When companies merge, there is a risk of consumers seeing a reduction in choice of goods and services or higher prices in the medium and long-term. This year will see the review of a number of mergers concerning critical sectors for consumers such as telecoms and airlines.
In considering these mergers, the European Commission must apply EU rules strictly and resist lobbying by vested interests and governments that want the concerns of big business to take precedence over those of consumers.
Protecting consumers
The EU’s merger control rules aim to protect competition to stimulate companies to invest and to offer consumers choice, quality and value for money.
This does not means mergers are bad per se, but the reality is that rules have not been enforced as strictly as they should have
For companies, mergers can offer the promise of higher profits (and bigger dividends to shareholders), but consumers must also have their fair share in terms of quality improvements, better prices and choice of goods and services. This does not mean that all mergers are bad per se, but the reality is that merger rules have not been enforced as strictly as they should have to protect consumers in recent decades.
Two of the most persistent arguments used publicly by incumbent industry to justify merger clearance have been the need to be competitive on global markets and to have sufficient profits to invest in products and services.
Above: merger control is critical in sectors like telecoms and airlines
For example, the Global System for Mobile Communications Association – grouping the main telecom companies – has called for “in-market consolidation…to ensure that European telecom operators can be globally competitive,” arguing that investment in digital infrastructure would be fostered “by tackling low returns for service providers”. Yet there are no guarantees this would increase infrastructure investment rather than increasing dividends.
Similarly, Lufthansa has claimed its takeover of Italian airline ITA should go ahead because “to be globally competitive, European airline groups need to grow to stay level with other global players”. This view was echoed by Luis Gallego, Chief Executive of International Airlines Group (IAG), that is currently trying to buy Spanish airline Air Europa. He told investors, “I think the European market needs consolidation. We need to compete in a global world with a big group of airlines, and we need to have the scale”.
Such arguments conveniently ignore the findings of several studies that show that allowing mergers that lead to ever more concentrated markets including in telecoms and air transport, have been accompanied by an increase in markups.[1]
Taking better account of consumer harm
Importantly, the Commission’s powers to block mergers and takeovers that harm effective competition were endorsed by a recent ruling of the EU’s Court of Justice.
The Court supported the Commission’s 2016 decision to block the acquisition of O2 by Hutchison UK and its finding that this would have meant less consumer choice, higher prices and less innovative mobile services (by hampering the development of mobile network infrastructure).
The Commission’s September 2023 decision to block Booking.com’s takeover of eTraveli was also encouraging. The Commission concluded the acquisition would have allowed Booking to strengthen its dominance in online hotel bookings by allowing the company to extend its services to include flights, car rental and tickets for tourist attractions.
This followed consistent calls from BEUC to the Commission to take more account of the potential harm to competition when expansion into adjacent markets would strengthen market dominance in the acquiring company’s core market.
Above: recent signs from merger control in the hotel booking market have been encouraging
Time to get tough
It’s vital therefore that merger control is applied to maintain effective competition. The Commission should resist lobbying by vested interests and governments in important upcoming telecom and airline mergers.
It’s vital that merger control is applied to maintain effective competition
These include the proposed Orange/MasMovil joint venture in Spain (where the Commission expressed concerns about reduced competition in mobile and fixed broadband services) and the takeovers of ITA by Lufthansa and of Air Europe by IAG (which could reduce consumer choice and inflate fares).
In each of the above, consumers risk seeing higher prices, less choice and less innovation. Indeed, in the case of air travel, the Commission has already launched a probe into the 30% air fare hike last summer and high profit margins enjoyed by Europe’s airlines.
Merger controls to protect consumers
To prevent further market concentration that allows companies to become so powerful they can harm consumers the Commission must apply merger control rules firmly to tackle any moves to restrict or eliminate effective competition.
In particular, the Commission must take account of the harm that a lack of competition can cause consumers in reduced choice and increased prices – and pay more heed to the reality of consumer markets rather than hypothetical models that fit incumbents’ narratives.
[1] See for example Koltay G., Lorincz S. and Valletti T. (2023) “Concentration and Competition: Evidence From Europe and Implications For Policy”, Journal of Competition Law & Economics, Volume 19, Issue 3, September 2023, Pages 466–501; De Loecker, J. and Eeckhout, J. (2018), Global market power, NBER Working Paper 24768, National Bureau of Economic Research, Cambridge, MA, p.23-25. https://www.janeeckhout.com/wp-content/uploads/Global.pdf