A difficult balancing act: How to weigh the potential harms and benefits of mergers under the Draft Merger Guidelines

Jorge Padilla, Roman Fischer, Cecilia Nardini, and Angelos Stenimachitis recently co-authored an article examining how merger authorities can better balance competitive harms and benefits under the Draft Merger Guidelines. They propose a structured qualitative approach for cases where precise quantitative analysis is impractical, focusing on the causal mechanisms behind alleged effects, the evidence needed to test them, and price-equivalent benchmarks to assess their likely magnitude. They argue that parties must first “win the logic” before the quantum and that, if benefits are quantified in merger decisions, authorities should more routinely quantify the alleged harms against which those benefits are balanced.

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Abstract

The Draft Merger Guidelines’ emphasis on theories of benefit, dynamic effects and non-price parameters makes balancing harms and benefits the central task of merger control, but the Commission lacks a practicable method for implementing it. Precise quantitative analysis is the first-best approach, but that is uncommon - even where the issues and tools are established and tractable. We outline a second-best approach that structures and disciplines qualitative assessment: it identifies the causal mechanism underlying each alleged effect and the evidence needed to test it; and the uses price equivalent benchmarks to make explicit the judgements that are already being made about the likely magnitudes of harms and benefits. This approach sharpens qualitative assessments by preserving a discipline of quantification: that parties must “win the logic” before the quantum - an estimate carries little weight unless the underlying mechanism is credible, but without an estimate, the credibility of the mechanisms that underpin qualitative judgements escape scrutiny more easily. It also highlights an overlooked aspect of debates over quantifying benefits. If those estimates are to have weight in merger decisions, then we must also more routinely quantify the alleged harm against which benefits must be balances.