European Union merger control is getting a software update. The question is whether the new code will make the system faster, smarter, and better at spotting real competitive problems—or simply give the European Commission more buttons to press.
The pending rewrite of European Union merger-control guidance is the broadest review of the framework in roughly two decades. The Draft Merger Guidelines and accompanying technical-novelties summary seek to move beyond the compartmentalized structure of the 2004 Horizontal Merger Guidelines and 2008 Non-Horizontal Merger Guidelines. That is both a serious and welcome undertaking. Modern transactions rarely fit neatly into inherited doctrinal boxes. Firms compete through R&D pipelines, complementary assets, platforms, distribution networks, procurement relationships, data, manufacturing capabilities, and the ability to scale new products across borders. A unified framework can therefore offer a more coherent approach than a collection of analytical silos.
The draft also reflects a changed political economy. The Commission now speaks in the language of innovation, investment, resilience, sustainability, industrial scale, and global competitiveness. That vocabulary aligns with the European Union’s broader Competitiveness Compass and with concerns highlighted in the Draghi report about Europe’s growth and productivity challenges. It also reflects a recognition that merger control cannot intelligently assess competitive effects by looking only for short-run price increases in narrowly defined markets. Scale can be procompetitive. Integration can accelerate commercialization. Mergers can combine complementary capabilities that no firm could deploy as effectively on its own.
The draft’s promise, however, comes with a significant risk. The same document that expands theories of competitive benefit also expands theories of competitive harm. Innovation, investment, potential competition, entrenchment, ecosystem effects, portfolio effects, buyer power, and labor-market effects all enter a single analytical framework. Each may be relevant in a properly grounded case. Taken together, though, they risk making merger review less predictable unless the final Guidelines insist on concrete causal mechanisms, administrable limiting principles, and symmetrical treatment of harms and benefits.
From a law & economics perspective, the central question is not whether merger analysis should become more dynamic. It should. The real question is whether dynamic analysis can be disciplined enough to reduce error costs rather than simply expand agency discretion.
Dynamic Analysis, Not Dynamic Speculation
Merger enforcement is necessarily forward-looking. The European Commission must compare the world with the merger against a realistic counterfactual—the world likely to emerge without it—under conditions of uncertainty. That simple point has large implications. A false negative can permit durable market power, exclusionary conduct, or diminished innovation rivalry. A false positive can block an efficient transaction, chill investment, reduce exit opportunities for entrepreneurs, and prevent socially valuable assets from moving to better uses. Sound merger guidelines should therefore be written not only to catch bad mergers, but also to avoid condemning good ones.
Daniel Spulber and I make this point with special force in innovation cases. We caution against treating innovation harms as a presumption rather than an empirical question. Innovation competition is not ordinary price competition on a longer clock. It involves uncertain invention, uncertain commercialization, financing constraints, appropriability problems—the difficulty of capturing returns from one’s own innovation—and complementary assets. Some transactions reduce independent R&D rivalry. Others increase the odds that an invention actually reaches consumers. A dynamic approach must be able to recognize both possibilities.
The recent work of University of California, Berkeley, scholar David J. Teece is similarly relevant. Teece argues that antitrust analysis should focus on dynamic competition, innovation, entrepreneurship, and firm capabilities, rather than rely too heavily on static concentration measures. The Commission’s draft adopts much of this vocabulary. But vocabulary is not methodology. A genuinely dynamic framework must ask whether the merger changes the parties’ incentives and capabilities in ways that make stronger future competitive performance more or less likely. It should not simply paste innovation labels onto static structural analysis.
Harvard Law School’s Louis Kaplow underscores a related decision-theoretic problem in merger analysis. In his merger work, including “Out of Market, Out of Mind,” Kaplow criticizes rules that ignore relevant benefits because they arise outside a narrowly defined market. That point matters especially for the Commission’s draft, which contemplates balancing symmetric and asymmetric harms and benefits, including benefits across consumer groups and markets. Modern guidelines should not define the relevant market narrowly to establish harm, then invoke that same narrowness to disregard benefits.
A Theory of Harm for Every Occasion
The draft’s unified architecture is a sensible development. Modern transactions often combine horizontal overlaps, vertical relationships, conglomerate complementarities, and innovation effects. A single framework can help the European Commission assess the overall change in competitive constraints, rather than forcing complex transactions into artificial doctrinal boxes. It may also reduce the risk that benign vertical integration or complementary business relationships are treated as inherently suspect simply because they involve a large firm. The technical-novelties summary appropriately emphasizes that the draft relies on a more refined analytical toolbox for different merger effects, rather than rigid categorization.
Still, a unified toolbox can become an open-ended one. The draft recognizes theories of harm involving the loss of head-to-head competition, investment and expansion competition, innovation competition, potential competition, foreclosure, entrenchment, coordination, access to commercially sensitive information, portfolio effects, and other competitive dimensions. That breadth creates room for nuanced, case-specific economic analysis. It also creates a risk that almost any acquisition by a successful firm can be cast as problematic.
A firm with complementary assets can be accused of leveraging a portfolio advantage. A platform operator can be accused of ecosystem entrenchment. A company with a product roadmap can be accused of eliminating potential competition. A firm with scale can be accused of tipping a market. At some point, an analytical framework broad enough to capture every possible concern risks becoming one that can justify almost any outcome.
The final Guidelines should therefore require more than a plausible story. They should require the Commission to identify a merger-specific mechanism that changes incentives or capabilities in a way that is likely to reduce competition. That is not an artificial hurdle. It is the economic core of merger analysis under the European Union Merger Regulation.
If the concern is foreclosure, the Commission should show ability, incentive, and a likely competitive effect. If the concern is the loss of innovation competition, it should show that the relevant R&D paths are sufficiently substitutable and that the merged firm is likely to internalize or eliminate a meaningful competitive constraint. If the concern is entrenchment, it should show how the transaction makes future entry or expansion materially less likely—not merely that the merged firm will be better equipped to compete.
Dynamic Potential Needs Static Discipline
The draft is right to recognize that market shares are not always enough. In innovation-intensive sectors, market shares may be unavailable, stale, or misleading. A product may not yet be commercialized. An entrant may discipline incumbents through threatened innovation. A firm may possess valuable capabilities that do not show up in current sales. The draft’s new discussion of dynamic competitive potential is therefore useful. It acknowledges that future rivalry may arise from assets, capabilities, and trajectories, not just current output.
But the European Commission should avoid replacing old structural presumptions with a broader, less disciplined market-power inquiry. High margins can reflect innovation rents, temporary scarcity, product differentiation, or risky investment. Network effects—the tendency for a product or service to become more valuable as more people use it—can create consumer value and scale economies, as well as entry barriers. Data advantages may matter in some settings and be overstated in others. Ecosystems may entrench a firm, but they may also reduce transaction costs, improve interoperability, and expand output. David Teece’s dynamic-capabilities account is useful precisely because it asks whether a firm is shielded from innovation and entry, not simply whether it is large, profitable, or successful.
That distinction matters for legal certainty. An effects-based approach should not become a suspicion-based approach. The Commission should make clear that market power cannot be inferred from size alone, profitability alone, or technological sophistication alone. It should be inferred from the ability profitably to degrade competitive variables—price, output, quality, innovation, privacy, resilience, or choice—relative to a realistic counterfactual.
The European Court of Justice’s 2023 CK Telecoms judgment, which specified that the Commission need only show that a proposed merger is “more likely than not” to impose a significant impediment to effective competition based on “an overall assessment” of all relevant factors, illustrates the importance of proof and predictability in EU merger control. A modernized framework should strengthen those disciplines, not dilute them.
Not Every Acquisition Is a Killer Acquisition
The draft’s most important innovation may be its treatment of innovation itself. The Commission recognizes the loss of specific innovation competition, the loss of general innovation competition, and—importantly—an innovation shield under which certain acquisitions involving innovative firms or R&D projects are less likely to raise concerns. That is a welcome acknowledgment that not every acquisition of a small innovative firm by a larger firm is a killer acquisition. Indeed, most are not. Many serve as mechanisms for funding, testing, manufacturing, distributing, or commercializing technologies that might otherwise never reach consumers.
The Commission also deserves credit for recognizing that acquisitions can promote innovation. A small firm may possess a promising invention but lack regulatory expertise, distribution channels, complementary intellectual property, manufacturing scale, a sales force, or the capital needed to survive the long journey from prototype to market. A larger firm may provide precisely those assets.
Of course, the opposite scenario can occur. An incumbent may acquire a target to eliminate a competitive threat. Merger control must distinguish between those cases, not presume one from the other. Recent work on “Killer Acquisitions: Evidence from European Merger Cases,” along with the broader debate over acquisitions of nascent competitors, underscores why the question matters. It also illustrates why careful evidence is indispensable.
The draft’s innovation shield, however, appears too narrow. Conditions tied to market-share ceilings, the existence of alternative R&D projects, or the acquirer’s status as the largest firm or a gatekeeper may be administrable. They also risk misclassifying procompetitive transactions. The most socially valuable acquisitions may be precisely those in which a larger firm possesses the complementary assets needed to scale a breakthrough innovation. Requiring several comparable alternative R&D paths may likewise fit poorly in markets where innovation is lumpy, heterogeneous, and organized around differentiated technological bets. A safe harbor that systematically excludes leading firms may miss transactions that increase expected innovation output.
A better innovation shield would focus on the economics of commercialization. It would ask whether the target has a realistic independent path to market; whether the acquirer contributes complementary assets; whether the transaction accelerates innovation or increases the likelihood that it reaches consumers; whether alternative innovators remain credible; and whether the parties’ documents and market evidence demonstrate a merger-specific innovation benefit.
The shield should not immunize all acquisitions by incumbents. It should, however, provide meaningful protection for innovation-enhancing transactions, particularly where the Commission’s theory of harm is speculative and the claimed benefits are credible, even if difficult to quantify.
Potential Competition Is Not Potential Everything
The draft’s treatment of potential competition and entrenchment is equally important. Potential-competition doctrine has a legitimate role when a firm that likely would have entered a market and constrained incumbent firms is acquired by one of them. Herbert Hovenkamp’s 2024 article on potential competition argues for evidence-based analysis rather than speculation about future innovation and entry. It also emphasizes the need to weigh potential harms against the efficiencies that mergers may generate when they involve firms that are not yet direct competitors.
The European Commission’s decisional practice has long considered likely future rivalry. But potential competition is easy to overextend. Many firms are potential entrants into many adjacent markets in some abstract sense. That is not enough. The Commission should require evidence that entry was probable, timely, and competitively significant absent the merger.
Entrenchment theories require even greater caution. The draft’s focus on ecosystems, adjacent markets, and dominant positions may capture genuine exclusionary concerns. It also risks treating improved capabilities as anticompetitive simply because they make the merged firm harder to beat. Competition law protects the competitive process, not competitors from efficient rivalry. A merger that combines complementary assets, improves product quality, or lowers costs may harm rivals precisely because it benefits consumers. That is not a significant impediment to effective competition. It is competition working as intended.
The final Guidelines should therefore make clear that entrenchment theories require proof of a likely reduction in contestability—the ability of rivals and potential entrants to challenge the merged firm. The relevant question is whether the transaction makes entry, expansion, innovation, interoperability, switching, or multi-homing materially more difficult in a way that harms consumer welfare or the competitive process.
It should not be enough to point to a stronger ecosystem, a broader portfolio, or more efficient integration. Those features may be relevant evidence in some cases. They are not harms in themselves.
Benefits Should Not Need Better Evidence Than Harms
The draft’s expanded treatment of efficiencies is one of its strongest features. It recognizes direct efficiencies, including economies of scale and scope, elimination of double marginalization, complementary technology integration, resilience, sustainability, and effects on incentives and capabilities to invest and improve quality. Early practitioner commentary also observes that the draft creates a more visible channel for merger parties to present affirmative theories of benefit.
That is an improvement over a framework that treats efficiencies as an afterthought. Many valuable mergers do not primarily reduce marginal costs in ways that are easy to quantify. They combine capabilities. They redeploy assets. They enable scaled R&D. They integrate complements. They reduce supply-chain risk. They allow products to launch faster, with better quality, or at larger scale. These are real economic benefits, even when they resist precise measurement. The draft’s recognition of dynamic efficiencies is therefore a significant step toward the kind of dynamic merger analysis advocated by Daniel Spulber and myself, David Teece, and Louis Kaplow.
The problem is evidentiary asymmetry. The draft continues to require benefits to be verifiable, merger-specific, timely, and beneficial to consumers. Those requirements are sensible. But if they apply more stringently to benefits than to harms, they will bias the analysis against efficient mergers. Innovation harms are often probabilistic and qualitative. Innovation benefits are, too. The Commission should not accept a broad narrative of future innovation harm while demanding near-certainty from merging parties about future innovation benefits. Symmetry is essential.
The final Guidelines should expressly state that dynamic harms and dynamic benefits will be evaluated under comparable evidentiary standards. If internal documents, business plans, expert evidence, and market testimony can support an innovation-harm theory, the same evidence should be able to support an innovation-benefit theory. If uncertainty reduces the weight of claimed benefits, it should also reduce the weight of claimed harms.
A decision-theoretic framework should compare expected harms and expected benefits, discounted for probability and timing. It should not demand proof of benefits with a rigor it does not apply to harms.
The Map Is Not the Territory
One of the draft’s most important technical innovations is its willingness to consider balancing across different consumer groups and markets. This is where Kaplow’s “Out of Market, Out of Mind” is especially relevant. If a merger produces a small harm in one narrowly defined market and a large benefit in another, a rule that ignores the benefit simply because it falls outside the first market can be economically incoherent. The welfare consequences of a transaction do not depend on market boundaries drawn for analytical or litigation purposes.
That does not mean merger analysis should credit every broadly defined social benefit. Competition law should remain competition law. But out-of-market benefits should be cognizable when they are concrete, merger-specific, and connected to consumer welfare, output, quality, innovation, market contestability, resilience, or the competitive process. If a merger improves supply reliability for customers in adjacent markets, accelerates innovation in complementary products, or lowers costs for a broad class of users, those effects should not be disregarded merely because they arise outside the narrow market where a localized concern is alleged.
Resilience and sustainability require the same discipline. The draft properly recognizes them as non-price dimensions of competition. Customers may value secure supply, cyber resilience, decarbonization, reduced outage risk, or greater product durability. These can be quality dimensions on which firms compete. The Commission should not, however, convert resilience or sustainability into free-floating industrial-policy exceptions. The better approach is to ask whether the claimed benefit improves the competitive offering available to consumers or trading partners and whether it is sufficiently merger-specific.
This framework also helps avoid internal inconsistency. If the Commission worries that consolidation may reduce resilience by concentrating supply, it should also recognize that some consolidation may increase resilience by combining complementary capacity, improving redundancy, strengthening balance sheets, or enabling investment in critical infrastructure. The same principle applies to sustainability.
Resilience can be a harm or a benefit. Sustainability can be a harm or a benefit. The Guidelines should not presume the answer. They should require evidence.
Five Ways to Make the Guidelines Better
The final Guidelines can preserve the draft’s strongest features while improving administrability through a handful of targeted changes.
First, every theory of harm should require a concrete causal mechanism. Labels such as ecosystem, portfolio, gatekeeper, pipeline, potential competitor, or dominant firm should not substitute for evidence that the merger is likely to change incentives or capabilities in a way that harms competition.
Second, the innovation shield should be broadened. It should protect not only transactions that fall below structural thresholds, but also transactions in which the target lacks a realistic path to commercialization, the acquirer contributes complementary assets, and the expected effect is to accelerate innovation or increase innovation output. The Commission should also recognize that acquisition markets can create ex ante incentives to innovate. Excessively uncertain merger review may discourage venture investment by weakening the exit opportunities on which many start-ups depend.
Third, the Commission should evaluate dynamic harms and dynamic efficiencies symmetrically. In innovation cases, both sides of the ledger are uncertain. The Guidelines should not permit speculative harms to outweigh plausible, evidence-backed benefits simply because the benefits are harder to quantify. This is one area where the academic-research pieces cited above converge: merger analysis should be comparative, probabilistic, and dynamic.
Fourth, out-of-market benefits should remain part of the balancing framework. Kaplow’s warning remains highly relevant. Ignoring benefits because they arise outside a market boundary can turn market definition into an arbitrary welfare filter. The draft’s openness to cross-market balancing is a strength and should be retained, subject to clear requirements for evidentiary reliability and competition-relevant benefits.
Fifth, the final text should clearly distinguish harm to competitors from harm to competition. That distinction is familiar, but it becomes even more important in innovation-driven and platform markets. Integration, scale, interoperability, and complementary assets may disadvantage rivals because they produce better products. That is not a competition problem unless rivals are excluded in a way that reduces contestability, innovation, output, quality, or consumer welfare.
The Difference Between Dynamism and Discretion
The Commission’s draft Merger Guidelines deserve serious praise. They recognize that merger analysis must account for innovation, dynamic competition, resilience, sustainability, and scale. They provide a unified structure, articulate theories of benefit as well as theories of harm, and acknowledge that procompetitive mergers can strengthen the internal market. In these respects, the draft is more modern than the guidance it would replace.
The challenge is to match modern language with disciplined method. A dynamic framework should not merely add new reasons to intervene. It should improve the Commission’s ability to distinguish anticompetitive consolidation from procompetitive reorganization. It should reduce false negatives and false positives. It should give businesses clearer guidance while preserving enforcement against mergers likely to impede effective competition.
If the final Guidelines incorporate stronger limiting principles, broaden the innovation shield, apply symmetrical evidentiary standards, and preserve economically coherent balancing of benefits and harms, they could make an important contribution to global merger policy. If they do not, the draft’s breadth may undercut its promise by increasing uncertainty and chilling innovation-enhancing transactions.
Dynamic merger analysis is worth doing—but only if it is disciplined enough to tell better mergers from worse ones.
