Dynamic markets and uncertainty: CMA Merger Assessment Guidelines

Dynamic markets and uncertainty: CMA Merger Assessment Guidelines

The UK Competition and Markets Authority (CMA) is proposing to introduce revised Merger Assessment Guidelines, with a key focus on clarifying how the CMA will deal with dynamic markets and uncertainty in forward looking assessments.

Frontier Economics recently submitted our response to the CMA’s consultation on the Guidelines.

Our response emphasises that we welcome the CMA’s move towards recognising the importance of dynamic competition. However, we suggest that the Guidelines should make clear that forward looking and uncertain assessments will typically require a greater degree of balancing between potential anti-competitive effects and countervailing factors, and that it is more likely that countervailing factors will play an important role in the assessment of these cases. This is because:

  • forwarding looking assessment in dynamic markets involve a ‘double uncertainty’ as to whether both: (i) there will be competition in the counterfactual; and (ii) whether removal of that competition is a Substantial Lessening of Competition (SLC). This means that SLCs in these cases will often be ‘borderline’ cases, where even a small chance of a countervailing effect could be enough to change the balance of probabilities;
  • countervailing factors (merger efficiencies and the supply side responses of rivals) are typically dismissed precisely because they are often characterised by uncertainty – this cannot render them irrelevant when the SLC itself is borderline and uncertain; and
  • countervailing factors (in particular countervailing entry and expansion) should be presumed to be more likely in a rapidly changing and dynamic market where competition between the merging parties has not yet materialised.

You can read our response in full here.

Frontier Economics regularly advises clients on the CMA’s merger clearance process.

For more information please contact media@frontier-economics.com, or call +44 (0)20 7031 7000.