European Union merger law is a part of the law of the European Union. It is charged with regulating mergers between two or more entities in a corporate structure. This institution has jurisdiction over concentrations that might or might not impede competition. Although mergers must comply with policies and regulations set by the commission; certain mergers are exempt if they promote consumer welfare. Mergers that fail to comply with the common market may be blocked. It is part of competition law and is designed to ensure that firms do not acquire such a degree of market power on the free market so as to harm the interests of consumers, the economy and society as a whole. Specifically, the level of control may lead to higher prices, less innovation and production.
Mergers and acquisitions are regulated by competition laws because they may concentrate economic power in the hands of a smaller number of parties. Oversight by the European Union, the competition laws have been enacted under the Directive 2005/56/EC on Cross-border mergers and the Economic Concentration Regulation 139/2004, known as the "EUMR".[1] The law requires that firms proposing to merge apply for prior approval from the Commission. The European Commission (EC) has exclusive competence over concentrations that meet certain thresholds. This is known as community dimension. A concentration with a turnover of the following will trigger commission jurisdiction. Mergers that transcend national borders and with an annual turnover of the combined business exceeds a worldwide turnover of over EUR 5000 million and Community-wide turnover of over EUR 250 million must notify and be examined by the European Commission.[2] Merger regulation thus involves predicting potential market conditions which would pertain after the merger. The standard set by the law is whether a combination would "significantly impede effective competition... in particular as a result of the creation or strengthening of a dominant position..."[3]
One reason why businesses may be motivated to merge is in order to reduce the transaction costs of negotiating bilateral contracts.[4] Another is to take advantage of increased economies of scale. However, increased market share and size may also increase market power, strengthening the negotiating position of the business. This is good for the firm, but can be bad for competitors and downstream entities (such as distributors or consumers). A monopoly is the most extreme case, where prices might be raised to the monopoly price instead of the lower competitive equilibrium price. An oligopoly is another potentially undesirable situation in which limited competition may allow higher prices than a market with more participants.
^The authority for the Commission to pass this regulation is found under Articles 3(1)(g), 308 and 83 of the Treaty establishing the European Community (TEC)
^"Merger legislation of the EU - European Commission". ec.europa.eu. Retrieved 2 January 2021.
^Art. 2(3) Reg. 129/2005
^Coase, Ronald H. (November 1937). "The Nature of the Firm" (PDF). Economica. 4 (16): 386–405. doi:10.1111/j.1468-0335.1937.tb00002.x. Archived from the original (PDF) on 13 January 2007. Retrieved 10 February 2007.
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