“Pass-on” in Merger Efficiency Defence

Abstract

Efficiency pass-on requirement has been traditionally regarded as one of the most controversial aspects of merger efficiency analysis. Theoretical studies on pass-on suggest that in the case of most oligopolies intermediate market shares lead to the greatest firm-level pass-on. This underlines the need to seriously recognise efficiency considerations in view of the “non-collusive oligopoly” interpretation of the EC Merger Regulation dominance test proposed in Commission’s Draft Merger Guidelines. At the same time, distilling the pass-on rate into workable guidelines in isolation from the whole competitive effects analysis is not only difficult, but also sub-optimal from an economic theory point of view. This article proposes a formalised conceptual framework of incorporating efficiency analysis into a merger review and then draws pass-on and general merger efficiency defence implications.