Discussion of : “Merger Remedies Versus Efficiency Defense” by Peter L. Ormosi Kai-Uwe Kühn University of Michigan ACLE workshop: “EU Competition Enforcement Data”, Amsterdam, April 10-11, 2008

What is the Paper About?

Alternative Stories Merger procedure is an efficient way to reveal the merger relevant information The Commission has the burden of proof for the anticompetitive effects The firm has the burden of proof for the efficiency effects. It can also suggest the remedies Firm will suggest optimal remedies that minimize the loss of efficiency gains from remedies Efficiency claims can only be credible when they are costly to make or easily documentable (the latter not possible or very costly) An optimal mechanism may therefore involve either early remedies with no efficiency claims (There is an expectation of efficiencies anyway) or efficiency claims that induce higher waiting costs Efficiencies are simply too costly to demonstrate verifiably so that early remedies maximize the chance to reap efficiency benefits.

The Contribution of the Paper Match a data set on merger cases with public information about expected efficiencies as reported to investors Establishes some stylized facts about the use of efficiency arguments: The efficiency claims are not used in proceedings Makes some progress in explaining these stylized facts

Stylized facts 1: Efficiencies reported to Investors not reported to EU

Stylized Fact 2: Efficiency defense most likely at intermediate level

Stylized Fact 3: Phase 2 cases are declining

Stylized Fact 4: With efficiency defense the procedure lasts longer

The Challenge: Explain these Stylized Facts Stylized Fact 1: ▫Revealing efficiencies is very costly to firms:  It delays the merger control decision (to Phase 2)  Firms offer remedies early and do not reveal efficiencies (that might keep remedies small) ▫The great majority of efficiencies may be reductions in fixed costs and not marginal costs. Documentation cannot help the firm very much Stylized Fact 2: ▫Low efficiencies have little impact – too costly to reveal, ▫large efficiencies will make the merger profitable even with significant remedies. (But why not reduce the remedy cost?)

What kind of tests for explanations of SF 1? How do cost efficiencies affect probability of Phase 2? ▫Paper: Prob(Phase II) = Φ(a+b CS) ▫How about:  Prob(Phase II) = Φ(a+b CS+CS[cVal+dVal 2 ]+eCN)  (What is the trend in the CS series??) Duration analysis: ▫How is the delay until a remedy is suggested affected by cost efficiencies?  VAL=CostS/PA has negative effect on delay  Problem: The higher PA, the more complex the merger.

Selection Problems Why exclude unremedied but screened mergers? ▫If it is true that efficiencies only matter for remedied mergers, efficiencies should have no impact on the probability of having a merger accepted without remedies in Phase 1 ▫Alternative story: efficiencies are communicated, but not in the way the key word seacrh by the author suggests Unobserved time of merger preparation before the announcement Unobserved time of pre-notification discussions with the Commission