For many years, some competition economics academics and practitioners have argued that competition authorities do not take sufficient account of dynamic competition when assessing merger cases, instead relying on neoclassical economic theory and static competition. Under dynamic competition firms use innovation to introduce new products, processes and services and compete for future rents, whilst under static competition products are generally close substitutes and firms compete for current rents.
This report, commissioned by the British Institute for International and Comparative Law (BIICL) reviews two recent merger cases in the UK (Meta/Giphy and Microsoft/Activision), which were both rejected by the Competition and Markets Authority (CMA), and examines how, if at all, dynamic competition was considered in their analysis.
The Report notes that the CMA takes some account of dynamic competition in its analysis of the merger but argues that it does so in an ad hoc and unstructured manner. It argues that the CMA should set out a clear methodology for assessing whether possible new technology developments could overcome any loss of competition resulting from the merger.
The Report sets out five questions a merger case should address so that the process could be made more robust:
i) Do technical and economic conditions mean that the market is likely to be subject to dynamic competition?
ii) What is the scope of the relevant market?
iii) If a static Substantial Lessening of Competition (SLC) is not found, could there be a dynamic SLC?
iv) If a static SLC is found, could dynamic competition be an effective counter?
v) Do coordination benefits from integration outweigh an SLC?