal mergers, rather than on their potential to enhance competition, there might be a risk that the theories of competitive harm that are articulated in the Guidelines are over-inclusive. This concern is particularly relevant as (i) many of the key models are not robust in the sense that changes in the underlying assumptions can lead to very different conclusions, (ii) there are many models whose practical relevance has not been proven, (iii) models of raising rivals’ costs are still subject to considerable criticism, (iv) many of the economic models of foreclosure do not fully capture the static and dynamic efficiency effects of non-horizontal mergers, or do not explicitly address counterstrategies, (v) many of the economic models of vertical foreclosure depend on parameters for which data are not likely to be available and, finally (vi) there exists a lack of empirical research on the ultimate impact of non-horizontal transactions generally.