New forms of governance From the EU to the World
Reforming European Competition Law
Time for a new approach?Name: Floris van Wieren Student number: 11612045 Date: 05-06-2020
Acknowledgements
I would like to express my gratitude to all the people that contributed in any manner to the completion of the thesis.
First and foremost, I would like to thank my supervisor Prof J.H. Zeitlin, who provided me with valuable feedback, criticism and the necessary guidance.
Second, I would like to thank the second reader Dr. P. Schleifer, who found the time to read the thesis.
Finally, I would like to thank my friends and family for their support.
Floris van Wieren 11612045
Abbreviations
Block Exception Regulation - BER Deutsche Börse – DB
European Economic Area - EEA European Union – EU
European Commission – EC
European Competition Network - ECN European Court of Justice - ECJ
European Union Merger Law – EUML International Currency Exchange - ICE Import Substitution Industrialization – ISI Merger Control Policy – MCP
Market Power over Price - MPP Market Power over Quality - MPQ Mergers and Acquisitions – M&A
National Competition Authorities – NCA Public Service Obligations - PSO
Treaty of Functioning of the European Union - TFEU London Stock Exchange Group - LSEG
United States – US Over The Counter - OTC
Table of content
1. Introduction 6
2. Literature review 9
2.1 The role of competition in economics 2.2 The role of large firms
2.3 The rise of mergers and state aid 2.4 The revival of industrial policy
2.5 History of European Competition law 2.6 European Competition law in practice
3. Research Questions and Design 32
3.1 European champions
3.2 Competition vs. industrial policy 3.3 Research design
4. Methodology 36
4.1 Mergers & Acquisitions 4.2 State aid
5. Empirical data Mergers and Acquisitions 41
5.1 Data mergers & acquisitions
5.2 Commissions decisions in manufacturing, banking, energy, telecommunications and
consumer discretionary
5.3 EC commissioners
6. Individual merger cases 49
6.1 Banking
6.2 Manufacturing
6.3 Transport and Storage 6.4 Telecommunications
7. Approved cases 68
8. State aid 73
8.1 Data state aid
9. Individual cases state aid 76
9.1 Cases prohibited 9.2 Cases accepted
10.2 Number of state aid cases
11. Discussion of findings 85
11.1 Does the current European Competition Law allow for the creation of European
industrial Champions?
11.2 Can the EC create an industrial policy with the current European competition law? 11.3 Why now?
11.4 Covid-19
12 Bibliography 92
1. Introduction
On the 26th of September 2017, rail companies Siemens and Alstom announced their intention
to combine their mobility business in a merger of equals. According to both companies, the proposed Franco - German combination would be able to compete with foreign competitors from Asia, and ensure their ability to remain competitive. The combination of both firms would have created a European Champion. On the 6th of February the European Commission (EC)
prohibited the merger between Siemens and Alstom on the grounds of distorting internal competition in the European Union (EU). The prohibition of the proposed merger has
unleashed a fierce debate on the relevance and fitness of the current European Competition Laws, in relation to both a common European industrial policy and European Champions. The debate has focused on both Germany and France declaring that the current European
Competition Law is outdated.
Both countries argue that the current Competition Law does not allow the creation of European Champions and a common European industrial policy, which is seen as necessary to compete with foreign, non-EU, competitors. The argument is made that these foreign competitors, receive state aid, and therefore have an unfair advantage. The member states argue that they are not able to give their domestic companies the same advantage, due to the strict European Competition Laws. To combat this unfair advantage, both member states argue that the EU should allow the creation of European Champions, such as the proposed merger between Siemens and Alstom, while, concurrently developing a common European industrial policy, which would allow the EU to compete with foreign rivals. The main objective of both member states is to ensure that the EU and its firms remain competitive, and that they do not fall behind.
The discussion started by Germany and France marks a bigger debate between two different economic theories. Competition on one hand and industrial policy on the other hand. The discussion which economic policy should be conducted, is something that has been ongoing for
a long time in the European Union. However, many argue that since the Brexit vote, the EU has been leaning towards a common industrial policy, with the UK favoring a liberal free market system, which is founded on competition. The current European Competition Law is based on four different pillars: State aid, mergers, anti-trust and cartels. These four pillars are based on the notion of protecting the internal market, where competition is seen as an essential pre-requisite. European Competition Law prevents the formation of cartels and anti-trust, whereas for state aid and mergers, the EC plays a more active role. industrial policy is seen as the
opposite of competition, the state plays an active role in the economic development of a nation or economic bloc. These forms of state aid, can be found in specific sectors, but are also
prevalent in the broader economy. According to the member states this would allow for the creation of European Champions in order to compete with foreign rivals.
The growing discussion on which economic policy is best-suited for the EU, and the criticism voiced by the largest member states of the EU, show an interesting debate. Based on these discussions in the EU, the following research questions has been formulated:
“Does EU Competition Policy block development and execution of a common European
industrial policy and the formation of European Champions? “
It aims to research whether the criticism voiced by both Germany and France are valid, and if the European Competition Law should be reformed. The research will answer the following sub-questions: Does the current European Competition Law allow for the creation of European
Champions and can the European Commission create an industrial policy within the current European Competition Law? Both sub-questions, allow the research to look specifically at the
creation of European Champions and development of a common European industrial policy. The research is built on the existing research done by Mark Thatcher in his paper: European
The social relevance of this thesis is significant in the current times. Firstly, the current debate and criticism on the European Competition Law stems from the recent prohibition of the Siemens-Alstom merger. Secondly, member states Germany and France have used the current economic recession and the Covid-19 pandemic as a means to promote their agenda of
reforming the current European Competition Law. The ongoing discussion shows the relevance of this topic, where the thesis will examine whether the criticism voiced by both member states is grounded and if the current European Competition Law should change.
The structure of the thesis is based on the following sections. Chapter 2, will comprise of an extensive literature review, which outlines the different economic theories, the role of large and small firms, the rise of mergers and state aid and the role of the European Competition Law. Chapter 3, will cover the research design, it introduces the current debate and discusses the research design. Chapter 4, will cover the methodology, this will comprise of an elaborate description of the steps taken for the empirical data research. Chapter 5, examines the empirical data that has been collected for both mergers and state aid, and the subsequent chapters assess individual cases and approved cases in detail. The final section of the thesis, will discuss the findings and will analyze the data that has been collected.
2. Literature review and theoretical framework
In order get a clear overview of the current debate in the literature, this thesis will make use of an extensive literature review. The main focus of the literature review is on six different
aspects: i) the role of competition in economics; ii) the role of small and large firms iii) the rise of merger and state aid regulation iv) the revival of industrial policy v) history of European
Competition law and, vi) European Competition law in practice. These topics have been chosen to illustrate the current debate on competition and Industrial Policy and to examine the role of the current European Competition law. This facilitates answering the research question, Does
EU Competition Policy block development and execution of a common European industrial policy and the formation of European Champions? This will be done by analyzing the influence of
competition on an economy, what are the reasons why countries would pick competition as an economic policy? The subsequent sections will focus on the role of larger and small firms in the economy, and the rise of merger and state aid regulation. The literature review, will also examine the revival of industrial policy, to examine the return of the economic policy and the influences it has. Finally, it will discuss the history of the European Competition Law, and how it has worked in practice. The literature review will analyze the current debate on European Competition law and whether academics and policy makers think this should change.
2.1 The role of competition in economics
According to Thomas Philippon, the main reason economist support competition is because it drives down prices, which in turn is seen as the most direct way for a company to increase market share (Philippon, 2019, p. 17). Generally lower prices have two benefits, the first being the ability for consumers to save money. This increased saving allows consumers to spend more on the same product, or buy other products. The second benefit is the increased demand enabling firms to increase production, expand investments and hire more people (Philippon, 2019, p. 17). Additionally, competition also positively impacts the quality of goods produced (Philippon, 2019, p. 17). Competition leads to more choices for consumers as businesses will try to diversify their revenue streams. The main argument is that competition encourages
investment and businesses have an incentive to innovate, by either increasing the quality of their product or by reducing the cost of providing the goods and services (Philippon, 2019, p. 19).
According to Nickell, an example where domestic competition leads to increasing
competitiveness in international markets is the Japanese model. Firms have been able to become internationally competitive, due to strong competition at home (Nickell, 1996, p. 728). He argues that competition influences firms to raise efficiency and effort. According to Nickell, when demand decreases due to increased competition, firms will increase their efficiency (Nickell, 1996, p. 727). They will focus on improving their business to remain competitive. This could imply that firms will only act when demand decreases (Nickell, 1996, p. 727). Nickell argues that there is a direct correlation between competition and the level of workers’ effort. The main benefit of competition is that it allows many firms to try different business models’, until only the best model remains, which is nearly impossible under a monopoly. As the business model of the monopoly would be only one. Nickell shows increased competition results in higher rates of total factor productivity, which is defined as a measure of productivity (Nickell, 1996, p. 741). On the firms’ side, when competition increases, firms provide stronger incentives to their managers to reduce the cost of production, while at the same time, profits become more volatile (RAITH, 2003, p. 1433).
The conclusion of Nickell offers an intriguing aspect: To what extent are competition and productivity related, and how does this interrelate? Nickell states that increased competition increases total factor productivity, which could be assumed as desirable for all countries. Numerous scholars are debating why productivity increases in competitive environments. Holmström, argues that if there is increased competition, it allows owners of a company to monitor managers more closely and compare their performance to other firms (Hay & Liu, 1997, p. 597). This could lead to higher quality products and/or a more diverse catalog (Philippon, 2019, p. 19). In addition to Holmström, Backus agrees with the notion that competition reduces managerial slack, which can be defined in different ways, including
unproductive factors (Backus, 2019, p. 37). They are stating that increased competition generates information that will allow managers to analyze and interprete signals better and monitor their employees. Less competition is stated to create room for managerial slack
(Backus, 2019, p. 37). It is argued that competition reduces managerial slack, and in the process of reducing this slack also reduces other slack (Backus, 2019, p. 38). This can be in the form of eliminating unproductive staff, as the firm in question has to reduce the cost to remain competitive, which would eventually lead to a more efficient firm.
The managerial slack is further argued by both Leibenstein and Stigler, where Leibenstein argues that this can be seen as the x-efficiency factor. Leibenstein contends that the basic assumption of firms is to purchase and utilize all inputs efficiently (Leibenstein, 1966, p. 397). However, he argues there can be a misallocation of resources, as managers determine not only their own productivity, but also consider the entire firm. Leibenstein argues that managers have a significant impact on the efficiency of firms and influence other employees; both in a positive and/or negative sense (Leibenstein, 1966, p. 401). Positive influence implies managers to pay close attention to its employees and use this as a mechanism to increase productivity. Whereas negative influences would imply productivity to decrease. He states that improving this x-efficiency could be a significant source of increased output, as neither individuals nor firms work as hard nor do they search for information as effectively as they could (Leibenstein, 1966, p. 407). It is argued that competition can play an essential role in increasing x-efficiency, as stated by both Holmström and Backus. As owners, whether it be stockholders of other forms, can compare the current management with other firms. Stigler argues in response to Leibenstein that it is logical for one not to seek to maximize output, as people are more focused on maximizing utility (Stigler, 1976, p. 213). He further states that x-inefficiency imposes one person's goal upon other persons who never aspired to reach that goal, which according to Stigler, is not seen as a waste (Stigler, 1976, p. 214). In addition to this, he argues that for Leibenstein's argument to work, it would require monopolies not to seek profit maximization, which is generally not the purpose of a monopoly (Stigler, 1976, p. 215). However, what Leibenstein does show and which has been backed by Holmström and Backus is that by
increasing competition, firms become more efficient, as inefficient aspects of the firm are removed from the firm itself.
The literature, until now, has mainly focused on the aspect of efficiency. It is also interesting to examine the actual implications of competition on the quality of products offered. In
competition regulation there is often a focus on Market Power over Price (MPP). This is defined as the ability of a firm to raise the price of its products over marginal costs (Crawford,
Shcherbakov, & Shum, 2015, p. 2). This creates a wedge between the marginal social benefits and costs of production, which will result in a deadweight loss (Crawford, Shcherbakov, & Shum, 2015, p. 2), there has been less focus on Market Power over Quality (MPQ). According to Crawford et all, similar to prices in an imperfect market, firms will negatively impact the quality of goods, however, this is much harder to measure. According to their research, without
competition, the US cable market would have decreased the quality of their product (Crawford, Shcherbakov, & Shum, 2015, p. 33). This has also been confirmed by Philippon when he
describes the role of deregulation in telecoms in France. Noting that since the deregulation, the market quickly changed. This has resulted in in consumers paying less for their smartphone plans and receiving increased quality (Philippon, 2019, p. 28). This shows the power of firms and the power of a competitive market.
The main argument made by different scholars is that competition is generally seen as a positive force, which will benefit consumers. As stated earlier, competition can have different impacts on the economy: i) decrease in prices to protect market share; ii) increased saving by the consumer; iii) increased quality of products; iv) increased investment by firms; v) increased efficiency of firms. All these aspects will in turn either increase consumer welfare or increase economic productivity according to the literature.
2.2 The role of large firms
According to Chen and Hambrick, a firm's size can be considered based on two different criteria. This can be based on the sheer organizational size which would include number of employees or in terms of market share (Hambrick & Chen, 1995, p. 454). It has been shown that firm market size has influenced the most important contingency variables in a firm’s strategy (Hambrick & Chen, 1995, p. 455). Large firms can be seen as having an advantage, as they can make use of economics of scale, experience, brand name recognition, and market power (Hambrick & Chen, 1995, p. 455). Small firms have been credited with flexibility in production, price and speed to market. Further, they argue that market share is the most critical
contingency variable affecting a firm's strategy and the relationship between its strategy and performance. Chen and Hambrick state, that small firms can be successful, as they mainly focus on a competitive strategy. Which they employ and use to compete with larger rivals in the industry. (Hambrick & Chen, 1995, p. 455). In their investigation, they conclude small firms are more often initiating competitive moves. In addition to this, they state larger firms breed complacency and inertia. Small firms will have to convince consumers of their legitimacy, by engaging in efforts to appear reliable and familiar (Hambrick & Chen, 1995, p. 475), while larger firms do not face problems of legitimacy, as they are well-established firms with significant resources and track records.
As stated in the introduction, there has been an ongoing debate in the EU on whether the current economy and European companies are still competitive. In fact, the current top ten of global firms by market value are not European companies and the list is dominated by eight American firms and two Chinese firms (Philippon, 2019, p. 240). Big tech companies make up six places in the top ten. However, to what extent do large firms contribute to the economy, and are they essential? According to Philippon, the role of large companies and especially big tech companies, should not be exaggerated (Philippon, 2019, p. 244). There has been quite a lot of emphasis on these big tech companies. Currently, Apple, Microsoft, Google, and Facebook have a combined market value of 3700 trillion US dollars (Yahoo Finance, 2020), which is larger than
the GDP value of the economy of France (The World Bank, 2020). This, of course, raises many questions, with many people stating that these firms are too dominant in the economy.
Philippon argues, however, that there have always been stars in the economy (Philippon, 2019, p. 244). This is not something unique to this generation. He states that over the 50 years, companies such as AT&T and IBM have had large market shares. With AT&T representing 6% of the market in 1960, while Apple only represents less than 3% of the market (Philippon, 2019, p. 244). This shows that large firms are not something unique of today and that they have always been around. Some argue that they are too profitable. However, Philippon, again argues that this is not something unique, as other stars from the past made similar margins as the current firms (Philippon, 2019, p. 251). Philippon further argues whether these firms need to be protected, as they produce a significant amount of US productivity. However, he argues that the role of the biggest tech firms as a pillar of the US economy is limited (Philippon, 2019, p. 252). He states that they employ few people and procure little from other firms. In addition, these firms account for 9.3% of the stock market, but only for 0.23% of employment. This would imply that the footprint or the impact on the US economy by these firms is relatively small (Philippon, 2019, p. 253). He states that while the current stars are impressive, they are no match for the old stars of the US economy. The research of Philippon and Gutierrez further confirms this line of thinking. They looked at the fifty-year history of the contribution of stars to the overall economic growth in the US (Gutiérrez & Philippon, 2017, p. 315), where it becomes clear that the current top ten companies contribute significantly less to the US economy, than the earlier star companies.
When looking at the role of large firms, it is essential to conduct a comparison with small firms in order to explore potential additional benefits of larger firms. According to Edmiston, small businesses create a substantial majority of net new jobs in an average year (Edmiston, 2007, p. 77). With small businesses playing a significant role in the creation of new jobs in the United States. Larger firms often struggle with the fact that they have undesirable working conditions, such as weaker autonomy, stricter rules and regulations, less flexible scheduling, and a more impersonal working environment (Edmiston, 2007, p. 81). While there might be differences
between small and larger firms when it comes to employment, it is perhaps more interesting to compare on ability to innovate. Edmiston argues that small firms are generally seen as more innovative than larger firms (Edmiston, 2007, p. 87). The difference is driven by a lack of entrenched bureaucracy, more completive markets, and stronger incentives. He argues that both small and large firms make significant innovations, and both types of firms are seen as critical to the success of today's economy (Edmiston, 2007, p. 88). One argument made in favor of large firms is generally the fact that they can develop more, as they can spend more money on R&D costs, which is generally seen as too expensive for smaller firms. In addition to these large firms, they also have a higher probability of acquiring financing. According to Parenti, who examined the role of large and small firms in a global market, most industries feature a small number of large firms and a large number of small firms (Parenti, 2018, p. 113). In general, large firms charge higher markup than competitive firms, even if they have the same marginal costs of production. Parenti argues that this is mainly because large firms can manipulate the marker aggregate, which is relevant to all their competitors' decisions (Parenti, 2018, p. 113).
It is also interesting to examine the role of large firms in the economy. Philippon has already discussed this. However, there is more academic debate on the subject. Autor et al. state that there has been a growing concentration in industries (Autor, Dorn, Katz, Patterson, & Reenen, 2017, p. 3). In addition, industries with larger increases in product market concentration have experienced larger declines in labor share. They further state that the fall in labor share within these firms is primarily due to the reallocation of sales between firms rather than a general fall in the labor share (Autor, Dorn, Katz, Patterson, & Reenen, 2017, p. 3). Further, it is argued that the fall in labor share is most prominently in the industries where there is an increase in sales concentration. From their research, they deduce that as a superstar firm gains market share across a wide range of sectors, the aggregate share of labor falls (Autor, Dorn, Katz, Patterson, & Reenen, 2017, p. 25). This is mainly confirmed by Philippon, who first stated that the current superstar firms are active in a wide range of sectors, but at the same time do not contribute significantly to the US economy, as they employ few people (Philippon, 2019, p. 253). Autor et al., state that as the sales concentration increases, the labor share only decreases, as the labor
share falls, this has an important consequence for the reallocation component between firms, which is seen as greatest in the sector where the concentration is the largest (Autor, Dorn, Katz, Patterson, & Reenen, 2017, p. 26). They further state that in certain sectors, there is a clear mentality of “winner takes all”. This is especially true in sectors such as technology, parts of retail, and transportation, which can be seen as many of the largest firms are tech companies, except Amazon, which is a hybrid of retail and tech (Philippon, 2019, p. 244). It could also be seen that as a firm becomes successful, it gains more market share by legitimately competing on the merits of their innovations or superior efficiency. As they achieve this status, they will use their market power to erect various barriers to entry to protect their position. When examining the influence of larger firms on the economy, they further state that many of these superstar firms increasingly use domestic outsourcing to contracting firms, as well as temporary agencies, independent contractors and freelancers, for a broader range of activities, which could be seen as harming the economy. The argument made by Autor et al., is quite similar to Philippon’s, in the sense that the current superstars do not contribute much to the economy (Autor, Dorn, Katz, Patterson, & Reenen, 2017, p. 25). In addition, Gutierrez and Philippon argued that increased concentration will reduce the rate of investment (Gutiérrez & Philippon, 2017, p. 58). Firms would no longer face the threat of new entrants and therefore will no longer have the incentive to invest and innovate. Smaller companies will no longer be able to compete with larger firms (Gutiérrez & Philippon, 2017, p. 59).
In conclusion, large firms can be seen as having both a positive and negative effect on the economy. Large firms are able to spend significantly on R&D research, which helps the economy innovate. While smaller firms directly compete with larger firms and ensure
employment. The negative side of large firms is, when a certain size is achieved, the incentive to innovate no longer exist as these firms will focus on ensuring that their current market share is maintained or high barriers to enter the market are erected. In addition, the current super firms contribute less to the economy than their predecessors. Further, the literature has shown as industries become more concentrated, the amount of labor share decreases. In addition to
this, the amount of investment also decreases. This could have negative consequences for the economy.
2.3 The rise of mergers and state aid
Since the 1990s, there has been an explosion of mergers and acquisitions (M&A) activity. Giovanni states that since 1990-1991, the number of mergers across the world has increased from around 3000 cases to more than 7000 cases (Giovanni, 2005, p. 128). He attributed this increase in M&A activity to the expanded global financial markets, which has allowed firms to take advantage of investment opportunities both at home and abroad. In his paper, he states that factors such as a vibrant global equity market have increased the number of deals
(Giovanni, 2005, p. 130). In addition to this, he states that financial deepening could also have had an impact. Based on his research, he further states that for the period 1990-1999, a 1% increase of stock market to GDP ratio is associated with a 0.955% increase in across border M&A activity (Giovanni, 2005, p. 145).
Grave, Vardiabasis and Yavas argue in their paper that the most important factors for increased M&A activity have been the development of global / multinational companies and
organizations, advances in information technology, deregulation of the financial systems of major industrialized countries, explosive growth in international capital flows and the abolishment of foreign exchange controls (Grave, Vardiabasis, & Yavas, 2012, p. 58). In addition, they argue declining consumer spending in the US and Europe has led to many
companies expanding their operations to other continents. The M&A market is seen as cyclical, with less M&A activity occurring during an economic downturn. According to their paper, the peak of the late 1990s, which Giovanni referred to, was reached in 2000. Where activity only started again in 2003, resulting in a five-year growth until 2007. When the economic crisis of 2007 hit the markets, there was global economic instability, and the credit market was drying up (Grave, Vardiabasis, & Yavas, 2012, p. 62). Of course, this does not imply that there was no activity. However, banks were no longer willing to lend money to potential buyers, limiting the
contributed to the increase in economic activity and the introduction of Chinese firms on the global market. These firms have been actively investing in companies in both the US and the EU (Grave, Vardiabasis, & Yavas, 2012, p. 63).
Moschieri and Campa both argue in their paper that in 2007, M&As involving European targets outstripped M&A activity in the United States, which has historically been the dominant market for M&A activity. According to Moschieri and Campa, this growth is mainly due to the process of economic integration in the EEA (Moschier & Campa, 2009, p. 71). The EC is fostering
standardization and increasing its transparency in creating a single market for M&As, which has increased the amount of activity taking place. In addition, they argue the increasing role of the EC in creating a level playing field for European takeover activity and constructing a harmonized market have ensured there is increased harmonization in the EEA. These include efficient takeover mechanism, a common regulatory framework, and the strengthening of shareholder rights (Moschier & Campa, 2009, p. 73). In addition, the EC has also become more active overtime on this front. The increased predictability of the implementation of these regulators by the EC (Moschier & Campa, 2009, p. 74). They argue that the increase in volume can be seen because the industry already has consolidation opportunities at home with an additional benefit of a single currency across most EU countries (Moschier & Campa, 2009, p. 76).
The increase in merger activity has also led to an increase in competition authorities, according to Merying and Hoolihan, which state this as a global phenomenon (Hoolihan, 2019, p. 120). According to them, competition authorities are becoming increasingly assertive in applying scrutiny and holding parties to a higher standard. Werner et al. further state that since the end of the financial crisis and the economic recovery, there has been an increase in M&A activity (Hoolihan, 2019, p. 135) (p.135). This has, according to them, put a strain on the limited resources of the EC, which is making it more challenging to review complex cases. It is further argued that increased interventionism is a result of strategic consolidation in key industry sectors. This is especially clear in the telecoms, pharma, and chemicals industries. As cases become more complex and challenging from an antitrust perspective, this triggers regulatory
interventions. They further argue that the EC’s enforcement rate has not increased over the last 15 years, but rather the cases have become increasingly complex (Hoolihan, 2019, p. 136).
There has been a strong correlation between state aid and economic recession. In the financial crisis of 2008, the EC allowed many member states to aid their domestic banking system in the form of state aid (Mateus, 2009, p. 4). The main reason for state aid was to ensure that the domestic financial system survived. At the same time, bank failures in one country could quickly spread to other countries. Making state aid not only in the interest of the domestic sector but also in the entire EU (Mateus, 2009, p. 3). However, the EC ensured that the state aid would still be applied within a certain framework (Nicolaides & Rusu, 2010, p. 759). These include
measures to ensure that state aid is not discriminatory and even intervened in some cases, to prevent the distortion of the internal market (Nicolaides & Rusu, 2010, p. 761). The amount of state aid increased significantly during the financial crisis (Dzialo, 2014, p. 10). This would
indicate that there is a correlation between an economic downturn and an increase in state aid. Member states will always be interested in ensuring that whether it be companies or banks do not go bankrupt, to ensure that people remain employed.
The EC has allowed state aid under the following conditions: to promote the economic
development of areas where the standard of living is abnormally low; to promote an essential project of common European interest; to facilitate the development of certain economic activities, as long as they do affect the common interest (Blauberger, 2009, p. 722). To ensure the goals of European integration are met, the EC has allowed state aid under Block Exemption Regulation (BER) (Blauberger, 2009, p. 732). This allows member states to implement certain state aid measures without involvement of the EC (Blauberger, 2009, p. 732). These include aid to small and medium sized enterprises which can include training, employment aid or small amount of state aid. The second generation of BER’s addressed state aid in fishery and agriculture (Blauberger, 2009, p. 732). These BER’s allow the EC to reduce its workload and allow member state increased autonomy. Further these subsidies help the EC with the
implementation of the Lisbon Horizontal goals. The implementation of the BERs shows that the EC continues to improve its competition law, where relevant and required.
In conclusion, since the economic recovery following the global financial crisis started, the amount of M&A cases has increased. The first wave of M&A activity was based on deregulation, increased global financial markets, the rise of information technology, and the abolishment of foreign exchange control. The wave of M&A activity this thesis will research is mainly based on the economic recovery. According to the articles examined in the literature review, economic growth facilitates M&A activity, which equally led to an increase in activity in the EU.
Concurrently, the EC has become more assertive in its role as a competition authority and cases have become more complex, leading to more interventions by the EC. In the case of state aid, this increases when there is an economic recession, as seen during the financial crisis of 2008, where the number of cases and value increased significantly.
2.4 The revival of industrial policy
Industrial policy has played an essential role in the world economy since the industrial revolution. One of the first proponents of industrial policy was Alexander Hamilton, in his
Report on Manufactures in 1827. In this report, he stated that the United States would need to
support its industry to ensure economic growth (Hamilton, 1827, p. 9). The main objective of industrial policy is to encourage the development of a country’s industry. This is done by actively supporting firms in the development of industries, or removing competition in a domestic market. This support can vary from tax exemption to direct state aid. The main objective was to ensure a country would be able to compete in world markets. Examples of industrial Policy can be seen in Latin America, where many countries actively engaged in Import Substitution Industrialization (ISI) (Baer, 1972, p. 95). In this example the countries objective was to decrease their dependency on foreign markets by promoting their own industry. This entailed, increasing tariffs on imports and using resources to develop a domestic industry to replace the foreign imports (Baer, 1972, p. 96). It was a popular policy for many countries in the
aftermath of the Second World War (Aghion, et al., 2012, p. 1). However, the policy was replaced in the 1980s in favor of competition. In the western world, the policies had already been replaced after the Second World War, as countries engaged in open trade. With the increase in globalization, there was more emphasis on open borders and trade, then protecting domestic industries, in for example in Latin America the shift came in the 1980s. Many
countries were unable to achieve the objective under ISI, resulting in large government deficits, which resulted in a financial crisis in Latin America (Moreno-Brid, Caldentey, & Napoles, 2004, p. 346). In response to this, the IMF and the World Bank engaged in the term Washington Consensus, with the main goal of helping these countries while at the same time aligning them with a more competition-based approach (Moreno-Brid, Caldentey, & Napoles, 2004, p. 347). This included policies such as deregulation, privatization and trade liberalization (Williamson, 2009, p. 9). Industrial policy was described as the nation's goal to influence sectoral
development entirely and, thus, national industrial portfolio (Otis, 1992, p. 3), which would seem in stark contrast to the competition.
The question remains why countries would choose an industrial policy? According to Pack and Saggi, the main reason is that it allows room for government intervention, whenever the market is distorted. This can be in the form of a market failure or because the market is
incomplete (Pack & Saggi, 2006, p. 3). They argue that there are two main drivers for a country to develop and execute an industrial policy. The state being able to protect its infant industry and the state being able to prevent coordination failure. For the former, the production costs of a domestic infant industry might be higher than those of established foreign competitors. Over time it is argued the domestic industry will take off and will be able to compete with the foreign competitors (Pack & Saggi, 2006, p. 4). Aiginger and Rodrick argue that this is what France was doing during the 1980s (Aiginger & Rodrik, 2020, p. 7). For the latter it is stated that many projects require simultaneous investments in order to be viable, and there is no certainty that these actors will invest (Pack & Saggi, 2006, p. 13). This problem arises if the demand for a certain product is low, and given the fixed costs of entry, many firms will decide not to enter
the market. They further state this requires a massive role for the government to intervene in the process of industrialization (Pack & Saggi, 2006, p. 14).
Since the mid-2000s, there has been an increased emphasis on a return to industrial policy (Chang & Andreoni, 2020, p. 324). This trend has occurred across the globe and has accelerated during the financial crisis, including countries from the West (Chang & Andreoni, 2020, p. 325). Chang and Andreoni argue that one of the main reasons for the return of industrial policy is the success of East Asian economies, which have shown remarkable growth in the last few decades. This is further confirmed by Aiginger and Rodrik, who state that the significant growth of China has persuaded many countries to adopt a similar policy (Aiginger & Rodrik, 2020, p. 2). With the increased emphasis on industrial policy, there is a potential conflict with the current EC
competition policy. First of all, according to Chang and Andreoni, a form of industrial policy requires irreversible commitments, which are mostly physical capital. In addition, workers have to commit themselves to a certain skill, which might be very narrow. These choices are made as they increase productivity. However, the result is also that once firms commit, change is very costly (Chang & Andreoni, 2020, p. 325). This is generally seen as the classic form of industrial policy. Where there are large investments in assets and where workers will require a certain skill. To reduce uncertainty, firms will try to increase their control over the market, by reducing the competition through predatory pricing and or acquisition (Chang & Andreoni, 2020, p. 325). However, both have severe consequences in the eyes of the EC. Another aspect is that the government is able to guarantee demand by restricting competition in the domestic market or give preference to certain firms, which again is against the EC regulation (Chang & Andreoni, 2020, p. 328). This shows that with an increased focus on industrial policy could result in more conflict with regulatory institutions.
In addition, it is argued that the new industrial policy will be less top-down. First, it will be more about establishing a sustained collaboration between the public and the private sector.
Industrial policy should no longer compete with the more favored competition policy, it is argued that in the long term, the goals of industrial policy should be more consistent and
aligned with competition policy (Aiginger & Rodrik, 2020, p. 4). Finally, they also state that support of structural change and productivity growth can no longer be the policy goal itself, without considering the direction of technological change. They argue that industrial policy in the 21st century should not be isolated (Aiginger & Rodrik, 2020, p. 5). Instead, it should work in
conjunction with other policies. For example, by selecting certain sectors and defining important technologies, firms active in these sectors would be able to apply for cheap credit and subsidies. While at the same time including market forces and ensuring an open market (Aiginger & Rodrik, 2020, p. 14). This would require the cooperation of multiple forms of government from the EC to national governments to ensure success (Aiginger & Rodrik, 2020, p. 12).
Building on this, some scholars have argued that the European Union is at a crossroads (Szczepański & Zachariadis, 2019). They state that the European industry is heavily marked by crises, especially the financial crisis of 2008. The EU introduced a 2020 strategy, aiming at overcoming the financial crisis and subsequent sovereign debt crisis and creating a better growth model, with industrial policies at its core. According to Szczepanski and Zachariadis, the main aim was to stimulate economic growth and jobs through the re-industrialization of
Europe. The EC responded to this call by focusing on horizontal issues with a focus on mobilizing all policies relevant to reaching industrial goals. At the same time, it sought to increase European competitiveness through investment in digitalization, greener industry, standardization, and financing (Szczepański & Zachariadis, 2019, p. 8). In a statement by 18-member states, they called on the EU to adopt a comprehensive vision for its industrial policy, in order to strengthen its strategic autonomy and rise to the challenges ahead.
In conclusion, industrial policy has played an essential role in the world economy. Direct intervention of the government is mainly explained as a way to prevent market failure and allows the government to facilitate the growth of manufacturing industries. In addition, scholars have argued that governments will try to protect infant industries and prevent
accelerated since the financial crisis of 2008. However, as some scholars argue, the industrial policy will lead to a conflict with competition policy, while Aiginger and Rodrick argue that industrial policy needs to work in conjunction with competition policy in order to be successful. Further, there is a growing emphasis in the EU to increase the role of industrial policy as foreign competition further intensifies.
2.5 History of European competition law
The history of merger control in the EU is relatively new. The competition law was created on 21th of September 1990, under the leadership of the EC. However, its fundamental basis was created much earlier. The foundation of a common European Competition law can be found at the Treaty of Paris which established the European of Coal and Steel Community where the treaty objective was to prevent competition in coal and steel (Weitbrecht, 2008, p. 82). In the subsequent Treaty of Rome, Article 85 and 86 were implemented, which was the basis of the current EU competition law (Weitbrecht, 2008, p. 82). In addition to this, under Article 85(3) allowed the EC sole control in the overall application (Weitbrecht, 2008, p. 82). In 1990 the EC implemented Merger Control Regulation 4064/89(29), which allowed the EC to pass judgement on the biggest mergers in Europe (Weitbrecht, 2008, p. 84). With the implementation of
Regulation1/2003 and the subsequent revision Merger Control Regulation 139/2004, the European Competition Law was still based on both Article 85 & 86, while creating an entire new policy for the EC (Weitbrecht, 2008, p. 81). Creating the current EU competition law that is seen today.
Up until regulation 1/2003 National Competition Authorities (NCA) were determining whether or not mergers would be approved or not (Kajda, 2019). With the rise of an internal market, this responsibility was transferred to the EC, with the main goal to promote and maintain the
European Internal Market. The European competition law is based on four main policies: state aid, cartels, mergers and market abuse. As the amount of cases has only increased over time, the EC has allowed NCA’s more responsibility. This has been allowed under Directive 2019/1
NCA would become more effective enforces and would ensure that the internal market would properly function (Commission, 2020). Both works together in the European Competition Network (ECN). If a notifying party disagrees with the decision of the EC, it can appeal at the European Court of Justice (ECJ).
The four pillars which the EC examines, are all based on different European Laws. In the case of state aid, this is based on Treaty of Functioning of the European Union (TFEU) 107. Which states that “any aid granted by a member state or through state resources in any form whatsoever
which distorts or threatens to distort competition by favoring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market” (Commission, 2020). The EC does allow some forms of
aid, which have been discussed in the literature review. What is important to mention, is that the EC does allow state aid, “to promote the execution of an important project of common
European interest or to remedy a serious disturbance in the economy of a Member State”
(Commission, 2020). Based on this European Law, the EC is mandated to ensure state aid does not distort the internal market of the EU.
Under Article 101, the EC prevents the creation of cartels in the EU. The European law states that “the following shall be prohibited as incompatible with the internal market: all agreements
between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the
prevention, restriction or distortion of competition within the internal market (Commission,
2020). This mandate allows the EC to ensure that no cartels are formed in the EU. In the case of antitrust, it uses both Article 101 and Article 102, where 102: “Any abuse by one or more
undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States” (Commission, 2020).
The last pillar within European Competition law, is mergers. This is based on the European Union Merger Law (EUML), which comprises of different articles, of which the most important Articles are 101 and 102. The EUML sets out the procedure for controlling merger operations between enterprises, which is based on No 139/2004. This procedure entails that it is
mandatory for all parties to notify the EC of a concentration with a community dimension. These merges shall not be implemented either before or after it has been deemed compatible with the common market. A concentration is defined as a merger of two or more previously independent under-takings or part of undertakings or the acquisition by one or more persons already controlling at least one undertaking (Commission, 2020). Where a community
dimension is defined as “the combined aggregate worldwide turnover of all the undertakings
concerned is more than EUR 5000 million and the aggregate Community-wide turnover of each of at least two undertakings concerned is more than EUR 250 million” (Commission, 2020).
“Unless each of the undertakings concerned achieves more than two-thirds of its aggregate
Community-wide turnover within one and the same Member state” (Commission, 2020). If these
thresholds are not met, a merger could still have a community dimension if, “the combined
aggregate world-wide turnover of all the undertakings is more than EUR 2500 million and in each of at least three Member States, the combined aggregate turnover of all the undertakings is concerned is more than EUR 100 million and in each of at least three Member States included for the purpose of the second point above, the aggregate turnover of each of at least two of the undertakings is concerned is more than EUR 25 million and the aggregate Community-wide turnover of at least two of the undertakings concerned is more than EUR 100 million”
(Commission, 2020). ” Unless, each of the undertakings concerned achieves more than
two-thirds of its aggregate Community-wide turnover within on and the same member state”
(Commission, 2020). After the parties have notified the EC, it will start the procedure to investigate the merging parties and determine whether it is compatible with the internal market.
In conclusion, the foundation of the current EU Competition Law is based on the Treaty of Rome with Article 85 & 86. In the subsequent years it has been revised in the 1990s allowing
the EC to prohibit the largest mergers in the EU. Finally, the EU competition law was finalized in 2004, where the EC was given sole responsibility to ensure Article 85 & 86 are upheld and the common internal market is protected. The EC Competition Law, is based on four pillars: state aid, cartels, mergers and anti-trust.
2.6 European Competition law in practice
The foundations of EU competition law were laid during the Treaty of Rome in 1957, which prohibited anti-competitive agreements between firms and the creation of cartels (Bradford, 2020, p. 100). According to Levy the EC views Competition Law as a vital instrument in ensuring that competition in the community is preserved (Levy, 2003, p. 196). The main aim of the Commission is to protect consumers against the effects of monopoly and ensure that
consumer’s welfare is protected. In essence, the EC can decide which mergers are allowed and requires all firms to give notification of an intended merger. Levy concludes that the
implementation and application of the Merger Regulation have primarily been successful (Levy, 2003, p. 200).
According to Bradford, the US was one of the first countries to implement a strong competition law under the Sherman Act in 1890, which regulated anticompetitive agreements and
monopolies (Bradford, 2020, p. 100). In addition to this, the 1914 Clayton Act was also
implemented, which regulates merges. Much of today's EU competition law has been based on the creation of the US competition law. Both laws focus on anticompetitive agreements,
monopolization, and control of mergers (Bradford, 2020, p. 100). Where the EU differs from the US, is that it also prohibits the use of illegal state aid. However, it has been stated that recently the EU has taken a more leading role in world regulation. This is mainly based on the argument that the EU is seen as more stringent (Bradford, 2020, p. 100). The EU can be seen as trailing behind the United States in terms of remedies at its disposal as the US can implement criminal penalties. While it might seem irrelevant, who is the most dominant player in the regulatory sphere, it does have significant consequences, mainly that when the US would agree with one
merger, but the EU does not agree with it. This could imply that the merger would have to be abandoned or that the new company would not be able to operate in the EU.
Throughout the world, competition policy is being seen as a fundamental building block of the market economy. With the growing importance of cross border mergers and acquisitions, it has emerged as an essential policy of the EU (Aydin, 2012, p. 664). Aydin, argues that the EC is mainly focused on preventing anti-competitive practices taking place outside the EU’s borders from affecting the EU market and ensuring fair antitrust treatment around the world (Aydin, 2012, p. 664). This is in line with what Levy states, that the main aim of the EC is to ensure consumer welfare (Levy, 2003) as competition is seen as an essential tool in trade liberalization and creating a free and dynamic internal market (Bradford, 2020, p. 102). The main reason for the strong European competition law is that competition authorities are inherently more suspicious of efficient markets and are therefore more inclined to regulate the market (Bradford, 2020, p. 102).
According to Vallindas, the European Union has promoted all forms of competition in all sectors (Vallindas, 2006, p. 637). As discussed earlier, competition increases consumer welfare and fuels innovation. As stated by Aydin, what makes European Law unique is the two aspects of the law which is further elaborated on by Vallindas, who states that the ability to control the internal market and benefit consumers, who will be in the position of to take advantage of lower prices and higher quality of products (Vallindas, 2006, p. 367). However, he argues that there is a new factor emerging, namely, globalized economic exchanges. He argues that in the context of competition restrictions imposed by the EC on European firms, will have
consequences for the European economy, as they will need to compete with other foreign powers, such as the United States, China, Japan and India (Vallindas, 2006, p. 637). What is quite interesting about this article is that the thesis is now examining whether the current competition law is still relevant today. However, Vallindas argues in 2006 that the EC should take into consideration the role of European firms and the globalized world. Vallindas states that during the inception of the Merger Control law, the main aim was to create a competitive
European Industry, which has not happened according to him, as the EC has persistently
refused to take account of consideration that relate to industrial policy (Vallindas, 2006, p. 649).
He further states that between European Competition and European industrial policy,
competition law has left little room for industrial considerations. He contends that the desire for competition could have negative consequences. As the competitiveness of European enterprises, could be harmed, as they are unable to compete with foreign firms, due to their relatively small market size (Vallindas, 2006, p. 651). It is argued that when the EC looks at a merger, political considerations do not play any role whatever, which leads to the EC
championing competition as long as it serves the interest of consumers, the sources of such competition are irrelevant. Implying that if the competition comes from outside the EU, this would not be a problem, as long as there is competition (Vallindas, 2006, p. 654). What is perhaps interesting about this statement is that other countries see the behavior of the EC as protectionist. When the EC prohibited the merger of Honeywell and GE in 2001, many US politicians accused the EC of protecting and promoting the European industry at the expense of US competitors (Bradford, 2020, p. 103). This form of US criticism is not only seen with respect to mergers, but also in relation to fines that the EC has given to US companies for antitrust behavior. However, Bradford argues the EC facilitates competition rather than protect European firms. The main beneficiaries of this policy, are in fact US companies according to Bradford. In her example, she stated that the EC could give Google a fine of $5 billion. However, this would not benefit European firms, as there is no European competitor to Google (Bradford, 2020, p. 104). Vallindas argues that European champions will no longer be able to compete with international firms (Vallindas, 2006, p. 655), which has been re-emphasized with the prohibition of the Siemens/Alstom merger (Bradford, 2020, p. 105), which is something that is also argued by different countries, in the recent debate.
However, comparing the point made by Vallindas with the research done by Thatcher, who has examined the EC merger control. He also states that from the inception, there was a muscular tension between competition and industrial policy. The main idea is that the EC and the DG
Competition have broken with industrial policy and have aimed at looking at the neoliberalism approach to competition (Thatcher, 2014, p. 444). Thatcher argues that the EC, rather than being entirely against the creation of European Champions, combines competition criteria with the creation of larger European firms to enhance the economic integration (Thatcher, 2014, p. 445). This would be in line with what Aydin has stated, that the EC focuses on the creation of a robust internal market. This will allow European firms to compete with foreign firms. This is similar to the argument made by Nickell, who stated that without strong domestic competition in Japan, firms would not be able to compete internationally (Nickell, 1996, p. 728). In his research, Thatcher examines two views, that the EC has an integrationist policy which involves the greater acceptance of mergers that increase the market power of firms if they also enhance European integration and the merger constraining policy, where every merger will be
investigated or prohibited by the EC (Thatcher, 2014, p. 447). The study focuses on the sectors energy, banking, and telecommunications, as according to the EC, will most likely raise
competition. According to the data researched by Thatcher, over the past 20 years, the EC has approved mergers 86% of the time in phase one (Thatcher, 2014, p. 451). With phase one implying that the mergers/ concentrations have been approved. A further 4% was approved after the merger was subject to conditions. Overall more than 94% of all cases that the EC has been notified of have been approved (Thatcher, 2014, p. 452). At first, it could be stated that this, in contrast with what Vallindas has argued, that the EC does not account for European champions. To a certain extent, the research of Thatcher has shown that the EC is an
integrationist, and does allow for European Champions. However, what is essential to mention is that Thatcher has mainly looked at banking, energy, and telecommunication and not in industrial sectors. The argument of Vallindas, therefore, could remain valid.
In conclusion, the EC competition law has been based on the US Competition Law. It has
developed itself as one of the most important Competition Laws in the world. While the EU has mainly been positive about the EU Competition Law, some have voiced criticism. Stating the current law does not allow the EU to be competitive. However, Thatcher has debunked this assumption to a certain extent, as has shown in his research, the EC rather than being focused
on merger constraining policy, is engaged in integrationist policy. However, he did not research the role of manufacturing.
3. Research Questions and Design
This chapter aims to identify some key research questions emerging from the literature review and will develop a strategy for answering these. This will be done by first defining what a European champion is. Further, it will examine the differences between competition and industrial policy. Based on the literature and the questions raised in the discussion between competition and industrial policy the research questions and sub-questions have been
determined. The research design will be explained, with a focus on Thatcher’s research for both mergers and state aid.
3.1 European champions
As seen in the introduction of the thesis, there is an ongoing debate on the creation of
European Champions in the EU. For the thesis, national champions will be defined as follows. A national champion is a firm that has been selected by the government. The main goal is to become an essential aspect of the economy and to compete more effectively internationally. This can be in different sectors, ranging from natural resources to consumer products to advanced technologies. These firms receive special treatment in the form of subsidies, market protection, and firm-specific policies to ensure their growth (Kumar & Steenkamp, 2013, p. 186). European champions would be similar to national champions, in the sense that they would represent certain sectors of the economy. However, rather than originating from one country, the firm would be located in multiple European countries (Bublitz, Leisinger, & Yang, 2019, p. 304). While the thesis is often talking about European champions, as it was seen as a way to compete with other foreign firms, the main argument was that the European internal market would allow firms to compete more efficiently as the firms would be able to draw on the large consumer base in the EU. Similar to how the US and China have larger consumer-based market (McGuire, 2006, p. 889).
3.2 Competition vs. industrial policy
As described in the literature review, competition is seen as something which will decrease prices and increase consumer welfare, while ensuring that the market is free to enter. In contrast to this, industrial policy is seen as the policy where the state plays an active role in the creation of firms and will try to protect them. These two different ideologies stand across from each other. However, they both play an essential role in the current debate of the EU. As discussed in the literature review, competition is an essential aspect of current EU law. The creation of the EU Competition Law, has ensured that competition is one of the most important aspects in the EU. This has allowed the EC to ensure that there is no state aid, anti-trust, cartels and mergers (the four pillars). If these do not align with the interests of the internal market, the EC has the legal authority to prohibit these mergers.
The ability to prohibit these four pillars, has also generated a lot of criticism from both European companies and member states. They argue that they are unable to compete with foreign firms. This argument is based on two points, namely that foreign firms might receive state aid, and that foreign firms might grow to large market sizes. Both are seen as unfair by many companies and member states, who argue that they are unable to compete with these companies. These member states and companies argue for a new European Competition Law, which would enable the creation of European Champions and will allow them to compete with these foreign competitors. In addition, in response to the recent economic downturns and the decrease of industrial activity. Many member states have called for a European industrial policy. Stating that the current EU Competition Law does not allow the creation of such an industrial policy, as it prevents state aid.
What can be derived from examining these two opinions is that the current debate in the European Union is heavily focused on two topics. The creation of European Champions and the creation of a European industrial policy. On the one hand, there are the European member states, who argue that European firms are unable to compete with foreign competitors, as they
receive state aid or subsidies. On the other side of the debate is the EC, and other scholars, who argue that there is no limit on existence and creation of European champions, as the EC has frequently allowed mergers to take place. It has also allowed the increase of state aid in certain sectors, to ensure that the EU remains competitive. The argument is therefore made that competition will only make the EU more competitive on an international stage.
One argument which has been discussed in the literature review is that the EU cannot create European Champions under the current EU competition law (Vallindas, 2006, p. 655). He further states that these will no longer be able to compete with international champions from China and the US. Member states have further voiced this after the proposed merger between Siemens and Alstom was prohibited. Where both Germany and France argued that the EU needs to reform its current Competition law to be able to compete with foreign powers
(Szczepański & Zachariadis, 2019, p. 8). However, on the other side of the spectrum is Thatcher, who argues that the EC has been pursuing an integrationist policy when it comes to mergers (Thatcher, 2014). However, as argued in the literature review, Vallindas also argues about the industry sector. Which, as discussed, is not researched by Thatcher. This gap in the research will further be exploited to see whether the EC has an integrationist policy for the industry sector.
Based on the arguments presented, the following research question has been formulated:
Does EU Competition Policy block development and execution of a common European industrial policy and the formation of European Champions?
With the following sub-questions:
Does the current European Competition Law allow the creation of European industrial Champions?
3.3 Research design
As the thesis has two sub-questions, the research design is also divided into two sub-sections. In the case of the first sub-questions, there has been a brief discussion in the literature review on the paper written by Mark Thatcher. In this paper he researched whether the EC is
conducting a merger constraining policy of an integrationist policy from 1990-2009. His
research is the backbone of the thesis and will be replicated for the period 2009-2020. The aim is to use the data that is collected from his research and this thesis research to get a data overview of 1990 until 2020. The objective is to determine whether the EC has conducted an integrationist policy or merger constraining policy over this period. The thesis will address these questions by looking at the research conducted by Thatcher. He defines a merger constraining policy as a policy by the EC, where it is suspicious of mergers that risk increasing the market power of firms, especially if those firms already have such power (Thatcher, 2014, p. 445). Integrationist policy involves the greater acceptance of mergers that increase the market power of firms if they enhance European Integration (Thatcher, 2014, p. 445). This is seen as limited use of the EC’s power to investigate, conditions, or prohibit mergers, mainly cross borders, and that one deepens integration. In this research, neither policy is seen as absolute, implying that even if the EC prohibits a merger, it will not imply that the EC is pursuing a merger constraining policy. The combination of the data and the individual cases which have been prohibited and approved will allow the thesis to answer the sub-question.
For the second sub-question, the thesis will focus on state aid, and whether the EC can create an industrial policy with the current Competition Law. This will be done by conducting a similar research Thatcher has done, except it will focus on state aid instead of mergers. The objective it to discover a trend in the cases which have been prohibited, and whether the EC allows forms of state aid. Similar to the other research, the thesis will look at cases prohibited and approved by the EC. The combination of the data collected and the examination of individual cases with the literature that has been discussed, the second sub-question will be answered.
4. Methodology
This chapter will outline the method which has been used for the thesis. It will discuss how the data has been collected for both M&A and state aid. Further it will discuss the decisions that have been made and will show the data has been analyzed.
4.1 Mergers & Acquisitions:
The data that has been used has been chosen to continue the research conducted by Mark Thatcher. It, therefore, looks at the 1st of January 2009 until the 16th of April 2020. The end date
has been determined from the moment the data has been extracted from the website of the EC. In the meantime, there could have been more notified cases. However, these will not be considered. The website of the EC allows one to download the data from specific years. This implies that it would have been possible to download data from the 1st of January 2009 until
the 16th of April 2020. However, as it is hard to keep track of the different dates, as they are
categorized differently, I decided to download the data per year. This implies that for every year starting from 2009, the 1st of January and the 31st of December were taken as the end
points, except for 2020. These cases have subsequently been copied and placed in one Excel file, where every year has its owns tab. This has resulted in a complete database of 3659 notified cases.
The data uses NACE codes to differentiate between cases, which refers to the Statistical Classification of Economic Activities in the European Community, a code used throughout the EU. The EC also makes use of this, which allowed the classification of the cases into different sectors. Some companies, which are a notifying party, have multiple business segments in different sectors. For example, an airline might have NACE code - H, which refers to passenger air transport, but might also have NACE code - C, which will refer to repair and maintenance of aircraft and spacecraft. In these cases, I looked at the primary industry in which they are active. In the case of airlines, this will be H, passenger air transport. The reasoning behind using the
