Market power versus efficiency defense in the European Commission's merger policy: Evidence on European airline mergers
- According to microeconomics, mergers result in a more concentrated industry. This fact is hardly questionable, but the discussion about whether concentration is good or bad for society leads us to a lively debate, called the efficiency defense: do mergers increase market power or efficiency? How does merger policy take market power and efficiency into consideration?
My work investigates the circumstances and consequences of merger appraisal in passenger airline markets in Europe between 1995 and 2015. The analysis tries to identify the role of consolidation driven by market power, efficiency and bankruptcy. The thesis introduces economic principles, models and policy choices behind the efficiency defense, and explains why the European Commission did not consider efficiency as a core criterion for their decision to allow or prevent takeovers.
In summary, efficiencies could be considered in the merger process under the total welfare approach, which also contains efficiency gains from producer surplus increase. The author believes that efficiency is the ordinary aim of companies, but the reason behind mergers is to increase market presence, market share or with other words: market power. Competition policy should therefore improve a transparent and smart framework to regulate market power.
