Closing Pandora's Box? Joint Dominance after the 'Airtours' Judgment

21 Pages Posted: 11 Nov 2002

See all articles by Kai-Uwe Kuhn

Kai-Uwe Kuhn

University of East Anglia (UEA) - Centre for Competition Policy; Centre for Economic Policy Research (CEPR)

Date Written: October 5, 2002

Abstract

The use of joint dominance arguments in merger cases has proliferated over the past few years starting with the Kali and Salz and Perrier cases. Emboldened by the Gencor/Lonrho judgment of the Court of First Instance (CFI), the Merger Task Force at the European Commission has aggressively expanded on the use of joint dominance as a means to raise objections to mergers in cases in which traditional market share benchmarks would have prevented objections in the past. As a result there have been a number of prominent cases (among the m Price/Waterhouse-Coopers, Airtours, and the abandoned EMI-Warner) in which the discussion of joint dominance has had a central role. But many more cases have been affected by this policy. It is fair to say that a number of merger transactions have been abandoned due to the perception of an increased regulatory risk.

While the concept as such makes sense from the economic point of view, the implementation by the Commission has been very unsatisfactory. Academic economists, echoing many practitioners, have lamented an unreasonably low standard of proof for joint dominance relative to the enhanced rigor we have achieved in single firm dominance cases. Part of the problem appears to be a lack of established theory and empirical method that could be used by practitioners. Instead of treading carefully in such a complicated area of economic analysis, the MTF has created a set of ad hoc tests for joint dominance (including the famous joint dominance checklist). Policy practice effectively opened a Pandora's box of valid, invalid, and hard to evaluate arguments, some of which left merging parties no possibilities to disprove the Commission's claims. The recent CFI judgment on Airtours has the potential of putting things back in order. In this paper I will discuss the major issues surrounding the application of the collective dominance concept and suggest a first step toward a more rigorous approach in merger cases. In section 2, I discuss the concepts of unilateral and coordinated effects and argue that they fully capture any anti-competitive effects of mergers. I then show how these two effects neatly map into the concepts of dominance and collective dominance as used in European merger policy and explain why any claims to the contrary make little sense. In section 4, I explain the extent to which the CFI has settled the issues concerning collective dominance in the direction we argue for in this paper. I also discuss that the judgment raises difficult questions concerning the appropriate empirical (or evidentiary) standards for a finding of joint dominance. In section 5, I attempt to take up this challenge by making suggestions for a systematic system of negative and positive tests. Section 6 concludes.

Suggested Citation

Kuhn, Kai-Uwe, Closing Pandora's Box? Joint Dominance after the 'Airtours' Judgment (October 5, 2002). Available at SSRN: https://ssrn.com/abstract=349521 or http://dx.doi.org/10.2139/ssrn.349521

Kai-Uwe Kuhn (Contact Author)

University of East Anglia (UEA) - Centre for Competition Policy ( email )

UEA
Norwich Research Park
Norwich, Norfolk NR47TJ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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