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Duke, Arlen --- "A More Efficient Use of Efficiencies in Merger Authorisation Determinations" [2007] UMelbLRS 15

Last Updated: 28 September 2010

This article was first published in the Australian Business Law Review, Volume 35, Number 4, pp. 278-292, 2007

A more efficient use of efficiencies in merger authorisation determinations

Arlen Duke*

This paper considers the varying treatment of merger-related efficiencies in overseas jurisdictions and in Australian and New Zealand merger authorisation and clearance determinates. This analysis leads to the conclusion that the inclusion of an efficiency defence in the legislative regime that regulates the competitive effects of mergers tends to cause decision-makers to adopt a less sophisticated approach when assessing the competitive effects of merger activity. It is therefore argued that the Australian Competition Tribunal, the body now responsible for determining authorisation applications, should be alert to the fact that the effects of merger-related efficiencies are relevant to both the assessment of public benefits and public detriments. By considering the competition and resource saving effects of merger-related efficiencies separately, the tribunal will be better placed to assess the merger’s effect on competition and perform a more meaningful trade-off between competition and efficiency as part of its analysis of merger authorisation applications.

INTRODUCTION

Improving efficiency has long been the stated aim of competition laws around the world and it is generally accepted that one of the most effective ways of achieving this aim is to foster competitive markets.[1] However, more difficult competition law policy questions are raised where the conduct in question is a merger.[2] This is because the rationalisation and integration of the merging entities can simultaneously bring about both a lessening of competition and substantial efficiency gains.[3] To further complicate matters, efficiency gains brought about by a merger may also have either positive or negative effects on competition.

The extent to which the competitive effects of a merger and the efficiencies it generates are relevant to the question of whether a merger contravenes competition law varies across jurisdictions. Some jurisdictions (such as the United States and the European Union) only permit the consideration of merger-related efficiencies to the extent that they impact upon the competitive process. Other jurisdictions (such as Canada, New Zealand and Australia) include an “efficiency defence” which allows anticompetitive mergers to proceed if efficiency gains (and in the case of Australia and New Zealand, other benefits brought about by the merger) can be shown to outweigh the harm caused by the reduction in competition brought about by the merger.

An efficiency defence can be justified on the basis that competition is a means to achieving the ultimate goal of efficiency.[4] Market failure, such as economies of scale in smaller economies[5] and transaction costs (which may preclude similar efficiencies being achieved by way of less anticompetitive arrangements between market participants)[6] can cause competitive behaviour to produce a less than efficient outcome.[7] Furthermore, as Oliver Williamson has argued, small gains in efficiency have the potential to offset relatively large gains in market power.[8] An efficiency defence can assist in the correction of the aforementioned market failures by permitting mergers that would otherwise be blocked by competition laws.

However, the availability of an efficiency defence may result in merger-related efficiencies being treated superficially and viewed as something achieved (possibly necessarily) at the expense of competition. This paper will consider the effect that the presence of an efficiency defence has on the manner in which merger-related efficiencies are treated.

The first part of this paper considers the relevance of merger-related efficiencies to merger analysis in the United States, the European Union and Canada and notes that the inclusion of an efficiency defence in the regime that regulates mergers may result in the competitive effects of merger-related efficiencies being overlooked. The second part then compares the treatment of efficiencies in Australian and New Zealand authorisation and clearance determinations. The tentative conclusion reached in the first part of the paper receives considerable support from the finding that merger clearance determinations generally include a better treatment of the competitive effects of merger-related efficiencies than authorisation determinations. Finally, the benefits associated with the adoption of a more sophisticated analysis of merger-related efficiencies in the authorisation context are considered.

INTERNATIONAL TREATMENT OF EFFICIENCIES

United States

In the United States the legality of a merger is determined solely on the basis of whether it substantially lessens competition or tends to create a monopoly.[9] In a number of early Supreme Court decisions, which have since been implicitly overruled,[10] merger efficiencies were deemed to lessen competition on the basis that it would become more difficult to compete with the highly efficient merged firm.[11] In addition, the Supreme Court’s most recent pronouncements on the role of efficiencies in merger cases were dismissive of efficiency justifications for mergers and have made it clear that mergers that substantially lessen competition cannot be justified on the basis that they will lead to the achievement of efficiencies.[12] These decisions, however, date back to the 1960s and have been described as representing a “different era in antitrust”.[13] Although the United States Supreme Court has not had a chance to refine its approach to merger efficiencies, several lower court decisions have considered efficiencies in evaluating the legality of mergers by integrating efficiencies into the competitive effects analysis.[14] The lower courts probably felt comfortable doing so for a number of reasons. First, the 1960s Supreme Court decisions did not expressly rule out the possibility of an argument that efficiency could improve competition.[15] Further, the Supreme Court has since recognised the relevance of efficiencies to competitive effects analysis in other contexts.[16] Finally, a section dealing exclusively with the relevance of efficiencies to merger analysis was added to the United States Merger Guidelines in 1997.[17]

Efficiencies are looked at by the courts exclusively in terms of their effect on the competitive process (which is entirely appropriate given the nature of the United States prohibition) and now seem to be considered along with all other factors that are considered and weighted to determine whether a merger would be likely to lessen competition.

Although it is becoming increasingly common to describe the form of analysis described above as providing for an efficiency defence, Areeda and Turner are correct to describe this as a misnomer.[18] Efficiencies do not provide a substantive defence in United States law. Rather, they can be used to rebut “a first order inference from a portion of the evidence (such as market shares) that a merger presumptively lessens competition and violates the statute”.[19] Although efficiencies receive separate treatment in the United States Merger Guidelines, this is because the burden to establish the existence of procompetitive efficiencies shifts to the merging parties[20] not because the argument operates as a defence in the traditional sense.

To summarise, in the United States efficiencies have the potential to alter the outcome of a merger case if they are sufficient to reverse the merger’s anticompetitive potential[21] but they cannot be used to justify a merger that substantially lessens competition.[22]

European Union

Mergers in the European Union were originally regulated by Arts 85[23] and 86[24] of the Treaty of Rome which prohibited agreements that restrict or distort competition and abuse of a dominant position respectively.[25] No defences were available under Art 86. However, Art 85(3) exempted agreements that contributed to promoting technical or economic progress while allowing consumers a fair share of the resulting benefit and not eliminating substantial competition. Recognised forms of “economic progress” included efficiency and market rationalisation.[26] For example, in Philips/Osram [1994] OJ C 267/3 a combination of Philips’ and Osram’s lead glass manufacture and sales activities, which was considered to restrict competition, was granted exemption on the basis that, inter alia, the merger would generate significant economies of scale for the merged entity.[27]

As a result of Art 85(3), efficiencies were traditionally seen as a positive effect of mergers that was to be traded off against inevitable anticompetitive harm. However, the introduction of the European Union Merger Regulation in 1989,[28] which prohibits mergers that impede effective competition, in particular as a result of the creation or strengthening of a dominant position, has seen a gradual change in the way efficiencies are viewed in the European Union. While Art 2 of the Merger Regulation also directs the European Commission to take into account the development of technical and economic progress, it also provides that such progress must be to consumers’ advantage and that the merger must not form an obstacle to competition.[29] Although the reference to technical and economic progress could suggest that the Commission can engage in a weighing process similar to that provided for in Art 85(3), it has become generally accepted, most likely on the basis of advances in economic thinking, that the proviso that the merger does not form an obstacle to competition means that efficiencies cannot justify an anticompetitive merger.[30] This line of reasoning is supported by comments in the European Merger Guidelines,[31] case law,[32] Recital 29 of the Merger Regulation,[33] academic commentators[34] and the fact that provisions that allowed for a balancing of economic benefits against anticompetitive effects contained in earlier drafts of the merger regulations were ultimately removed.[35]

While there has not yet been a case under the Merger Regulation where efficiency arguments have been considered sufficient to alter the Commission’s conclusion that the merger would unacceptably lessen competition,[36] the move from an authorisation-like efficiency defence under Art 85(3) of the Treaty of Rome to a test squarely focused on competitive effects in Art 2 of the Merger Regulation has prompted the development of a better understanding of the intricate nature of efficiencies in European jurisprudence.[37]

Canada

In Canada, mergers are prohibited if they substantially prevent or lessen competition.[38] However, the Canadian merger regime allows for the consideration of efficiencies even when they do not impact directly on the competitive process. Section 96 of the Canadian Competition Act prohibits the Competition Tribunal[39] from making an order preventing or undoing a merger that brings about gains in efficiency greater than the effects of any lessening of competition. In Commissioner of Competition v Superior Propane (2002) 18 CPR 417 at [137] the Competition Tribunal deduced from the inclusion of an efficiency defence that Parliament plainly intended that efficiencies are only to be considered under s 96[40] and thus “consideration of efficiency gains is not to be tied into the analysis of competitive effects”.[41] It is therefore not possible to argue that efficiency gains associated with the merger negate other anticompetitive effects. Not surprisingly, the Canadian Competition Bureau’s Merger Enforcement Guidelines[42] do not mention the possibility that efficiency gains can improve competition.

Conclusions on international treatment of efficiencies

On the basis of the preceding discussion it seems that jurisdictions without the luxury of an efficiency “defence” have developed a greater awareness of the competitive implications of merger-related efficiencies. Conversely in Canada, a jurisdiction in which an efficiency defence is available, the competitive consequences of merger-related efficiency gains are overlooked. Rather, efficiencies are viewed as something to be traded off against anticompetitive effects that have been determined without paying attention to merger-related efficiencies. The following section considers whether this trend plays out in the Australian and New Zealand context.

TREATMENT OF MERGER-RELATED EFFICIENCIES IN AUSTRALIA AND NEW ZEALAND

THE LEGISLATIVE REGIME

A merger will not fall foul of Australian and New Zealand[43] competition laws if it does not cause a substantial lessening of competition. Parties are able to gain more certainty about whether the merger is susceptible to challenge on the basis that it substantially lessens competition in two ways. First, they may seek clearance (either formal[44] or informal[45]) from the Australian Competition and Consumer Commission (ACCC). Second, parties may seek a declaration from the court that the merger would not have the effect or likely effect of substantially lessening competition.[46] In both instances, merger-related efficiencies can only be considered to the extent that they impact on the competitive process (as is the case in the United States and the European Union).

Another option open to merger parties is to apply for authorisation. The merger authorisation process is now set out in Pt VII, Div III, Subdiv CD of the Trade Practices Act 1974 (Cth) (the TPA). The Australian Competition Tribunal[47] has the power to grant immunity to a merger that would result, or be likely to result, in such a benefit that the acquisition should be allowed to occur.[48] Although the term is broad, the principal element of recognised public benefits is the achievement of economic efficiency and progress.[49] Public detriment analysis tends to have an equally economic flavour and predominantly focuses on anticompetitive effects.[50]

The Australian and New Zealand system of dual adjudication of mergers allows the effects of the presence of an efficiency defence to be further explored. By comparing the treatment of merger-related efficiencies in clearance applications (where merger-related efficiencies are only relevant if they impact upon the competitive process) and authorisation determinations (in which a broader consideration of merger-related efficiencies is permitted), the effects of the presence of an efficiency defence on the treatment of merger-related efficiencies can be further explored.

The authorisation process

The authorisation process, which has been described as “innovative”[51] and “the most progressive in the world”,[52] permits a sophisticated analysis of merger efficiencies.[53] Mergers which improve competition (eg by creating a strong competitor or introducing more efficient technology into the industry) or reduce competition (eg by creating a dominant market leader) can be factored into the assessment of the harm likely to be caused to competition by the merger (which, as noted above, is the predominant component of a public detriment assessment).[54] Resource savings brought about by merger efficiencies can be included as part of the public benefits that are netted off against any anticompetitive effects of the merger.

While the Merger Guidelines contemplate such a sophisticated approach,[55] they appear to overstate the likelihood that efficiencies will be analysed in this way under the authorisation process. In practice, efficiencies generally tend to be viewed almost solely through a public benefit lens.[56] In fact, the Industry Commission has asserted that authorisation provides the “only opportunity for efficiency gains from mergers to be considered”[57] and Robertson has argued that the ACCC does not see efficiencies as relevant to competition analysis.[58] However, Pengilley’s more measured observations that the line between competition and public benefits is often blurred, and that even those efficiencies recognised as procompetitive are often only factored into the public benefits analysis, better encapsulates the manner in which the ACCC typically deals with efficiencies.[59] Pengilley’s observation is supported by statements in the Merger Guidelines to the effect that efficiencies generally arise as a question of public benefit.[60]

The situation is similar in New Zealand. The Commerce Commission’s Mergers and Acquisitions Guidelines also identify efficiency effects as theoretically relevant to the assessment of a merger’s competitive effects,[61] while at the same time containing a statement that efficiencies tend to be most relevant to authorisation.[62] Statements contained in the Commerce Commission’s Guidelines to the Analysis of Public Benefits and Detriments also suggest that the competitive effects of merger-related efficiencies are unlikely to play a large part in authorisation determinations.[63] This suggests that, as in Australia, efficiencies are most likely to be viewed as a public benefit flowing from resource savings rather than as a factor that is relevant to determining whether the merger in fact substantially lessens competition.[64]

Merger authorisation determinations

A review of merger authorisation determinations made by the ACCC[65] (and its predecessor, the Trade Practices Commission) since 1976 suggests that the sophisticated approach outlined in the Merger Guidelines was not followed by the ACCC when it assessed merger authorisation applications.[66] Rather, merger-related efficiencies were generally seen as relevant to the assessment of public benefits, not competitive effects. This was so even when the ACCC accepted submissions by the merging parties that the merger would improve competition.

In Re Fletcher Challenge Ltd (1988) ATPR (Com) 50-077 (at 57,387), although the applicant’s argument that the merger actually promoted competition was not considered in detail by the Trade Practices Commission, it was referred to as part of the discussion of public benefits. Similarly, in Re CSR Ltd (1994) ATPR (Com) 50-138 an unsuccessful argument that the merger would improve efficiency and thus competition between Australian sugar refiners was pondered as part of the public benefit assessment. Likewise in Re Silver Top Taxi Service Ltd (1995) ATPR (Com) 50-209 (at 56,226-56,228), an argument that a merger of two taxi booking businesses would increase competition between taxi operators was put forward by the applicants and considered by the ACCC as a potential public benefit.

In Re Adelaide Brighton Ltd (1999) ATPR (Com) 50-272 (at 53,185-53,186) the ACCC accepted a submission that as the merger would bring about the independence of two industry players that were previously party to a joint venture, and generate efficiency gains that would enable the merged entity to better compete, the effect of the merger on competition was in fact positive. However, this argument was once again factored into the assessment of public benefits and was not considered as part of the assessment of the competitive effect of the merger.

A slightly better approach was adopted in Re Wattyl (Australia) Pty Ltd (1996) ATPR (Com) 50-232.[67] The applicants argued that the merger would enhance competition rather than lessen it as the merged entity would be better able to compete effectively with Dulux, the clear market leader. Although this argument was dismissed, primarily on the basis of the well-acknowledged maxim that competition law protects competition not competitors,[68] at least it was dealt with as part of the assessment of the competitive effects (public detriments) associated with the merger. However, confusion about the appropriate treatment of such arguments is still evident in the decision because the Commission also discussed the alleged but unproven procompetitive effects of the merger as potentially relevant to the appraisal of public benefits.[69]

The Australian Competition Tribunal has a better track record when it comes to incorporating efficiency effects into the assessment of the competitive consequences of a merger. Although the tribunal’s statement in the landmark determination in Re Queensland Co-op Milling Assn Ltd (1976) 25 FLR 169; 8 ALR 481, that the enhancement of the competitive process brought about by increased efficiency gives rise to a substantial benefit (rather than decreasing the magnitude of public detriments brought about by a lessening in competition),[70] seems to advocate an approach very much like that adopted by the ACCC, the approach adopted in Re Queensland Independent Wholesalers Ltd (1995) 132 ALR 225 suggests that the tribunal is more alert to the competition effects of merger efficiencies. The Queensland Independent Wholesalers determination has been described as providing the “clearest articulation of the pro-competitive impact of efficiency benefits”.[71] In Queensland Independent Wholesalers, the tribunal recognised that by creating a financially stronger and more efficiently operated independent grocery wholesaler, the merger would in fact increase competition in the market for the distribution of grocery products to the public by ensuring that the independent sector was better able to compete with the rapidly expanding supermarket chains. Rather than viewing this increased ability to compete as a public benefit, the tribunal rightly concluded that the proposed merger would result in no anticompetitive detriment (or any other detriment for that matter) and should therefore be authorised.[72]

In New Zealand, merger-related efficiencies have not played a role in the competition analysis in any merger authorisation to date.[73]

Merger clearance determinations

As the bulk of mergers are dealt with under the clearance process,[74] it is not appropriate to reach a conclusion about the ACCC’s treatment of the efficiency consequences of mergers without considering the approach adopted by the ACCC when assessing applications for informal clearance.[75] Before discussing the relevant clearance determinations, it is important to note that it is not as easy to be definitive about the reasoning adopted by the ACCC when resolving applications for informal clearance. This is because, in most cases, publicly available information about the reasons for the ACCC’s decision is very limited.[76] Despite this, a review of clearance determinations will nevertheless assist in determining whether the presence of the authorisation system has led to the competitive effects of efficiencies being systematically overlooked in Australian merger analysis or whether such effects are only overlooked or misclassified by those hearing authorisation determinations.

An analysis of clearance determinations since 2002[77] suggests that the ACCC deals with the competitive effects of merger-related efficiencies more aptly in the informal clearance context. In 2002 the ACCC informally cleared the merger of two chicken processors on the basis that the merger strengthened the acquirer’s position as the third-largest market participant.[78] In 2003 the ACCC informally cleared Bilfinger Berger Australia’s acquisition of Abigroup Ltd.[79] Although the merged entity would become Australia’s second-largest construction group,[80] the ACCC believed that the acquisition may have had “pro-competitive effects in the supply of road and bridge construction services involving Large Projects as it may constrain the market dominance of [the market leader]”.[81] In the same year, two egg producers were granted informal clearance on the basis that market enquiries indicated that the acquisition was likely to enhance competition.[82] In 2005 ELF Australia Pty Ltd was granted informal clearance to acquire the remaining one-third interest in HiFert. In the brief reasons given, the ACCC noted that ELF’s involvement could establish HiFert as a stronger domestic rival to Incitec Pivot (which held more than 70% of the east coast supply market).[83]

However, it is also possible to point to instances where even though merger-related efficiencies were likely to improve the competitive process, they played no part in the ACCC’s published reasons for not opposing the merger. For example, even though the potential procompetitive effects of the merger were heavily reported by industry analysts and media commentators alike,[84] the procompetitive effects of the merger of two independent grocery wholesalers (Metcash and Foodland) were not mentioned in the brief reasons given by the ACCC in support of its decision not to oppose the merger. Rather, the ACCC focused on the limited overlap between the merging entities.[85]

Similarly, mergers between small taxi depots have been cleared on the basis of limited competition between the merging parties[86] and the low market shares held by the merging parties,[87] even though, in both instances, it seems reasonable to suggest that the most relevant effect of the merger would be the increased ability of the merged firm to compete with its larger rival because of improvements to the efficiency of its operations.

The New Zealand Commerce Commission also seems to be more alert to the competitive effects of merger-related efficiencies when making clearance determinations. As noted above, merger-related efficiencies have not played a role in the Commerce Commission’s competition analysis in any New Zealand authorisation determination to date. However, in a string of clearance determinations handed down between 2001 and 2003, the Commission noted that there may be circumstances where efficiencies are relevant to an application for clearance.

In most instances the discussion of the competitive effects of merger-related efficiencies in clearance determinations was limited because the Commission ultimately concluded that it was not necessary to form a view on the issue.[88] However, where the Commission felt it necessary to form a view, the competitive consequences of merger-related efficiencies have generally been dealt with in a sophisticated manner.[89]

LESSONS TO BE LEARNED

Recommended change to authorisation analysis

The above analysis suggests that the multifaceted nature of merger-related efficiency effects is often overlooked where an efficiency defence is made available. In the Australian authorisation context it has caused parties and the ACCC alike to view efficiencies as something to be traded off against anticompetitive effects of the merger, which are determined predominantly on the basis of the list of factors in s 50(3) of the TPA (which notably does not include the competitive effect of efficiencies resulting from the merger).

As efficiency is the paramount goal of competition law, it is important that the efficiency consequences of mergers are analysed properly. The sophisticated approach to efficiency analysis outlined above (The authorisation process), which advocates the consideration of competition effects of efficiencies and not just the resource savings they bring about, is preferable to the current focus on efficiencies as public benefits only.[90] Incorporating efficiency effects into the analysis of competition (as done in the United States, European Union and in Australia and New Zealand in the clearance context) will help overcome the perception that efficiencies are, by definition, created at the expense of competition. Furthermore, by doing so, the extent to which competition effects are traded off against incommensurable[91] and wide-ranging public benefits will be minimised and a better overall understanding of the competition effects of the merger will result.

Interestingly, Smith and Grimwade have argued that considering efficiencies as part of the competitive effects analysis “may give rise to confusion as to the objectives of competition policy”.[92] However, it is hoped that the discussion that follows will demonstrate that, if anything, analysing competition effects of efficiencies as part of the public detriment analysis will make the competition and efficiency effects of the merger more transparent.

Justification of recommended change

Getting parties to attempt to enumerate competitive effects of efficiencies is worthwhile

Attempting to measure the competitive effects of efficiencies is often viewed as futile on the basis that it is difficult, if not impracticable, to do so with any degree of accuracy.[93] The Chicago school, who stress that efficiencies are an important element of merger analysis,[94] accept that proof of efficiencies would be impossible to deal with in court.[95] In fact Posner has referred to efficiencies as “an intractable subject for litigation”.[96] While it seems reasonable to suggest that the Australian Competition Tribunal may not find the task impossible,[97] it is also reasonable to concede that parties asked to present evidence of the procompetitive impact of merger efficiencies would (at least initially) experience considerable difficulty. However, three credible arguments can be made as to why getting parties to attempt to do so is a nevertheless a worthwhile task.[98]

del a Mano explains the first argument well; “a useful way to predict the competitive effects of a merger is to attempt to isolate the strategic motives behind it”.[99] Thus, even if parties are unable to quantify the competitive effects caused by the merger efficiencies with perfect accuracy, their attempts to do so may assist the tribunal to better discriminate between credible and speculative efficiency claims.[100] This, in turn, will permit efficiencies to be assessed in a more systematic manner.[101]

The second reason why requiring parties to spell-out the competitive effects of merger-related efficiencies may be beneficial is that it could encourage the disclosure of information which the parties would otherwise be reluctant to provide.[102] Often information that would best assist the tribunal to assess the competitive effects of the merger is private information within the control of the parties.[103] For example, internal plans and cost studies that resulted in the decision to merge may assist the tribunal to distinguish whether the merger is motivated by a desire to become more efficient and compete more vigorously or a desire for increased market power.[104] Encouraging parties to argue that efficiencies not only increase public benefits resulting from the merger but also decrease the merger’s anticompetitive effects may increase their willingness to disclose detailed private information in a form more relevant to the effects of the merger on competition.

The third reason can best be described by the old saying “practice makes perfect”. If merging parties are asked to quantify the competitive effects of efficiencies they will, over time, become better at doing it.[105] For example, by requiring parties to quantify the competitive effects of their merger, Australia may see a similar increase in the use of sophisticated quantitative evidence to that experienced recently in the United States[106] and New Zealand as parties experiment with new ways to quantify efficiency effects.[107] On a similar note, incorporation of the competitive effects of efficiencies into the competition analysis may also create a body of authorisation determinations that could be considered by courts and hopefully improve their ability to assess competitive effects.[108]

Separating out the procompetitive effects of efficiencies facilitates a more contextual analysis

Another common criticism of the value of separately identifying the procompetitive effects of mergers is that doing so is only likely to alter the outcome in borderline cases.[109] However, it is precisely in such cases that a more sophisticated analysis is needed in order to better evaluate the finely balanced arguments about the likely competitive effects of the merger. This will help ensure that welfare-enhancing mergers are not blocked (and welfare-reducing mergers are not authorised). Furthermore, as the more sophisticated approach to efficiency analysis will promote a better understanding of the competitive effects of the merger by focusing attention on how merger efficiencies affect competition, it should not be dismissed simply because it is unlikely to change the outcome in many authorisation determinations.[110]

Despite the increased recognition that competitive effects must be assessed on the basis of commercial likelihoods relevant to the proposed merger rather than speculation based on economic theory alone,[111] there has been a tendency in the authorisation context to dismiss claimed public benefits in the form of efficiency gains on the basis of generalised theories about the likelihood of coordination flowing from increased market concentration.[112] Viewing efficiencies as relevant to the analysis of the competitive effects of mergers as well as potential resource savings will help to reverse this trend. If the tribunal is provided with specific examples about how the merged entity will be better able to compete against its current competitors, it is likely to engage in a more contextual analysis and better understand the competitive effects of the merger.

While a full examination of the potential effects that merger-related efficiencies can have on competition is beyond the scope of this paper,[113] a few examples will now be discussed to demonstrate how the consideration of anticipated procompetitive efficiencies can help overcome the predominantly structural approach provided for in s 50(3) of the TPA.

Whereas a structural analysis of a merger that results in increased market concentration levels in an oligopolistic market is likely to lead to the conclusion that the merger will lessen competition by increasing the likelihood of coordination,[114] a contextual analysis based on the potential procompetitive effects of efficiencies may reveal that coordinated conduct will in fact be less likely as a result of the merger.[115] For example, a reduction in the uniformity of costs across competitors has the potential to undermine the stability of coordination.[116] Furthermore, the merged entity’s increased efficiency may induce other competitors to strive for greater efficiency.[117] If parties are encouraged to tender evidence that demonstrates how merger efficiencies will help them compete more vigorously, more attention is likely to be given to arguments such as those just discussed.

When efficiencies are assessed purely as public benefits, attention is unlikely to be focused on whether the resource savings in question result from a reduction to fixed or variable costs, even though this distinction can be important to the likely competitive effects of the merger. At least in the short term, a reduction in variable costs may give the merged firm the incentive to lower price[118] and in turn evoke a competitive response from competitors.[119]

Similarly, pecuniary benefits (such as lower input prices resulting from increased bargaining power or savings in taxation) may also enable the merged firm to compete more vigorously (eg by increasing funds available to devote to research and development).[120] However, such benefits are unlikely to factor into the authorisation analysis at all if efficiencies are viewed solely as public benefits.[121]

CONCLUSION

Efficiencies brought about by mergers can have two distinct effects. They can impact upon the level of competition in the relevant market and can also bring about resource savings. The current trend in authorisation determinations of assessing efficiency gains predominantly as public benefits means that the competitive effects of merger-related efficiencies could go unnoticed. To improve the effectiveness of authorisation analysis, efficiencies should be factored into both the assessment of public detriments and public benefits. By considering the competition and resource saving effects of merger-related efficiencies separately, the Australian Competition Tribunal will be better placed to assess the merger’s effect on competition and perform a more meaningful trade-off between competition and efficiency as part of its analysis of merger authorisation applications.

* Lecturer, Law Faculty, The University of Melbourne. I am grateful to Professor Andrew Robertson, Ms Sunita Jogarajan and an anonymous referee for their helpful comments on earlier drafts. In addition, I would also like to thank Professor Warren Pengilley for kindly providing me with some background research he had undertaken in relation to some similar research. Any errors, of course, remain mine.

1 Some even argue that it is the only way to promote efficiency (see Fox EM, “Symposium: Perspectives on Efficiencies and Failing Firms in Merger Analysis: Antitrust, Competitiveness, and the World Arena: Efficiencies and Failing Firms in Perspective” (1996) 64 Antitrust LJ 725).

[2] This paper deals only with horizontal mergers as they account for the majority of anticompetitive mergers (see Organisation for Economic Cooperation and Development (OECD), Substantive Criteria Used for Assessment of Mergers (DAFFR/COMP(2003)5 (2003) 21).

[3] Industry Commission, Information Paper, “Merger Regulation: A Review of the Draft Merger Guidelines Administered by the Australian Competition and Consumer Commission” (June 1996), at [vii].

[4] De la Mano M, “For The Customer’s Sake: The Competitive Effects of Efficiencies in European Merger Control” (Enterprise Directorate-General European Commission – Enterprise Papers No 11, 2002), p v (Summary), http://ec.europa.eu/enterprise/library/enterprise-papers/paper11.htm (viewed 26 June 2007); Fels A AO and Grimwade T, “Authorisation: Is it Still Relevant to Australian Competition Law?” (2003) 11 CCLJ 187 at 191; Heyer K, “Address before the Merger Task Force of the European Commission’s Directorate General for Competition” (April 2002); Summers L, “Competition Policy in the New Economy” (2001) 69 Antitrust LJ 353 at 358.

[5] Canada’s statutory efficiency defence (see text accompanying n 41) has also been justified on the basis of the size of Canada’s economy: Sanderson M, “Efficiency Analysis in Canadian Merger Cases” (1997) 65 Antitrust LJ 623. See also Fels and Grimwade, n 4 at 196.

[6] Note that such arrangements may themselves constitute contraventions of the Trade Practices Act 1974 (Cth).

[7] Dawson Committee, “Review of the Competition Provisions of the Trade Practices Act” (January 2003), pp 33 and 56; Smith RL and Grimwade TP, “Authorisation: Some Issues” (1997) 25 ABLR 351 at 352; Fels and Grimwade, n 4 at 188.

[8] Williamson OE, “Economies as an Antitrust Defence” (1968) 58 American Economic Review 18.

[9] Clayton Act 15 USC § 18, s 7.

[10] Cargill Inc v Monfort of Colorado Inc 479 US 104 (1986).

[11] Griffin JP and Sharp LT, “Efficiency Issues in Competition Analysis in Australia, the European Union and the United States” (1996) 64 Antitrust LJ 649 at 657. See also Brown Shoe Co v United States 370 US 294 at 344 (1962). This may be explained by the fact that United States antitrust laws were motivated by a fear of concentration and wealth transfers from producers to consumers rather than a concern for efficiency (Berry MN, “Efficiencies and Horizontal Mergers: In Search of a Defense” (1996) 33 San Diego L Rev 515 at 519-520). Nonetheless, recently there has been an increased focus on the goals of efficiency.

[12] Federal Trade Commission v Proctor and Gamble Co 386 US 586 at 580 (1967); United States v Philadelphia National Bank [1963] USSC 166; 374 US 321 at 371 (1963).

[13] Kattan J, “Symposium: Perspectives on Efficiencies and Failing Firms in Merger Analysis: The Role of Efficiency Considerations in the Federal Trade Commissions Antitrust Analysis” (1996) 64 Antitrust LJ 613 at 617.

[14] Griffin and Sharp, n 11 at 658; Pitofsky R, “Proposals for Revised United States Merger Enforcement in a Global Economy” (1992) 81 Geo LJ 195 at 212. See, eg Federal Trade Commission v University Health Inc 938 F 2d 1206 (1991); Federal Trade Commission v Butterworth Health Corp 121 F3d 708 (1997); Federal Trade Commission v Tenet Health Care Corp [1999] USCA8 618; 186 F 3d 1045 (1999); Federal Trade Commission v H J Heinz Co [2001] USCADC 59; 246 F. 3d 708 (2001). Several lower courts have also followed the decision (although these tend to be older cases): Griffin and Sharp, n 11 at 656.

[15] Berry, n 11 at 525 argues that it is wrong to interpret these decisions as precluding an argument that efficiencies lessen or reverse the competition effects of an otherwise anticompetitive merger.

[16] Eg Continental TV Inc v GTE Sylvania Inc [1977] USSC 134; 433 US 36 (1977). In this case the court recognised that vertical restraints that limit intrabrand competition can be a procompetitive way of improving interbrand competition.

[17] Kolasky WJ and Dick AR, “The Merger Guidelines and the Integration of Efficiencies into Antitrust Review of Horizontal Mergers” (2003) 71 Antitrust LJ 207 at 231 and 235. Unlike in Australia (where no court has ever cited the ACCC’s Merger Guidelines as part of its merger analysis), United States courts frequently cite the United States Merger Guidelines.

[18] Areeda PA and Turner DF, Antitrust Law: An Analysis of Antitrust Principles and Their Application (Aspen Publishers, 1980) pp 153-154.

[19] Areeda and Turner , n 18.

[20] OECD, n 2 at 50.

[21] Kauper TE, “Merger Control in the United States and the European Union: Some Observations” (2000) 74 Saint John’s L Rev 305 at 353.

[22] Kauper, n 21at 792.

[23] Article 85(1) provides “the following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market”.

[24] Article 86 provides “any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States”.

[25] These Articles were commonly regarded as providing for imperfect regulation of mergers, which was why the Merger Regulation was ultimately introduced.

[26] Griffin and Sharp, n 11.

[27] Griffin and Sharp, n 11 at 665.

[28] The Merger Regulation was recast in 2004 (Council Regulation (EC) No 139/2004 of 20 January 2004 on the Control of Concentrations Between Undertakings [2004] OJ L 24/1). In order to be subject to regulation under Art 2 of the 2004 regulation, the merger must also have a community dimension (which it will only have if it meets the financial thresholds set out in Art 1) and constitute a concentration/merger (as defined in Art 3).

[29] Council Regulation (EC) No 139/2004 of 20 January 2004 on the Control of Concentrations Between Undertakings [2004] OJ L 24/1, Art 2(1)(b).

[30] Kauper, n 21 at 322; cf Griffin and Sharp, n 5. Banks (Banks JD, “Competition and the Public Interest: A Comparative Overview of European and Australian Merger Law” (1998) 5 CCLJ 209 at 220) argues that broader industry policy considerations (such as the importance of achieving efficiencies) continues to play a part in the Commission’s decision-making although the absence of a public interest exception has meant such considerations are not properly acknowledged. The Commission denies that this is the case.

[31] European Guidelines, Guidelines on the Assessment of Horizontal Mergers under the Council Regulation on the Control of Concentrations Between Undertakings [2004] OJ C 31/03, pp 13-14 (in particular [76], [77], [82] and [83]).

[32] See, eg Danish Crown Vestjyske Slagterier Case [2000] OJ L 20.

[33] Council Regulation (EC) No 139/2004 of 20 January 2004 on the Control of Concentrations Between Undertakings [2004] OJ L 24/1 at 4. Although Recitals are not part of the legal text, they provide an insight into the objectives the Merger Regulation sought to achieve.

[34] Banks, n 30 at 214; Brittan QC Sir L, “The Law and Policy of Merger Control in the EEC” [1990] ELR 351 at 353; Organisation for Economic Cooperation and Development (OECD), Competition Policy and Efficiency Claims in Horizontal Agreements (OECD/GD(96)65) (Paris, 1996), p 53. See also Dawson Committee, n 7, p 51.

[35] Banks, n 30 at 211 and 217. See also Afonso M, “A Catalogue of Merger Defenses Under European and United States Antitrust Law” (1992) 33 Harv Int’l LJ 1 at 31.

[36] Motis J, Neven D and Seabright P, “Efficiencies in Merger Control” in Ilzkovitz F and Meiklejohn R (eds) European Merger Control: Do We Need an Efficiency Defence? (Edward Elgar, 2006), p 305.

[37] This is best reflected in European Guidelines, n 31, p 13, which provide a useful explanation of the potential effects efficiency can have on competition.

[38] Competition Act, RSC 1985, c C-34, s 92.

[39] The Competition Tribunal is the body responsible for hearing merger cases at first instance.

[40] Competition Act, RSC 1985, c C-34.

[41] Furthermore, prior to the definitive statement in Superior Propane as to the relevance of efficiencies, the Competition Tribunal had demonstrated a dismissive attitude to the argument that efficiency gains could in fact be procompetitive (see Commissioner of Competition v Canadian Waste Services Holdings Inc (2001) CACT 34 at [105] and[109]). Arguably both of these decisions are inconsistent with s 93(e) of the Competition Act which provides that the court may consider the extent to which an effective competitor will remain in the market.

[42] Competition Bureau Canada, Merger Enforcement Guidelines (September 2004).

[43] New Zealand has adopted a very similar legislative approach to the competition regulation of mergers as Australia. Section 47 of the Commerce Act 1986 (NZ) prohibits mergers in the same language of s 50 of the Trade Practices Act 1974 (Cth).

[44] The formal clearance process is provided for in Pt VII, Div 3, Subdiv A of the Trade Practices Act 1974 (Cth). If the ACCC grants formal clearance the merger is immune from challenge (Trade Practices Act 1974 (Cth), s 95AC(2)).

[45] Informal clearances are not provided for in the Trade Practices Act 1974 (Cth).. Rather, the ACCC conducts informal clearances as an exercise of its administrative powers.

[46] See, eg Australian Gas Light Co v Australian Competition and Consumer Commission [2003] FCA 1525; (2003) 137 FCR 317.

[47] Until 15 December 2006 authorisation applications were heard by the ACCC at first instance (with a right to appeal for a review on the merits to the Australian Competition Tribunal). However, as a result of Trade Practices Legislation Amendment Act (No 1) 2006 (Cth) merger authorisation applications are heard at first instance by the tribunal. Although judicial review of the tribunal’s decision is available there is no right to appeal the tribunal’s decision on the merits.

[48] Trade Practices Act 1974 (Cth), ss 95AT and 95AZH(1). Section 67(3)(b) of the Commerce Act 1986 (NZ) sets out the same test for authorisation as s 95AZH(1) of the Trade Practices Act 1974 (Cth).

[49] Re Queensland Co-op Milling Assn Ltd (1976) 25 FLR 169; 8 ALR 481 at 510. The Trade Practices Act 1974 (Cth) does not define “public benefit” and neither the Explanatory Memorandum nor the Second Reading Speech assist in giving meaning to the phrase (Smith RL, “Authorisation and the Trade Practices Act: More About Public Benefit” (2003) 11 CCLJ 21 at 22). See also Australian Competition and Consumer Tribunal, Merger Guidelines (June 2004), p 69.

[50] Re Queensland Co-op Milling Assn Ltd (1976) 25 FLR 169; 8 ALR 481; Australian Competition and Consumer Tribunal,, n 49. See also Re 7-Eleven (1994) ATPR 41-357 at 42,677

[51] Smith RL and Grimwade TP, “Authorisation: Some Issues” (1997) 25 ABLR 351 at 368.

[52] Smith and Grimwade, n 51 at 356. See also Griffin and Sharp, n 11 at 651; Anderson W et al, “Merger Misconceptions: The Industry Commission’s Paper on the ACCC’s Draft Merger Guidelines” (1996) 4 CCLJ 128 at 144.

[53] Smith and Grimwade, n 51 at 354; Robertson D, “The Regulatory Assessment of Mergers (and Things Like Mergers)” (2000) 7 CCLJ 201 at 217.

[54]The Australian Competition and Consumer Tribunal, Merger Guidelines, n 49, provide at [6.34] that the framework set out in s 50 of the Trade Practices Act 1974 (Cth) is still an appropriate one for the evaluation of competitive effects in the context of authorisation. While merger efficiencies are not included in s 50(3)’s list of relevant factors, this list is non-exhaustive. Therefore it is perfectly permissible to consider merger efficiencies as part of the analysis of the competitive effects of the merger.

[55] Australian Competition and Consumer Tribunal Merger Guidelines, n 49, [5.16] – [5.17], [5.164] and [5.171] – [5.174], note that the potential procompetitive effects of a merger should be integrated within the framework of competitive analysis and efficiencies are considered to be the most important form of public benefit.

[56] It is often stated that the ACCC is receptive to arguments that efficiencies can improve a firm’s ability to compete. However such assertions are supported by reference to the Australian Competition and Consumer Tribunal Merger Guidelines, n 49, rather than any pattern developing in the ACCC’s authorisation determinations (see, eg Smith and Grimwade, n 51 at 356).

[57] Industry Commission, n 3 at [xiv] (emphasis added).

[58] Robertson, n 53 at 215.

[59] Pengilley W, “Why Not Reinstate Clearance of Restrictive Trade Practices as an Assistance to Small Business?” (2006) 14 CCLJ 53. Pengilley refers to comments may in Re Foodland Group [1978] ATPR (Com) 35-340 that the arrangements in question assisted the competitive process and were thus to be regarded as public benefits.

[60] Australian Competition and Consumer Tribunal, n 49, pp 26 and 59.

[61] New Zealand Commerce Commission, Merger and Acquisitions Guidelines, p 31.

[62] New Zealand Commerce Commission, n 61, p 31.

[63] Page 12 of the New Zealand Commerce Commission’s Guidelines to the Analysis of Public Benefits and Detriments states that “[e]ssentially, the balancing of public benefits against detriments ... involved a weighing of the efficiency gains of the former against the efficiency losses from the latter”. The potential procompetitive effects of merger-related efficiencies are not mentioned.

[64] As in the United States, the New Zealand courts are warming to the idea that efficiency gains can be procompetitive (albeit in non-merger cases: see Fisher & Paykel v Commerce Commission [1990] NZHC 307; [1990] 2 NZLR 731 (exclusive dealing); Shell (Petroleum Mining) Co Ltd v Kapuni Gas Contracts Ltd [1997] TCLR 463 (anti-competitive agreement) and Commerce Commission v Port Nelson Ltd [ [1995] TCLR 406 (anti-competitive agreements and abuse of dominant position).

[65] As noted above (see n 47), up until 15 December 2006 the ACCC was responsible for hearing authorisation applications at first instance (with a right to appeal for a review on the merits to the Australian Competition Tribunal).

[66] Court cases involving mergers are rare. Furthermore, as none of the merger cases heard to date have dealt with instances where efficiency is likely have a competitive effect, judicial treatment of efficiencies will not be commented upon.

[67] In Re Wattyl (Australia) Pty Ltd (1996) ATPR (Com) 50-232 it was argued that the merged entity would be more efficient and be in the position to offer a complete range of architectural and decorative paint products, thus improving its ability to compete with Dulux.

[68] Re Wattyl (Australia) Pty Ltd (1996) ATPR (Com) 50-232 at 56,637. Such comments are generally made with respect to protecting firms from conduct of their competitors. It is worth noting that s 50(3)(h) recognises that in the context of mergers, the fate of individual competitors can have an impact on competition.

[69] Re Wattyl (Australia) Pty Ltd (1996) ATPR (Com) 50-232 at 56,651.

[70] Re Queensland Co-op Milling Assn Ltd (1976) 25 FLR 169; 8 ALR 481 at 513.

[71] Smith, n 49 at 38.

[72] Re Queensland Independent Wholesalers Ltd (1995) 132 ALR 225 at 284. Furthermore, even though the tribunal’s finding that the merger did not generate public detriments, and thus it was not necessary to identify public benefits sufficient to outweigh public detriments, merger efficiencies that resulted in resource savings were appropriately recognised in what turned out to be an unnecessary discussion of public benefits (at 282).

[73] Rather, authorisation determinations tend to deal with efficiency effects by either quantifying likely decreases in efficiency resulting from the merger (as part of the detriment analysis) or by considering improvements in efficiency as public benefits). See Decision 410 (Ruapehu Alpine Lifts Ltd and Turoa Ski Resort Ltd), pp 55-81 and 82-114 respectively, http://www.comcom.govt.nz//PublicRegisters/ContentFiles/Documents/Decision%20410%20_7.pdf (viewed 28 June 2007). This approach is also reflected in the New Zealand Commerce Commission, Mergers and Acquisitions Guidelines, n 61, in the analysis of public benefits and detriments (October 1994, revised December 1997). The guidelines describe the weighing process involved in the authorisation process as essentially involving the weighing of efficiency gains (which are described as public benefits) against efficiency losses (public detriments) (see p 12).

[74] See www.accc.gov.au (follow links to “Mergers & authorising anti-competitive conduct”, “Mergers”, “Informal merger clearances” and “Overview of informal merger reviews”) (viewed 28 June 2007).

[75] I would like to thank the anonymous referee for his or her suggestion to include an analysis of the ACCC’s clearance determinations.

[76] Hopefully the ACCC’s relatively recent practice of issuing Public Competition Assessments (PCAs) will improve this. The ACCC has undertaken to provide PCAs outlining the basis for reaching its final conclusion on an informal merger clearance review where: (a) the merger is rejected; (b) the merger is subject to enforceable undertakings; (c) the merger parties seek such disclosure; and (d) the merger is approved but raises issues the ACCC believes to be important.

[77] It is not possible to consider determinations prior to this date as the ACCC’s informal merger clearance register only goes back to 2002.

[78] See ACCC informal merger clearance register summary of the merger between Baiada Poultry Pty Ltd and Eatmore Poultry Pty Ltd, http://www.accc.gov.au/content/index.phtml/itemId/492755 (viewed 28 June 2007). Presumably efficiencies played some role in this improved ability to compete, although this is not expressly stated in the very brief reasons available on the informal clearance register.

[79] See ACCC informal merger clearance register summary of the merger between Bilfinger Berger Australia Pty Ltd and Abigroup Ltd, http://www.accc.gov.au/content/index.phtml/itemId/476753 (viewed 28 June 2007).

[80] Griffith-Jones G, “Bilfinger Bids for Australia’s Abigroup”, Reuters News (23 October 2003).

[81] See n 79. Interestingly, public announcements surrounding the merger financial support, not efficiency improvements, were cited by Abigroup’s CEO (Mr John Cassidy) as the reason the acquisition would improve Abigroup’s performance (see Peters R, “Abigroup Set to be Taken Over by German-based Bilfinger Berger’, Australian Associated Press Financial News Wire (24 October 2003). See also “ACCC Not to Oppose Acquisition in Construction Industry’, M2 Presswire (4 December 2003).

[82] The importance of synergies and the need to improve economies of scale were cited by representatives of Novo foods as motivations for the merger (see Atkinson B, “Merged Egg Marketers Will Control 20% of Trade”, Food Week (29 September 2003).

[83] See Public Competition Assessment of the Futuris Corporation Ltd and AWB Ltd through Elders and Landmark joint acquisition of HiFert Pty Ltd from Western Mining Corporation (8 March 2005), http://www.accc.gov.au/content/index.phtml/itemId/656330 (viewed 28 June 2007).

[84] Williams F, “Metcash Steals March on FAL”, AAP Bulletins (6 December 2004); Williams F, “Metcash, Woolworths on Brink of Foodland Proposal”, Australian Associated Press Financial News Wire (24 May 2005); Beveridge J, “Woolies, Metcash Divide the Goods”, Herald-Sun (25 May 2005); Jimenez K, “Metcash Reveals A ‘Third Force’”, The Australian (7 December 2004).

[85] See ACCC informal merger clearance register summary of the informal clearance determination in relation to the merger between Metcash Trading Ltd and Foodland Australia Ltd, http://www.accc.gov.au/content/index.phtml/itemId/638097 (viewed 28 June 2007).

[86] See ACCC informal merger clearance register summary of the informal clearance determination in relation to the merger between North Suburban Taxis Ltd and Black Cabs Combined Ltd, http://www.accc.gov.au/content/index.phtml/itemId/475254 (viewed 28 June 2007).

[87] See ACCC informal merger clearance register summary of the informal clearance determination in relation to the merger between Arrow Taxi Services Ltd and Embassy Taxis, http://www.accc.gov.au/content/index.phtml/itemId/633589 (viewed 28 June 2007).

[88] See Decision 492 (Wakefield Hospital Ltd and Bowen Hospital Ltd), p 32; Decision 463 (Payrolle Pacific Holdings and VA Tech Reyrolle Pacific), pp 22-23; Decision 444 (MICO Wakefield Ltd and MasterTrade Ltd), pp 25-26; Decision 442 (United Environmental Ltd and Solvent Services Ltd), p 27; Decision 441 (Canterbury Meat Packers Ltd and Phoenix Co Ltd), p 28; PMI Mortgage Insurance Australia (Holdings) Pty Ltd and CGU Lenders Mortgage Insurance Ltd, p 32. All available at http://www.comcom.govt.nz/PublicRegisters/mergersacquisitions-clearances.aspx (viewed 28 June 2007).

[89] See, eg Decision 466 (Firth Industries and Gill Construction), p 32, http://www.comcom.govt.nz//PublicRegisters/ContentFiles/Documents/n466.pdf (viewed 28 June 2007). The argument that merger-related efficiencies offset any potential lessening of competition was ultimately dismissed by the Commerce Commission because of disagreement between customers as to whether or not the acquirer posed a competitive alternative to the market leader prior to the proposed merger. Nevertheless, the Commission’s treatment of the argument demonstrates a solid understanding of the potential relevance of merger efficiencies to the competitive process.

[90] De la Mano M, n 4 at 33; Pitofsky T, “Efficiencies in Defense of Mergers: Two Years After” (1999) 7 Geo Mason L Rev 485 at 486; Rogers P, “The Limited Case For An efficiency Defense In Horizontal Mergers” (1983) 58 Tul L Rev 503 at 510.

[91] Robertson notes that the categories of public benefit and anticompetitive detriment are incommensurable (Robertson D, “The Primacy of ‘Purpose’ in Competition Law – Part 2” (2002) 10 CCLJ 42 at 70).

[92] Smith and Grimwade, n 51 at 353.

[93] Pitofsky, n 14 at 207.

[94] Robertson, n 53 at 216.

[95] Pitofsky, n 14 at 211. The Chicago school believes, however, that this justifies the relaxation of competition laws. Others, such as Joseph Kattan believe that these difficulties of proof mean that efficiencies ought not be recognised as a basis for permitting an otherwise illegal merger (see Katten J, “Efficiencies and Merger Analysis” (1994) 62 Antitrust LJ 513 at 520-521).

[96] Posner RA, Antitrust Law: An Economic Perspective (University of Chicago Press, 1976), p 112.

[97] The tribunal is not bound by the rules of evidence and may therefore treat the evidence it receives in a more flexible manner than the courts. This, coupled with the acknowledgment that precise quantification of efficiencies is generally not possible in the Merger Guidelines, suggests that the tribunal would be reasonable when deciding upon the expectations it has for parties attempting to quantify efficiencies: Australian Competition and Consumer Tribunal, n 49, p 60.

[98] Compelling parties to articulate the competitive effect of efficiencies is also likely to help the tribunal gauge the level of efficiency-related resource savings that are not likely to have a competitive impact for the purpose of its public benefits assessment.

[99] De la Mano, n 4 at 41

[100] Stewart IB, “Mergers and Competition: An Analysis of Section 50 of the Trade Practices Act” (2000) 74 ALJ 533 at 533; United States Department of Justice and the Federal Trade Commission, Commentary on the Horizontal Merger Guidelines (2006), p 56.

[101] De la Mano, n 4 at 41.

[102] United States Department of Justice and the Federal Trade Commission, n 100 at 50.

[103] De la Mano, n 4 at 40.

[104] In its submission to the OECD policy paper (see n 34), the Business and Industry Advisory Committee to the OECD (BIAC) argued that such evidence may not exist and that merger decisions are often made on the basis of a general sense of synergies likely to be obtained without engaging in a detailed assessment of potential efficiency gains (p 61). This is especially the case where each party to the merger is reluctant to provide the other with confidential information about their business.

[105] OECD, n 34, p 77.

[106] Evans L, “Economic Measurement and The Authorisation Process: The Expanding Place of Quantitative Analysis” (1999) 7 CCLJ 99 at 99.

[107] As Fels and Grimwade note (n 4 at 209), New Zealand adopts a more quantitative approach to authorisation analysis largely because of the Court of Appeal’s comment in Telecom Corporation of NZ Ltd v Commerce Commission [1992] 3 NZLR 429 at 447 that the Commerce Commission should attempt as far as possible to quantify detriments and benefits rather than rely on purely intuitive judgement.

[108] In Davids Holdings Pty Ltd v Attorney-General (Cth) (1994) 49 FCR 211 the Full Federal Court was called upon to consider a merger proposal very similar to that considered by the tribunal in Re Queensland Independent Wholesalers Ltd (1995) 132 ALR 225. The court was quite dismissive of the efficiencies the merger would bring about and appeared to believe efficiencies were economic advantages more suitable for analysis under the authorisation process. The merger was therefore held to contravene s 50 of the Trade Practices Act 1974 (Cth), a very different conclusion to that reached a year or so later by the Tribunal in Re Queensland Independent Wholesalers.

[109] The United States Department of Justice and the Federal Trade Commission, Horizontal Merger Guidelines (April 1997) acknowledge that efficiencies almost never justify a merger to monopoly or near monopoly (p 32). Rogers, n 90 at 544 argues that identifying procompetitive efficiency effects is only likely to change the outcome reached in cases where the anticompetitive effect was marginal.

[110] Pitofsky,n 14 at 221 has estimated that the result would change, at most, for one in twenty mergers.

[111] Australian Gas Light Co v Australian Competition and Consumer Commission (No 3) [2003] FCA 1525; (2003) 137 FCR 317 at 416.

[112] For example in Re Wattyl (Australia) Pty Ltd (1996) ATPR (Com) 50-232 the ACCC believed that owing to resulting concentration levels, the merged entity would not have the incentive to compete nor the incentive to keep production costs as low as possible.

[113] For an examination of potential competitive gains from merger efficiencies see Motis et al, n 36 at 303.

[114] De la Mano, n 4, p vi (Summary).

[115] Anderson et al, n 52 at 144.

[116] United States Department of Justice and the Federal Trade Commission, n 100, p 49. Changes in market share also have the potential to undermine coordination, although the increased market share that results from a merger is not really an efficiency effect.

[117] United States Department of Justice and the Federal Trade Commission, n 100, p 49.

[118] Robertson, n 53 at 216.

[119] United States Department of Justice and the Federal Trade Commission, n 100, p 57; De la Mano, n 4 at 47.

[120] Australian Competition and Consumer Tribunal, n 49, p 60.

[121] Australian Competition and Consumer Tribunal, n 49, p 69.