This document (of 293 pages) comprises the proceedings of a roundtable on held by the OECD's Competition Committee in June 2007. It consists of an executive summary and background paper by the Secretariat, as well as 13 delegation submissions and a summary of the oral discussion. Generally speaking, efficiencies are synergies that enable firms to improve their performance, whether in terms of cost, quality, service, or in the variety of products or services they offer. Some efficiencies are static and some are dynamic, but all of them are good for the welfare of society. Merging companies sometimes argue that even though their proposed union will increase market concentration, any harm stemming from a lessening of competition will be more than offset by the efficiencies that the merger would generate. This roundtable explored some of the thorny issues that competition agencies confront when presented with arguments about dynamic efficiencies. Despite growing interest in efficiencies since the 1970s among competition authorities and courts, there has been a persistent reluctance to incorporate efficiencies in merger analysis. That reluctance is even greater with respect to dynamic efficiencies than it is with respect to static ones. The reason is that even in a static analysis, determining whether a merger is likely to lead to efficiencies and how they will compare with any anti-competitive effects the merger is expected to cause is quite difficult. Making the leap to predicting a merger's dynamic effects is much harder still because those effects will occur - if at all - over several time periods and may be more abstract in nature. Nevertheless, a growing body of commentators is asserting that enforcement agencies should pay more attention to dynamic efficiencies and less attention to short-run price effects, especially in markets where consumers have more to gain through innovation than through lower prices on existing products. Both the desirability and the difficulty of placing more emphasis on dynamic efficiencies in merger reviews are addressed.

Dynamic efficiencies theoretically bear greater potential than static efficiencies. Yet, their role in merger control is limited, not least due to difficulties in their practical implementation. At the same time, the new EC Merger Control Regulation (ECMR) and the Commission's Horizontal Merger Guidelines explicitly acknowledge dynamic efficiencies as a cognizable type of merger-related benefits. This paper aims to contribute to the analysis of two questions: (i) do the new Guidelines represent a workable analytic framework for the evaluation of dynamic efficiency claims and is there room for dynamic efficiencies in the current merger control regime, and (ii) what are the main problems in practice, and what would adequately improve the current framework of efficiency analysis? In its first part, this paper provides an introduction to the economic implications of the analysis of merger-related efficiencies. The second part analyses the role of dynamic efficiencies under the new merger control regime, focusing on the requirements stipulated in the ECMR and the Guidelines. Part three analyses crucial problems and according benchmarks which have to be considered when discussing proposals to refine dynamic efficiency analysis. It identifies four crucial problems: (i) insufficient information about potential efficiencies, (ii) existent information asymmetrically distributed between the Commission and the parties, (iii) a lack of legal certainty and business predictability for the firms and (iv) potential detrimental cost effects of the respective approach to efficiency analysis. Part five discusses various suggestions for reform of the procedural approach to efficiency analysis. Finally, the paper suggests the introduction of an ex post audit regarding merger-related efficiencies. It constructs a four-stage decision framework within which the ex post audit aims to - in the long term - provide both merging parties and the Commission with more solid information about the potential of mergers to create (dynamic) efficiencies and the particulars of such benefits.

The book is warmly recommended to practitioners and academics from both the legal and the economic field. Guido Westkamp, Journal of Intellectual Property Law and Practice . . . Glader offers strong commentary and case explanation, coupled with insightful analysis, in this complex area. . . This book is strong on both the relevant law, and the economics arena in which the law must be applied, and deals equally well with the US and EC principles and practice. Mark Furse, European Competition Law Review The pace and scope of technological change is increasing, but some innovative technologies take years before they give rise to saleable products. Before they do, there is competition in ideas and research, but the ideas cannot be market tested, because there are no products or services to offer to consumers. Competition law, in Europe and the USA, cannot be applied to competition in research for innovation as if it was competition between products. Completely different problems arise and a completely different approach is needed. This book, the first on innovation markets, shows how this new approach has been used by competition authorities on both sides of the Atlantic in a wide variety of cases. It analyses in depth and detail the comparative law and economics of the problems arising from the different stages of these markets . It considers how far conclusions can be drawn about the future and comes to interesting, practical and sensible conclusions. And it avoids both unjustified scepticism and exaggerated enthusiasm about the theories of innovation markets. John Temple Lang, Cleary Gottlieb Steen & Hamilton LLP, Brussels and London; Trinity College Dublin, Ireland and Oxford University, UK This book examines the legal standards and their underlying economic rationale for the protection of competition in the innovation process, in both European competition law and American antitrust law. Apart from relevant regulatory frameworks, the author also reviews a range of case laws, which assess whether a transaction or unilateral conduct would limit market participants incentives and abilities for continued innovation and future competition. At the centre of this study is the innovation market concept. This concept entails the delineation, for purposes of antitrust analysis, of an upstream market for competing R&D. Questions of market definition, the assessment of innovation competition in defined markets, the role of efficiencies in the appraisal of transactions and possible remedies to alleviate anti-competitive effects are also explored. Updating the field of research in light of new developments and broadening and deepening the categorization and analysis of the innovation market area, this book will be of great interest to academics, practitioners and consultants, and also public policymakers.

It is well known that an optimal merger policy requires consideration of efficiencies in enforcement decisions. However, as understanding of a market's equilibrium structure is required to integrate the efficiency defense into a merger analysis, efficiency evaluations are controversial. New Institutional Economics further complicates the discussion by highlighting the need to address a range of transaction cost issues. This paper reviews the debate and promotes the application of an institutionally-based business strategy analysis to evaluate both efficiencies and competitive concerns in an integrated framework. In special cases, formal mathematical analysis may be used to balance the two concerns, while in most situations a qualitative presentation will be required. The paper concludes with a discussion of the current state of the efficiency defense and a proposal for the qualitative use of customer opinions to balance competitive concerns with efficiency benefits.