Ex post evaluation of vertical mergers

15 January 2024 | Competition Competition Policy Studies
Ex post evaluation of vertical mergers Read More

In April 2022, the British Competition and Markets Authority (CMA) published E.CA Economics’ ex post evaluation of its approach to vertical mergers. The CMA retained us to look at four recent mergers with a vertical component and evaluate whether CMA’s assessment was reasonable and correct. We also reviewed the current thinking on vertical mergers to help the CMA learn from the latest developments.

 

Merger cases that have been analysed

E.CA’s evaluation reviewed four CMA assessments of vertical mergers, or mergers with a
vertical component. All took place in 2017. They were:

  1. the acquisition by a vertically integrated pig farming and pork processing operation,
    Tulip, of a large pig farm specialised in outdoor bred pigs, Easey;
  2. the acquisition by the brewer and pub owner, Heineken, of Punch pubs;
  3. the acquisition by Mastercard of the payment infrastructure provider, Vocalink; and
  4. the acquisition by the UK’s largest grocery retailer, Tesco, of the UK’s largest grocery
    wholesaler, Booker.

 

Key findings

E.CA found that the CMA carried out largely reasonable and correct assessments of these mergers. The following key findings aim to help the CMA fine tune its practice in the future:

Business evidence is important
Vertical mergers tend to be more complex than horizontal mergers, which means that vertical harm can be more difficult to understand. We found that in all reviewed cases there was good quality evidence, that would have helped the CMA understand the purpose of the merger. The CMA could have derived useful knowledge from this evidence for its assessment of competition concerns.

Vertical mergers are rarely isolated events
In all reviewed industries other cases of vertical consolidation were taking place within a similar time frame. The CMA would have benefitted from understanding the impact of and motivation for the mergers in a wider industry context, and from taking a more dynamic approach to the counterfactual.

Updating the vertical toolkit
The CMA’s Merger Assessment Guidelines help with some vertical cases, but may not provide sufficient guidance to tackle some of the recently formulated concerns, such as softening of competition through a vertical recoupment mechanism, or potential competition concerns in a platform market setting.

Balancing the SLC test
The CMA could be more mindful of the need to balance its SLC test with both greater interest in (and rigorous testing of) efficiencies, as well as with consistent application of the ability-incentive-effect framework for the assessment of foreclosure. The CMA could also be more thorough in its assessment of entry ans expansion.

Benefits of simplicity
The CMA tended to investigate more theories of harm for longer than we considered necessary. Given that some of the most plausible theories of harm were complex and required careful assessment, the CMA would have benefitted from focusing on a smaller number of higher likelihood concerns.

 

Contact

For more insights or any questions, please contact the E.CA’s experts.

These E.CA employees were also involved: Rafael Aigner, Bas Dessens, Vedika Hegde, Nicola Heusel, Raphael PoncetGiulia Santosuosso.

Click here to find the full report.
8 November 2023 | Competition Competition Policy Studies
E.CA supports study for the revision of the EEAG & Section 7 of GBER Read More

DG Competition of the European Comission commissioned a consortium with a study to support the revision of the EU Guidelines on State aid for environmental protection and energy (EEAG) and the General Block Exemption Regulation (GBER). E.CA Economics was part of this consortium together with DIW Berlin, LEAR, SheppardMullin and University of East Anglia.

The report provides  with background information for the review of the EU Guidelines on State aid for environmental protection and energy (EEAG) applicable in 2014-2020 and on the provisions applicable to aid for environmental protection and energy (Section 7) of Commission Regulation (EU) 651/2014 (GBER).

 

The study consists of three study items.

Transparency, Tendering, Broadening

This study item examines whether and how the transparency of environmental protection costs of decarbonisation aid schemes should be increased by quantifying both the benefits to environmental protection and their costs. It also addresses whether tendering requirements in aid schemes should be extended. Finally, the study item assesses whether environmental protection schemes can be broadened to different sectors and technologies which could advance the same environmental protection objective to a similar extent, rather than being sector- or technology-specific.

Operating Aid vs. Investment Aid

The challenges of the green transition might require new types of aid and the traditional distinction between operating aid and investment aid needs to be re-examined. Hence, study item 2 examines the effectiveness and distortive effect of different forms of aid by reviewing the existing literature, case stud-ies on four representative schemes and modelling hypothetical future aid schemes in important sectors.

Energy intensive Users

This study item assesses whether the currently used economic parameters to determine the eligibility of sectors for exemptions from decarbonisation levies for Energy-Intensive Users (“EIUs”) are the most relevant parameters for the risk of relocation from an economic perspective. Further it aims at determining the extent to which the profitability of EIUs is affected by different levels of Renewable Energy Sources (RES) and Combined Heat Power (CHP) levies on electricity for a sample of 10 sectors.

 

Interested in the main findings?

Please contact our experts. They can answer all questions.

E.CA representatives also involved: Hans W. FriederiszickJan Christopher Rönn

Link to full report
3 November 2023 | Competition Competition Policy Studies
State aid in the railway sector published by DG COMP Read More

DG COMP of the European Commission has published a study conducted by a consortium led by E.CA Economics on State aid in the field of rail transport. The results of the study support the Commission in the revision of the current Community Guidelines on State aid for railway undertakings. The consortium included E.CA Economics, LEAR, Sheppard Mullin, UEA and the Institute for Transport Studies at the University of Leeds.

In the context of the European Green Deal, the European Union aims at doubling rail freight traffic by 2050. The revision of the current Railway Guidelines is aimed at supporting this ambitious goal. It provides detailed market information, based on desk research and data collection.

The low modal share of rail (only 8.8% of total freight transport) endangers important goals in environmental and transport policy.

Compared to highly polluting road transport by truck, rail freight is a safe and low-emission type of transport. A substantial rise in the rail modal share will require improvements at three different levels of the overall rail freight system.

 

More, better and modern infrastructure

As of now, bottlenecks in rail network lead to congestion and slow and unreliable delivery times; outdated infrastructure makes cross-border transport tedious; facilities like intermodal terminals with outdated technology increase transport times and costs; private sidings are often missing to connect customers to the rail network.

 

More and up-to-date rolling stock

The existing fleet of rolling stock will not suffice for a substantial increase of the rail modal share. Furthermore, a significant share of the rolling stock is outdated and not fit for future requirements, such as automated coupling etc.

 

Rail freight must become competitive with road transport

Rail freight is in close competition with road transport, especially in combined transport and single-wagon transport. Only if it’s overall cheaper, shippers will choose rail transport instead of road transport. At the moment, rail freight is not competitive in many cases – as the low modal share proves.

Public policies can improve this situation with a modern State aid framework that encourages the modal share.

The study provides data on the rail freight market, such as the costs and revenues associated with rail freight. It alsoprovides policy options, including examples of good practices, for the design of State aid for rail freight which can support and guide the revision of the Railway Guidelines.

 

Contact

If you want to get more insights and results please contact our experts.

Download policy briefing
Download full study
22 June 2022 | Antitrust News
2022 Hal White Antitrust Conference Read More

Our directors Hans W. Friederiszick and Alena Kozakova are looking forward to the 2022 Hal White Antitrust Conference on June 23, 2022 in Washington, DC – a conference connecting the antitrust community with knowledge, ideas and lively discussions. Bates White Economic Consulting and E.CA Economics maintain an exclusive cooperative partnership to provide international antitrust services in the United States and Europe.

4 November 2020 | News State aid
Revision of EEAG and GBER: DG Comp commissioned consortium led by E.CA Economics with background study Read More

Dr Hans W. Friederiszick,  Dr Ela Głowicka and  Dr Anselm Mattes will be leading an international consortium for E.CA Economics, commissioned by the European Commission ( DG Competition) with a background study on State aid in the field of environmental protection and energy.

The European Commission (DG Competition) commissioned an international consortium led by E.CA Economics with a background study on State aid in the field of environmental protection and energy. The consortium consists of E.CA Economics, DIW Berlin, LEAR, University of East Anglia and Sheppard Mullin. The results of the study will support the Commission in the revision of the EU Guidelines on State aid for environmental protection and energy (EEAG) as well as the respective parts of the General Block Exemption Regulation (GBER). The study will assist the Commission in updating the Guidelines to ensure that they are fit-for-purpose, taking into account the general State aid modernisation objectives and the recent regulatory developments (notably the Clean Energy Package, Clean Mobility Package and Circular Economy Package), and that they facilitate the implementation of the European Green Deal. The revision of the Guidelines will also take into account the impact of the COVID-19 pandemic on the Member States economies and their funding capabilities together with the deployment of the Recovery Plan for Europe.

 

25 June 2020 | News Papers & reports State aid
COVID-19: Mind the Uncertainty! Read More

In this article, Gregor Langus and Brecht Boone explain how irreversibility of investment combined with market power can result in a delay in investments in the current climate of high uncertainty due to Covid-19. Building on these insights, the authors discuss the implications for the design of state aid and other fiscal policies.

Link to the article

10 June 2020 | News State aid
E.CA Economics contributed to the support study on State aid rules for environmental protection and energy published by DG Competition Read More

E.CA Economics contributed to the support study on State aid rules for environmental protection and energy, written in collaboration with teams from Centre for Competition Policy and the Brussels office of Sheppard Mullin, which led the study. This report provides DG Competition with background information for the review of the EU Guidelines on State aid for environmental protection and energy (EEAG) applicable in 2014-2020 and on the provisions applicable to aid for environmental protection and energy (Section 7) of Commission Regulation (EU) 651/2014 (GBER). Ela Głowicka co-authored the report in collaboration with Linda Gratz.

Link to the report

9 June 2020 | News State aid
E.CA Economics contributed to the retrospective evaluation of regional State aid framework published by DG Competition Read More

E.CA Economics was the leader of the retrospective evaluation of the regional State aid framework project and collaborated with teams from Firms and Markets Department at the Deutsches Institut für Wirtschaftsforschung and the Brussels office of Sheppard Mullin. The report with the results of the evaluation was published by DG Competition on 2 June 2020. The study provides evidence-based assessment of the implementation of the RAF 2014 and its effects on regional development and competition. Hans W. Friederiszick, Ela Głowicka and Linda Gratz co-authored the study in collaboration with further E.CA staff Brecht Boone, Zachary Herriges, Harm van Leeuwen and Wiktor Owczarz.

Link to the report

8 June 2020 | News State aid
DG Competition published four studies evaluating State aid rules provided by the consortium led by E.CA Economics Read More

On 2 June 2020 DG Competition published support studies on the retrospective evaluation of State aid rules, which will be a basis for future Commission decisions about whether to further prolong or update the rules expiring in 2020.

The consortium of DIW Berlin, E.CA Economics, Lear, Sheppard Mullin and UEA Consulting under the leadership of E.CA Economics provided evaluation studies in four State aid areas: regional State aid, State aid for access to finance for SMEs, State aid rules for operating aid under the EU aviation framework and State aid rules for environmental protection and energy.

Link to the “Fitness check” announcement

and link to all four studies:

Retrospective evaluation of the regional aid framework

Evaluation support study on the EU rules on State aid for access to finance for SMEs

Support study for the evaluation of the rules for operating aid under the EU aviation framework

Retrospective evaluation support study on State aid rules for environmental protection and energy