Economic Logic And Antitrust Policy On Non-horizontal Mergers

Competition and monopoly have always been an eternal topic for economics, especially for microeconomics. Insights as well as arguments are plentiful on this field. The intent of antitrust law is to protect competition and to curb the monopoly. It is usually referred to as "Constitution of Economy". After a decade of burnish, The Anti-Monopoly Law of People's Republic of China (the "AML") was promulgated formally on August 1,2007. Unlike the other laws, economic analysis plays an irreplaceable role in the process of antitrust enforcement and policy making.The strong link between Economics(especially the Industrial Organization) and antitrust law is obvious in the field of merger control. Merger control is the nucleus of antitrust law. In industrial organization theory, there were mature theoretical explanation about competitive effect and welfare influence of horizontal mergers. Economists generally reached agreement on the key problems of horizontal mergers. The economic analysis of non-horizontal mergers is more complicated than that of horizontal mergers. On the one hand, non-horizontal mergers can save transaction cost,eliminate double monopoly, improve economic efficiency; On the other hand, it also can expand the monopoly power, squeeze competitors out and develop the market foreclosure. Both in economics and in practice of antitrust, there are many divergences and arguments for non-horizontal mergers. Judge Bork of Chicago School, even believed that non-horizontal merger do no harm to competition, should be adopted legally. The Post-Chicago School scholars focused on the anticompetitive effects of non-horizontal mergers. What is the economic logic of non-horizontal mergers regulation? How should Chinese government respond to non-horizontal mergers? What kind of policy orientation judgment standards should be taken? How to construct an analytical framework? It is intention of this thesis.Competitive effect and antitrust policy of non-horizontal mergers is the object of this study. It is not only an economic problem, but a law problem as well. So, this thesis use inter-disciplinary methods, using the research methods of both economic and law, from an economic perspective, by adopting mathematical statistics, case research method, comparative research method, analyze and evaluate antitrust policy for non-horizontal mergers with the industrial organization theory. Description and analysis of relevant laws, some basic concept and analysis methods of law are also mentioned. This thesis surveys the relevant achievement and main viewpoints of the European and American scholars systematically. The anticompetitive effects and welfare consequences of non-horizontal mergers were studied deeply and systematically. American and European Commission's antitrust policy about non-horizontal mergers were compared (The Guidelines on the Assessment of Non-Horizontal Mergers is the emphasis).China's antitrust policy for non-horizontal mergers is discussed finally, and the policy suggestions are given.The Competitive damage mechanism of non-horizontal mergers is the core of this study. In particular, the following four problems can be concluded:First, what is the competitive damage mechanism of vertical merge? Second, what is the main anticompetitive effect of conglomerate merger? Third, Do the non-horizontal mergers have stronger efficiency motive in contrast with horizontal mergers? Finally, what is the appropriate antitrust policy for non-horizontal mergers? According to the above-mentioned problems, on the basis of other researches, this thesis investigated on the following four aspects and obtain some useful conclusions.Firstly, this thesis combs and comments the evolution of Market Foreclosure Theory and meaning of antitrust policy systematically. Market Foreclosure Theory is the basic foundation for the anticompetitive effects of Vertical Merger, anticompetitive effect of market foreclosure should meet the strict assumptions. When the antitrust law enforcement abandon a vertical merger case organization according to Market Foreclosure Theory, it should proved Merged Enterprises have the motivation and ability to implement market foreclosure strategy, which eventually generate anticompetitive effects to consumer welfare damage.Secondly, according to the two main competitive damage theories of conglomerate merger—Portfolio Effect Theory and Potential Competition Doctrine, this thesis combined American and European Commission's classic cases, analyze each one's economic logic, determine the application conditions, problems and meaning to antitrust policy. Strategy Tying Theory is the nuclear of Combination Effect Theory. Damage of Strategic Tying to the competition is ambiguous, developing the power of tying to damage the competition through conglomerate merger needs many conditions. So. a more cautious attitude should be taken by using of Portfolio Effect Theory in conglomerate merger cases. Even with the solid industrial organization theory foundation, the antitrust using of potential competition in conglomerate merger is still limited and restrained, and marginalized. Thirdly, the thesis analyzes the characteristic efficiency motive and efficiency improvement of non-horizontal mergers, promoted innocence presumption of non-horizontal merger. Generally, the damages of non-horizontal mergers are much lower than those of horizontal mergers, non-horizontal mergers usually have strong efficiency motive, it seldom damages the competition. This thesis maintains that, the analysis principle of efficiency in non-horizontal mergers should be different from the principle in horizontal mergers. Integrative method can be taken in analyzing non-horizontal mergers competitive effect, efficiency doesn't offset anticompetitive effects. In contrast, innocence presumption is adopted, efficiency occurs, non-horizontal mergers is helpful to competition. Only when the anticompetitive effects are too big to offset the efficiency, it should be abandoned.Finally, in policies, the thesis have a comparative study on the antitrust policy controlled by non-horizontal mergers in America,European Commission and other areas, mainly studies the China's antitrust policy. The thesis analyzes the classic cases, such as Coca-Cola/Huiyuan Case of Mergers and acquisition by Japan's Mitsubishi Rayon of Lucite International. According to the competitive situation of Chinese market and the legislative purpose of Chinese antitrust law, from the industrial organization theory perspectives, proposed antitrust policy suggestions for the Chinese non-horizontal mergers. The cautious attitude should be taken in intervention to the non-horizontal mergers. On one hand, damage of non-horizontal mergers to the competition is indirect and uncertain, on the other hand, non-horizontal mergers has big space to improve efficiency. The legislative and enforcement efforts to non-horizontal mergers should advance gradually in due order. The initial analysis framework can be developed firstly in the Guidelines. As to review standard and analysis framework of non-horizontal mergers, an equivocal attitude is acceptable, the theories from Chicago School and Post-Chicago School can be absorbed. On one hand, the theories from Chicago School about efficiency improvement of non-horizontal mergers should be understood fully. On the other hand, Post-Chicago School's influence on antitrust policy of non-horizontal mergers stronger day by day. In the Anticompetitive Effects aspect of non-horizontal mergers, China's Merger Guidelines should absorb as many useful things as possible from Post-Chicago School. The concepts and principles of Market Foreclosure Theory should be presented definitely in the proposed Guidelines. By learning from European Commission Guidelines on the Assessment of Non-Horizontal Mergers, the possibilities of anticompetitive Market Foreclosure Strategy should be evaluated following these three steps:"motive-ability-effect".The antitrust policy of non-horizontal mergers needs for future research, not only in theory but also in practice. The last chapter promoted some further research direction and problems:to identify and analyze anticompetitive effects by using merger simulation technique, and to evaluate and research the non-horizontal mergers cases afterwards. How to knock though the three main areas of antitrust law in policy aspect? How to establish dynamic relationship between regulation to non-horizontal mergers (especially the conglomerate merger) and regulations to abuse of Market Power? How to integrate the prior control and subsequent control? It is also a notable issue.