Volume 26 (2003) / Issue 2
Firms may be able to create new and improved products as a result of merging. These “demand-side efficiencies” should be considered by competition authorities in considering whether to allow a merger. Unlike reductions in costs that merged firms may not pass on to consumers, new and better products necessarily make consumers better off. Moreover, the value of demand-side efficiencies can be quite large, as recent studies of improved products ranging from toilet paper to minivans has demonstrated. Of course, competition authorities should seek evidence that mergers will facilitate new and improved products and weigh these benefits against increased prices and other costs the merger may create. A review of European Union merger cases shows that the Commission needs to consider demand-side efficiencies, and provides further caution against making efficiencies an “offence” rather than a “defence”.
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