EU Competition Law and the Automobile Industry

Horizontal mergers are those transactions likely to pose the biggest threats on competition, since they usually imply a firm acquiring control over one or more competitor(s); that event eliminates any competition previously existing between the merging firms and reduces the number of competitors in the market. While this outcome might not always turn out to restrict competition, horizontal mergers that occur in markets with a relatively small number of firms may be anti-competitive, for instance because the merger would increase the market power of the merged entity to such an extent that it may engage in aggressive pricing independently from competitors' and consumers' reactions; or because the merged entity would be able to create a structure prone to tacit collusion and cartel behaviour.

All these practices reduce the allocative efficiency in the market concerned. We will focus on horizontal mergers because they are one of the main available means for modifying the market structure and, possibly, responding to economic distress in the automobile industry.

Like in most jurisdictions, merger analysis in the EU calls for the Commission to assess whether the proposed merger will have a negative impact on the market's competitive dynamics or not. To determine this, similarly to the analysis conducted as regards agreements between undertakings, the Commission has to compare the market context before the merger with the most likely market scenario (i.e. the counterfactual) that would materialise after the merger; if competition would be lessened in this latter scenario, then the merger should not be allowed.

In order to appreciate the potential impact of mergers on the market, the Commission has to evaluate several factors, such as the strength of the merging parties and the remaining competitors (the more the merging parties are economically powerful, the more likely the merger may have negative effects), the consumers' power to pose competitive constraints on the merged entity, the presence and level of entry/exit barriers, the foreseen supply and demand trends in the market. Not only, though: mergers allow the undertakings involved to streamline their assets and know-how, and achieve technical progress and efficiencies of various nature; in other words, mergers – just as agreements between undertakings – may also have positive effects on consumer welfare.