The Competition and Markets Authority (CMA) turns four in 2018, and its merger regime is becoming more distinct from the one it inherited from its predecessor organisations (the Office of Fair Trading and the Competition Commission).
This year, we can expect the CMA to continue to focus its resources on fewer, more problematic deals; to increasingly consider dynamic effect theories of harm in relevant merger cases; and, in anticipation of Brexit, to enhance its reputation and links with agencies across the world.
Fewer, more problematic deals
The CMA increasingly triages deals via its Mergers Intelligence Committee (MIC), and is selective over those it calls in. The CMA is opening files on fewer mergers, which are more likely to generate substantive concerns at phase 1. The CMA is more willing to accept remedies to avoid references to phase 2, including greater use of behavioural remedies. A higher proportion of cases referred to phase 2 are cleared.
Deploying its resources in a targeted way has merit, for the CMA and for merger parties. But the CMA's thresholds for intervention, perhaps by design, appear to have shifted, increasing the potential for uncertainty and cost to business.
Increasing reliance on MIC results in decisions on substance – in effect, clearances – being taken by the CMA in private, without published reasoning and with fewer opportunities for third parties to comment.
Phase 1 case teams are exposed to a different balance of problematic and non-problematic cases. The CMA may need to ensure this bias in the case mix does not result in systemic over-enforcement.
Given the low legal threshold for reference and high chance of clearance at phase 2, a greater focus on resolving cases at phase 1 may result in remedies that are not proportionate to the likely consumer harm.
Dynamic effects
The impact of mergers on the competitive process over time – so-called dynamic effects – have long been considered by agencies in merger reviews. However, such theories are inherently speculative and raise practical challenges in relation to evidence.
The CMA has a wide margin of discretion in the conclusions and inferences it draws from evidence, such as internal documents. Agencies are increasingly interested and confident in bringing cases on the basis of dynamic effects, with a particular focus on innovation.
This is likely to continue. The CMA will be buoyed by the Competition Appeal Tribunal's endorsement of its decision to prohibit the merger between US exchange ICE and commodities trading company Trayport on the basis of such effects. Innovation theories are getting more traction at the EU and US level, too.
UK on the world stage
Brexit will increase the number of transactions notifiable in the UK and raises practical transitional issues in relation to deals being reviewed in Brussels at the time the UK leaves the European Union.
As many of the new deals notifiable in the UK will be international, that implies a need for stronger relationships between the CMA and agencies across the world.
In addition to planning for the likely resource implications of this increased workload, we should expect the CMA to continue to raise its profile internationally, for example with organisations like the International Competition Network.
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Alex Baker Director, Fingleton Associates T: +44 20 3730 9090 |