A FRAMEWORK FOR MERGER ANALYSIS 6.2 C ALCULATING M INIMUM R EQUIRED E FFICIENCIES (MRE S ) 6.2.3 Minimum Required Efficiencies based on Specific Models of Competition The dissent also found that the efficiencies were merger-specific (because they would flow directly from Anthem's increased bargaining leverage stemming from the merger) and adequately verified (by Anthem's expert and integration planning team, healthcare providers and an independent consulting firm). Nevertheless, attitudes toward mergers are heavily driven by assump- tions about efficiency gains. The index measures the weighted average reduction in marginal costs required to restore premerger equilibrium prices and quantities after the (full or partial) merger is consummated. Agency reviewing the merger will assess whether the likely magnitude of the claimed efficiencies is sufficient to offset any anticompetitive harm posed by the merger. The difficulty is even greater with respect to dynamic efficiencies. 3. The WFI is well defined . Konstanze Kinne. We develop a model in which two firms that have proposed to merge are privately informed about merger-specific efficiencies. Specifically, the court noted The Merger Guidelines require that efficiencies be "merger-specific" and will not count when a "less restrictive alternative" is available. A horizontal merger is a merger between companies operating in a similar line of business or the same industry. not surprisingly, as could be understood from reading the decision of the french competition authority, efficiency gains were the key argument put forward by the merging parties to approve the merger. Moreover, mergers of firms that mainly operate in the same segment are likely to generate efficiency. 6. Cognizable efficiencies are merger-specific efficiencies that have been verified and do not arise from anticompetitive reductions in output or service. The integrated merger analysis should give efficiencies more weight if the profitability of a failing industry can be improved by the merger (e.g., by lowering fixed costs) even if the price effects are not immediate. Efficiencies must be merger specific to be creditedwhich often means that they cannot be achievable by contractyet standard analysis does not draw on relevant fields of economics on the theory of the firm and organizational economics, which are associated with a number of Nobel prizes. Whether the merger is actually required to bring about the efficiency (or whether the efficiency was likely to have occurred absent the merger - for example, as a result of an acquisition by a competing purchaser); only "merger specific" efficiencies are cognizable. 16 Yet, the formal inclusion of other effects into the simulation process as well as the cumulation . Limited competition: access limits? A vertical merger occurs when companies operating in the same industry, but at different levels in the supply chain, merge. As the Guidelines explain, the efficiency must be sufficient to result in no predictable post-merger price increase, thereby making "pass-through" effects the focus of the . Slide 15 WEIGHING EFFICIENCY EFFECTS IN DECLINING INDUSTRIES The Guidelines can be read to support a "failing industry" defense: being verifiable and merger-specific). Cognizable efficiencies are assessed net of costs produced by the merger or incurred in achieving those efficiencies." Cognizable efficiencies are merger-specific efficiencies that have been verified and do not arise from anticompetitive reductions in output or service. The last condition seems the most challenging as many environmental benefits can be difficult to quantify . Importantly, the Ninth Circuit held that even if the claimed efficiencies were merger-specific, the defense would still fail because the efficiencies did not make the market more competitive. For efficiency claims to win the day, antitrust precedent and the joint DOJ-FTC Horizontal Merger Guidelines require that. Merger analysis today takes efficiencies into account in two ways. Yet, there exists little empirical evidence on the actual . . law360, washington (september 29, 2015, 7:18 pm edt) -- federal trade commission chairwoman edith ramirez said tuesday that the agency closely considers whether a potential merger will provide new. When companies merge, the new company gains a larger market share and gets ahead in the . With respect to merger specificity, the court found that Anthem's arguments that the combined company could introduce new products incorporating Cigna's attractive programs and Anthem's lower rates was not merger-specific Mergers . both the courts and the antitrust enforcement agencies often assert that merger-related efficiencies should not be recognized formally as an offset to likely anticompetitive effects unless the merger proponents demonstrate that the efficiencies (1) are "merger specific," i.e., equivalent or comparable savings achieved by the merging firms cannot Second, Oliver Williamson's seminal article on efficiencies and antitrust policy towards mergers appeared at the same time as the early drafting of Canada's new Competition Act.4 Williamson introduced the idea of a trade-off between the dead weight loss that could be expected from a merger and any efficiency gains that were specific to the . We include merger-specific cost efficiencies in a tractable manner in the model and extend the standard UPP formulation to account for these efficiencies. Thus, in those cases acknowledgement of efficiencies is simply dicta. 10 Cleary Gottlieb Steen & Hamilton LLP Merger Efficiencies and Remedies What are some examples of cases where merger-specific efficiencies were, in fact, realized or not realized? As Section 10 of the Merger Guidelines recognizes, mergers can generate efficiencies that lead to "lower prices, improved quality, enhanced service, or new products." However, any efficiency benefits must be weighed against potential anticompetitive effects of the merger. efficiencies have been taken into account for many years in us merger review, a formerly-implicit approach that has now been explicitly codified to some extent in the us horizontal merger guidelines (' a primary benefit of mergers to the economy is their potential to generate significant efficiencies which may result in lower prices, improved Key changes include the adoption of a new . In the revision, efficiencies would be considered "cognizable" if they were merger-specific, verifiable, and did "not arise from anticompetitive reductions in output or service." These changes were made so that mergers with a net pro-competitive effect could go through. Concept No. However, in practice, along with proving efficiencies. for a given merger-specific efficiency to affect the merged firm's prices. This section was revised in 1997 to clarify the efficiency defense, and allows for "merger-specific" efficiencies to be taken into account, i.e. Big data" has become one of the hottest subjects for antitrust enforcers around the globe. Generally, for a given firm-specific cost reduction, the reduction in price will be greater the less elastic the firm-specific demand. Merger analysis today takes efficiencies into account in two ways. We investigate the accuracy of UPP as a tool in antitrust analysis when there are cost efficiencies from a horizontal merger. Merger to Proceed on Efficiency Grounds Tests Set for Merger Review On January 22, 2015, the Supreme Court of Canada (SCC) reversed a decision of the Federal . merger-specific efficiencies. There was a time when courts and competition enforcement agencies tended to view merger efficiencies as either irrelevant or as a basis for blocking transactions. Proving an efficiency defense. When a vertical merger raises input foreclosure concerns, there are inherent adverse horizontal effects. Cognizable efficiencies are assessed net of costs produced by the merger or incurred in achieving those efficiencies.12 With the adoption of the Hart-Scott-Rodino Antitrust Improvements Merger-Specificity Of Quality And Cost Efficiencies In Hospital Merger Cases CPI - July 17, 2017 By David J. Balan - A key factor in the analysis of hospital merger efficiencies is whether a claimed efficiency is "merger-specific," meaning that it would likely be achieved with the merger under review, but not without it. The Efficiencies Defense in the 2010 Horizontal Merger Guidelines 61 _MC, = AC, MC2 = AC2 Fig. Anthem's efficiencies evidence as not merger-specific and not verifiable. Can be verified and quantified with reasonable certainty. We include merger-specific cost efficiencies in a tractable manner in the model and extend the standard UPP formulation to account for these efficien-cies. Second, it recognizes an efficiencies defense once prima facie illegality has been established, with the burden of proof on the defendant. This distinction is important since it is mainly about the first category that the merging firms have an informational advantage over competition authorities. Federal Trade Commission (FTC) argued that the firms failed to distinguish between industry-wide and firm-specific cost reductions, and that only the latter were relevant for estimating the pass-through rate for merger-specific efficiencies. The VMG Mistakenly Downplayed Analysis of Accommodating Price Increases First, it makes assumptions about efficiencies in determining where the line for prima facie illegality should be drawn. ciencies from a horizontal merger. Most companies going for such a merger are competitors operating in the same industry. efficiencies that "are likely to be accomplished with the proposed merger and unlikely to be accomplished in the absence of either the proposed merger or another means of having comparable . The efficacy of the new UPP formulations is analyzed using Monte . Such mergers happen to increase synergies, supply chain control, and efficiency. We evaluate whether a merger between two major transport groups may give rise to merger efficiency gains. One of the major problems plaguing our healthcare system is that. 2 (integrating efficiencies approach): Alternatively, one could define the notion of significance as to comprise both, the degree of competitive deterioration as well as the amount of efficiencies generated by the merger. Contrary to Efficiencies Many mergers produce savings by allowing the merged firms to reduce costs, eliminate duplicate functions, or achieve scale economies. Advantages of a Merger 1. Efficiencies in Merger Analysis. Analysis of ex post entry often engages in The district court also expressly concluded that the claimed efficiencies were not merger-specific. Merger Efficiencies and Remedies EU merger control has evolved in several important ways in recent years. First, it makes assumptions about efficiencies in determining where the line for prima facie illegality should be drawn. First, the court found that Anthem's plan to introduce products incorporating Cigna's customer wellness plans and Anthem's lower rates was not "merger specific." In other words, those savings could be accomplished without the merger. As a result, the agencies have required merging parties to submit rigorous proof of the efficiencies that a transaction is likely to produce and to establish that the efficiencies are 'merger-specific'. In other words, it happens when companies that offer the same or similar products or services come together under single ownership. - Barriers to entry/expansion? We include model-based, merger-specific cost efficiencies in a tractable manner and extend the standard UPP formulation to account for these efficiencies. The acceptability of efficiency defense should rest on a showing that the merger will produce a more . of the efficiencies accrue to the products that fall outside the market. Request PDF | The Merger Specificity of Efficiencies in Merger Review: A Succinct International Comparison | Mergers and acquisitions can lead to anti-competitive structural change in the market . An impediment would be significant if the deterioration were not offset by efficiencies. - Contrary to usual "anyone can easily compete" The efficacy of the new UPP formulations is analyzed using Monte . Our results show that, no matter the specification considered, we cannot conclude that the merger resulted in any merger specific efficiency gains for the merging parties. We investigate the accuracy of UPP as a tool in antitrust analysis when there are cost efficiencies from a horizontal merger. This provision allows for a trade-off analysis between anti-competitive effects and efficiencies resulting from a transaction. 12 they argued that the transaction would result in merger-specific efficiency gains through, on the one hand, the realization of cost savings in Are merger-specific, that is, directly caused by the transaction itself and not achievable by less anti-competitive means. If these efficiencies are merger-specific, then this merger should still be applauded because consumers benefit from lower prices and greater output. The efficacy of the new UPP formulations is analyzed using Monte Carlo simulation of 40,000 mergers (8 scenarios, 5,000 mergers in each scenario). - Is trade spending a barrier? Such efficiencies would have to benefit consumers, be merger-specific and be verifiable. The Department of Justice introduced "quasi-safe harbor" (i.e., not-anticompetitive) enforcement presumptions into the 1982 Merger Guidelines, presumptions that the agencies have updated over time.
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