Economic analysis of coordinated effects from mergers
Produced in partnership with Compass Lexecon
Economic analysis of coordinated effects from mergers

The following Competition guidance note Produced in partnership with Compass Lexecon provides comprehensive and up to date legal information covering:

  • Economic analysis of coordinated effects from mergers
  • Conditions that increase the likelihood of coordinated effects
  • How a merger might create coordinated effects

BREXIT: The law and practice referred to in this Practice Note may be impacted by Brexit. For further information on the potential impact, see: The effect of Brexit on UK competition law in a deal or no deal scenario.

The most common concern with a merger is that it will create unilateral effects. That is, the merged entity will have the ability to raise prices above pre-merger levels. A merger could also harm competition by creating the market conditions that allow firms in the market to reach tacit agreement (an agreement without explicit communication) to raise prices. Such an increase in price is an example of a 'coordinated effect' arising from a merger.

In analysing mergers, competition authorities will look at the extent to which the market has the necessary conditions for tacit collusion and then how the merger will affect those conditions. In practice, it is difficult to judge what impact the merger will have on tacit collusion.

Conditions that increase the likelihood of coordinated effects

Firms in a market normally want to raise prices but are constrained from doing so by competition. If Firm A increases price but its rivals do not, then Firm A’s customers will switch to rivals and make the price increase unprofitable. If instead Firm A and its rivals could reach a tacit agreement to