Europe: economist perspective
Economists continue to play an important role in large European competition cases, particularly in cases involving a significant amount of data-related work. Economic analysis assists the assessment of challenging cases involving novel theories of harm. This is often the case in industries characterised by data-related issues or innovation in both digital markets and non-digital markets.
This article describes the role of economic analysis in European competition cases and ongoing and expected developments. It is based on interviews with leading representatives of law practices based in Brussels and London (working on European cases): Arnold & Porter, Dechert, DLA Piper, Jones Day, Kirkland & Ellis, Norton Rose Fulbright and Van Bael & Bellis, and with representatives of DG Competition’s Chief Economist Team.
Digital markets and data-related issues are still at the forefront of the competition debate. Most lawyers interviewed agreed that enforcers have deepened their knowledge of these markets, as they are dealing with more and more cases. At the same time, the lawyers agree that a full understanding of these issues and having the appropriate tools to perform competition assessments in these markets are still a long way away. This applies to the application of traditional concepts such as market power and the identification and assessment of new theories of harm relating to data access or data as an essential facility. Bridging this knowledge gap will be crucial as data-related issues in competition cases are expected to increase. The lawyers agree that economists will have an important role in solving some of the challenging questions on this topic.
The European Commission’s new guidance on the application of article 22 of the EU Merger Regulation (EUMR) encourages national competition authorities to refer mergers to the European Commission if they fall below national merger thresholds but have the potential to significantly affect competition. The new guidance seems to have generated a level of uncertainty for lawyers and their clients regarding the extent to which enforcers will make use of this tool. At the same time, most lawyers find this to be a reasonable compromise between the need to ensure that enforcers can identify and assess problematic mergers that would not have been notified previously and the need to avoid burdensome processes. Mergers that fall into this category are expected to be challenging cases, where the understanding of market dynamics and the identification and assessment of theories of harm may require innovative thinking. For this reason, lawyers expect these merger cases will often require significant economic analysis to identify and assess appropriate theories of harm.
The role of sustainability issues in competition assessments is another topic that has been highly debated in the past year. The lawyers interviewed agree that uncertainty still exists concerning the role that sustainability considerations will play in competition assessments. Most lawyers expect that companies will put forward these types of considerations and that enforcers will take them into account in their evaluations. Still, most lawyers do not think that sustainability issues will necessarily play a major role in the outcome of competition assessments, especially for mergers and cartels. Economic analysis will nonetheless certainly play a role in developing tools for the quantification of costs and benefits related to sustainability issues.
Economic analysis remains focused on cases involving significant data-related work and complicated sectors
As in previous years, most of the law firms interviewed confirmed that they use economists in large and complex competition cases. The involvement of economists usually relates to tasks and analyses that require the handling of significant amounts of data or cases that require creative data collection methods.
In addition to data-related work, some lawyers involve economists in the formulation or the assessment of theories of harm. This proves particularly useful in complicated sectors or cases. For instance, the lawyers interviewed agree that economic analysis is and will be increasingly relevant in cases involving digital markets, where important questions for a proper assessment of such cases remain fully or partially unanswered. This applies to the application of traditional concepts such as market power and the identification and assessment of possible new theories of harm. Some examples of concepts involved in such new theories of harm are algorithmic pricing, data access and data as an essential facility, the role of innovation and so-called ‘killer acquisitions’. Similarly, the continued focus on the pharmaceutical sector is expected to involve a large amount of economic analysis to understand and assess innovation-related theories of harm.
Lawyers confirm that mergers remain a key area where economists’ involvement is most relevant. However, economic analysis plays a significant role in large antitrust cases, where economists are often involved. The role of economists remains prominent in private enforcement cases, for example, follow-on litigation from cartels. Here, economists have a key role in assessing the plausibility of harm, quantifying claims and providing expert reports to courts.
Most lawyers agree that the covid-19 pandemic has had no major impact on competition and antitrust enforcement at either the European or the national level. Nearly all lawyers interviewed reported that the speed at which cases have been handled has not been reduced as a result of the pandemic. Concerning the type of cases handled, lawyers reported a surge in the number of state aid cases in the past year. So far most of these cases have been small and have not required the involvement of economists.
Economists will have an important role in further developing tools and understanding of core issues in digital markets
The application of competition policy to digital markets and data-related issues has been a debated topic in recent years, and last year was no exception. One key development was the Google/Fitbit merger reviewed by the European Commission, which is the first merger conditionally approved with a package of data-related remedies.
Most lawyers agree that significant progress has been made in the understanding of digital markets and the awareness of competition issues that can arise concerning data. Yet nearly all lawyers interviewed noted that we still have a long way to go to understand these markets fully, to identify clear theories of harm in both horizontal and vertical contexts, to be able to grasp the value of specific datasets fully and to have proper tools to perform competition assessments.
The prevalence of cases in digital markets or involving data-related issues in non-digital sectors is expected to continue to increase. For example, acquisitions of smaller software platforms or data firms are expected to trigger regulatory scrutiny even if the final product or service is not a standard digital one. Therefore, developing adequate theories of harm and analytical tools will be crucial. To this end, the role of economists will be key, according to all lawyers interviewed.
Following the new European Commission guidance, the application of article 22 EUMR may involve a significant amount of economic analysis
In March 2021, the European Commission published guidance on the application of article 22 EUMR, which sets out the mechanism for referral of mergers to the European Commission. According to the new guidance, national competition authorities will be encouraged to refer mergers to the European Commission if they fall below national merger thresholds but have the potential to significantly impede competition.
Most lawyers perceive the process leading up to this important development as unorthodox as it did not involve formal consultations. At the same time, nearly all lawyers interviewed found the European Commission’s choice to be a fair compromise as it allows EU enforcers to review potentially problematic deals that do not meet the notification threshold requirements without the need to set out an additional or separate process, which would be burdensome for all parties involved. This development inevitably involves a level of uncertainty as to the extent to which it will be applied in practice. This uncertainty will diminish over time as more cases are assessed.
While the referrals under article 22 EUMR are not limited to specific industries, the digital and pharmaceutical sectors are expected to be the most affected. This is because targets in these sectors often play a significant competitive role without generating a significant turnover and thus fall outside the scope of merger control. These are likely to be complicated mergers in terms of theories of harm and understanding of market dynamics. For this reason, most lawyers expect the new guidance on the application of article 22 EUMR will result in increased involvement of economists in merger cases. The role of economists in these mergers will likely not be limited to data-related work but will involve identifying and testing appropriate theories of harm.
Economic analysis will likely have an increasing role in the integration of sustainability considerations in competition assessments
Sustainability has entered the policy debate and has become a public priority in recent years. In this context, the role of competition policy in contributing to the achievement of sustainability goals has been discussed. The question is the extent to which competition policy should be a tool to increase sustainability, that is, how much weight should these considerations have in the outcomes of competition assessments? The lawyers agree that these questions remain largely unanswered. At the same time, sustainability is expected to play a role in competition assessment in the coming years.
In addition to state aid, sustainability issues discussed concern efficiency defences in merger assessments and the exemption for agreements set out under article 101.3 TFEU. Most of the lawyers interviewed agree that sustainability will play a role in these contexts. They note a significant appetite from companies to consider these issues. At the same time, most lawyers agree that it is unlikely that pure sustainability considerations will be given crucial weight in competition assessments. For example, most lawyers do not expect sustainability-related efficiencies to lead to the clearance of mergers that would not otherwise be cleared. Similarly, they do not expect sustainability arguments to be accepted as a defence in hard-core cartels. Nevertheless, all lawyers interviewed agree that new cases will bring clarity on how and to what extent the European Commission will treat sustainability in competition assessments.
Despite the uncertainties regarding the weight that enforcers will give to sustainability, all lawyers interviewed agree that economists will have an important role in these cases. In particular, the quantification of sustainability-related benefits and costs calls for economic analyses and tools to collect and identify suitable data points, and to build appropriate analyses to generate the necessary insights from them. To this end, the tools that environmental economists have already developed and used could be borrowed and adapted to fit the needs of competition assessments.