The Political Economy of European Merger Control: Evidence Using Stock Market Data

Abstract

The objective of this paper is to investigate the determinants of EU merger control decisions. We consider a sample of 167 EU mergers between 1990 and 2002 and evaluate their competitive consequences by the reaction of the stock market price of competitors to the merging firms. We then account for the discrepancies between the actual and the optimal decision as indicated by the stock market in terms of the political economy surrounding the cases. Our results suggest that the commission's decisions cannot be solely accounted for by protecting consumer surplus. The institutional and political environment does matter. As far as influence is concerned, however, our data suggests that the commission's decisions are not sensitive to firms' interests. Instead, the evidence suggests that other factors - such as market definition and procedural aspects, as well as country and industry effect - do play a significant role.

Keywords: Merger Control, Event Studies, Lobbying, EU

JEL Classification: L4, K21, C12, C1