The European Commission’s draft Merger Guidelines: Compass Lexecon response to public consultation

Compass Lexecon’s European team submitted their response to the European Commission’s public consultation on the draft Merger Guidelines on 26 June 2026, drawing on the Reflections on the European Commission’s draft Merger Guidelines series published by Compass Lexecon authors since the publication of the draft Guidelines.[1]

This article collates the comments from Compass Lexecon’s public consultation response, grouped by major topic.

The response to the European Commission’s public consultation reflects the collective views of the contributing personnel within Compass Lexecon. It does not necessarily represent the views of Compass Lexecon as a whole, its management, its subsidiaries, its affiliates, its employees, or its clients.

Balancing of merger benefits and harms

We agree with leaving the framework for balancing benefits and harms relatively open-ended, especially for the more difficult cases of asymmetric benefits and harms (paragraphs 347-349). An overly prescriptive guidance risks locking the Commission into analytical approaches that may quickly become unsuitable in the context of evolving market realities and economic tools.

We suggest a more explicit recognition of the difficulties of quantification for certain categories of benefits, for example innovation benefits (which is properly assessed in terms of the process of innovation rivalry rather than specific outcomes as per paragraph 175).

The draft Guidelines offer a very restricted scope for balancing across different consumer groups/markets, essentially amounting to a ‘same set of consumers’ principle (paragraphs 352-357). The limited allowance for “substantially all” customers to be fully compensated via merger efficiencies is likely to be a very demanding standard in practice (paragraphs 355-357). In our view, this may act as an unnecessary constraint for the Commission’s future assessments of merger benefits. First, this imposes a very narrow scope on potential benefits of innovation, sustainability, security and resilience, where significant portions of the benefits accrue to society rather than to individual markets. Second, this risks ignoring the most significant dynamic efficiencies arising from disruptive innovations, which may alter market structures and demand patterns to the benefit of customers that may not be clearly identifiable at the time of the merger assessment. We suggest a less restrictive version of the discussion of balancing across consumer groups and markets, which could still be phrased as requiring a careful assessment (paragraph 349) and high standard of proof.

Dynamic efficiencies

We welcome the explicit discussion of evidentiary sources for dynamic efficiencies in the draft Guidelines, which should benefit all stakeholders through greater clarity and certainty as well as encourage earlier and more structured engagement on efficiencies during the merger review process.

The draft includes a special mention of “pre-merger studies by independent external experts on the type and size of efficiencies and on the extent to which consumers are likely to benefit from them”, prepared “in tempore non suspecto” (paragraph 330). We understand that these refer to deal advisory studies on merger synergies and value creation, produced by consultancies or financial advisors during the merger process. While these studies can offer a starting point for the assessment of merger efficiencies, they are produced for a particular purpose and within a particular institutional context, subject to specific professional standards and disclosure constraints. They may naturally place greater emphasis on shorter-term and more readily quantifiable merger synergies, while setting aside broader impacts on consumer welfare, longer-term innovation incentives or complex dynamic impacts on competition. We would suggest that the Guidelines should maintain greater neutrality regarding the relative weight of particular evidentiary sources, and not risk inadvertently privileging certain forms of measurable short-term efficiencies over more complex but potentially more significant dynamic benefits.

Collective benefits 

The draft Guidelines set a high threshold for collective benefits, essentially requiring that the benefits to the same set of consumers harmed by the merger outweigh the total harm through “internalisation of consumption externalities” (paragraph 322). This is a demanding standard that could be read as requiring the merger benefits to fully resolve the underlying externality itself in order to form a part of the assessment. We would suggest a less restrictive version of this discussion of collective benefits, which could still be phrased as requiring a careful assessment (see for example paragraph 349) and high standard of proof.

Innovation

We agree with the view that the assessment of innovation competition should be focused on the process of innovation rivalry rather than a specific future outcome (paragraph 175). However, there will be difficulties when this principle is applied to the assessment of innovation efficiencies, which is discussed in our comment on dynamic efficiencies.

We acknowledge that this section concentrates on the loss of innovation competition and that innovation benefits are dealt with in a separate section (Part II.C.2). Nevertheless, we suggest some recognition that the nature of innovation is complex and industry-specific and that a purely structural approach may be inappropriate for assessing the innovation impact of each transaction. In particular, the statement that “[t]he guidance on market power and loss of head-to-head competition set out in Sections II.A and II.B.2 above therefore applies mutatis mutandis to cases of innovation competition” (paragraph 179) may be too prescriptive, and could be read as assuming a straightforward negative relationship between market shares or market concentration and innovation. This is not supported by the empirical literature on innovation and ignores the complex role that firm size and market concentration plays in supporting innovation. It would not be appropriate to impose this type of presumption on innovation in the same way that one may presume a relationship between, for example, market concentration and higher prices.

Given the above, we also support the introduction of the innovation shield (paragraph 192) which provides a degree of legal certainty for the class of mergers that are unlikely to lead to loss of innovation competition.

We agree with the discussion of incremental and marginal costs of innovation (paragraph 325 and footnote 405). It would be useful to clarify as part of this discussion that the productivity of investment and R&D should form part of the assessment of evidence. In particular, using R&D spend as a proxy for assessing innovation impacts is potentially misleading; this captures the inputs into the innovation process, but may not reflect the expected innovation outputs. In general, firms subject to effective competition would be expected to minimise their R&D spend while maximising their innovation outputs, and it is possible for a procompetitive merger to simultaneously reduce the overall R&D spend. (This would hold even if the firm was not financially constrained, which footnote 405 appears to suggest as the only instance where R&D cost savings can be procompetitive.)

Failing firm defence

We welcome the expanded discussion of the failing firm defence (paragraphs 45-51), which now includes an explicit recognition of the failing division defence (paragraph 50).

With respect to the failing firm defence, the three cumulative criteria (paragraphs 47-49) remain narrow, and may even be narrower than the previous Guidelines in certain respects. The three cumulative criteria are now “necessary” rather than “especially relevant”. The potentially less anticompetitive alternatives to be considered now include business reorganisation as well as alternative acquirers. Given the limited application of the failing firm defence historically, further tightening of these criteria may not be beneficial for addressing firms that play no competitive role (i.e., “zombie firms”) and may render the idea of the failing firm defence irrelevant.

We note that the third condition for the failing firm defence recognises cases other than those where the assets of the failing firm would inevitably exit the market, especially where the assets would “cease to play a competitive role”. However, the third condition is cumulative with the first condition that requires that the firm itself would be forced out of the market.

Therefore, as currently formulated, the failing firm defence cannot apply to cases where the firm itself has ceased to play a competitive role or the market share of the firm would in any event accrue to the acquirer, if the firm itself does not entirely exit the market. In other words, the additional text introduced to the third condition would only be relevant with respect to the peculiar counterfactual where the failing firm would exit, its assets would stay in the market, but they would still cease to play a competitive role or the market share of the failing firm would still accrue to the acquirer. To the extent the Commission sees a broader use for the failing firm defence, the first condition could be adjusted along the same lines as the third one, to recognise the instances where the failing firm itself would cease to play a competitive role or the market share of the failing firm would in any event accrue to the acquirer without the failing firm leaving the market entirely.

Pivotality

We welcome the mention of capacity and pivotality in the Guidelines (paragraphs 148-152). The explicit discussion of (i) the change in the degree of pivotality, rather than the binary metric of pivotal vs. non-pivotal, and (ii) the interaction between pivotality and other market features and metrics (paragraph 151), both reflect the lessons learnt from the case practice in this area.

We would suggest that the discussion of pivotality could be improved by recognising some other aspects of pivotality analyses: (i) pivotality is a necessary but not a sufficient condition for ability and incentive to raise prices – a pivotal firm may still be sufficiently constrained by rivals if it would not lose its entire volume to rivals, but only a portion of its volumes; (ii) pivotality should not only be measured in a static sense, taking demand and capacity as exogenous, but should also consider dynamic demand and supply side responses such as the ability of rivals to respond via increases in capacity; and (iii) the magnitude and the duration of pivotality matter when it comes to assessing potential merger effects.

Purchasing and labour markets

The Guidelines discuss purchasing markets as a specific market aspect (paragraphs 158-162), including labour markets. There are specific mentions of the possibility of upstream concentration of purchasing power harming the merging firms’ downstream customers (paragraph 158), and also the possibility of the merging firms acting to negate the pre-existing market power of upstream sellers to the benefit of their downstream customers (paragraph 159). However, it would be useful to offer guidance on the scenario where a merger results in SIEC in the upstream market while simultaneously benefitting downstream customers through lower prices.

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