Horizontal Mergers and the Control of Market Power in the U.K.

• Published date: 01 September 1972
• Date: 01 September 1972
• DOI: 10.1177/0003603X7201700304
• Author: C. Y. Pass
• Subject Matter: Article

HORIZONTAL

MERGERS

AND THE CONTROL OF

MARKET

PO,WER

IN THE U.K.

by

C. Y.

PASS·

INTRODUCTION

It

has long been recognized

that

many large U.K. com-

panies have established and maintained their positions as

"monopoly" suppliers, by a policy of merger or takeover.

Until recently, however, U.K. monopoly legislation concerned

itself only with "monopoly positions" 1as such and not with

the means by which they were established. As a result of a

Board of Trade

(BoT):lI

reference, the Monopolies Commis-

sion (MC) could investigate a monopoly position once

it

was

deemed to exist, but it was unable to consider mergers

that

created or enhanced monopoly situations. The introduction

in 1965of the Monopolies and Merger Act, providing for the

surveillance and control of mergers, was thus an important

landmark in the evolution of U.K. monopoly policy,"

The main provisions of the 1965 Act relate specifically to

any prospective merger where the merger would result in or

intensify a "monopoly position" or where the value of assets

taken over exceeds £5 million. Responsibility for the pre-

liminary screening of mergers

that

satisfy these conditions

and

for

deciding whether or not a particular merger should

be referred to the MC for investigation rests with the BoT.

The act sets forth criteria for the circumstances. in which

the BoT should or should not make a reference jthe Board is

• Management Center of the University of Bradford, England.

1Under the Monopolies and Restrictive Practices (Inquiry and

Control) Act, 1948 a "monopoly position" is defined as one where a

single firm or a gronp of firms acting in concert control more than

one-third of the supply of a particular product.

SNow renamed the Department of Trade and Industry.

8Monopolies and Mergers Act, 1965, UMSO.

811

812

THE

ANTITRUST

BULLETIN

required to decide for itself whether or not there is sufficient

doubt about the probable consequences of the

merger

to jus-

tify

a more prolonged and searching investigation by the MC.

The

Board

has recently indicated the kind of considerations

it takes into account

r'

Does the merger involve a substantial

increase in concentration? Are there direct or

near

sub-

stitutes

for

the products immediately affected? How much

competition is there from abroad?

What

are

the conditions of

entry

to the industry, and will the merger increase the

diffi-

culty of entry?

What

are

the stated motives of the firms con-

cerned?

What

reorganizations will be

put

into effect if the

merger goes through?

Are

there significant economies of

scale to be gained Y The list is almost endless

and

often am-

biguous;

and

no indication is given of the relative importance

the Board attaches to the various questions. On this basis it

is difficult

for

the outsider to comprehend the rationale be-

hind the

Board's

selection of

particular

mergers

for

reference

to the MC.

The BoT

has

used its powers sparingly, Between 1965

and 1971 the

Board

assessed the probable effects of some 450

mergers falling within the scope of the Act, 80

per

cent of

which were "horizontal" in character.

It

referred

only 15 of

them to the MC (see Table 1).

The MC is required to investigate

and

report

whether or

not a referred merger operates or might be expected to oper-

ate

against the "public interest." Again, the Act omits guide-

lines to

assist

the

Me

in

merger

enquiries;

it

was

left

the Com-

mission itself to evolve suitable public interest criteria.

In

investigations of established monopoly positions, the firm's

past

conduct is scrutinized to establish evidence of abuse;

but

in assessing mergers the

Me

has

been concerned entirely with

prospective mergers and so has been involved in the complex

task of predicting what will happen if the merger goes

through.

In

this difficult situation, the MC has contented it-

4Mergers: A Guide to Board 01 Trade Practice, HMSO 1969,

pp.10-19.