Economic analysis of unilateral effects from mergers
Produced in partnership with Compass Lexecon
Economic analysis of unilateral 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 unilateral effects from mergers
  • Counterfactual
  • Horizontal mergers
  • Vertical mergers
  • Efficiencies
  • Empirical tests to measure mergers

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.

Firms often seek to merge to generate efficiencies. For example, mergers allow firms to realise efficiencies from better scale and scope or to allow one firm to benefit from superior managerial skill at the acquiring firm. This is to the benefit of society. However, mergers can also harm competition. The most immediate concern from a merger is from 'unilateral effects' ie adverse effects that arise from the ability of the merged firm—acting alone—to raise prices above pre-merger (or lower quality). These effects might arise from either the loss of direct competition between the merging firms (horizontal mergers) or because the combination of firms at different parts of the supply chain allows the merging firms to foreclose rivals (non-horizontal mergers). Adverse effects from a merger can also arise if it increases the likelihood of coordinated behaviour (see Economic analysis of coordinated effects from mergers).

Counterfactual

The purpose of merger analysis is to compare the degree of competition post-merger with the degree of competition that would exist in the absence of the merger. The situation if the merger did not take place is