Horizontal concentration and European merger policy

Theoretical arguments regarding the contribution of mergers to the productivity of business assets do not yield a general presumption in their favor. In many cases, there is no real trade-off between efficiency gains from mergers and an increase in monopoly power. Existing data suggest that the total number of mergers and acquisitions involving at least one of the top 1,000 European Community firms has been steadily increasing, from 185 in the period 1984-1985 to 492 in the period 1988-1989. This trend can be dangerous to the extent that positive welfare effects are less probable if the market share of the merging firms is large relative to that of the nonparticipant firms. To determine whether a merger creates or strengthens a dominant position, the European Commission will take into account the development of technical and economic progress, provided that it is to the advantage of consumers. While mergers and takeovers are a possible route for restructuring, neither theory nor empirical work provides any arguments in favor of a presumption that these operations generally are efficient.