Mergers : how does it affect competition and your welfare?

Mergers are an important feature of every economic system, but most of us, as individuals, are indifferent of such transactions.

Yet, they shape market structures, affect product offerings, technological progress, prices and our welfare. One important dimension in which mergers affect our welfare is through their effects on market structures and competition. 

In simple words, a merger occurs when an enterprise (or person) acquires control over another enterprise. There are hundreds and thousands of mergers happening around the world every day, and thousands of such transactions occur in Mauritius on a yearly basis. These mergers can directly or indirectly affect our daily life. Usually mergers are beneficial and increase welfare. They usually result in better products, more robust and stable firms, synergies and efficiencies which reduce cost and hence price.

However, at times, mergers may also be harmful and raise certain concerns. As consumers, some mergers can reduce our choice. Mergers may reduce the number of suppliers in markets and hence the customer’s choice on suppliers. It can also reduce choice by resulting in fewer products on the market.

Consumers may also suffer from an increase in prices of certain products post-merger. Usually, when a company increases the prices of its products, there is a high risk that some of its clients will shift to its major competitor(s). This, in turn, constrain the company from increasing prices. But this constraint will reduce where the company acquires its major competitor. However, if post-merger, there remains enough competitors on the market to exert competitive constraints on the merged entity, such price increases will be unlikely.

Innovation may also be compromised by some mergers. In an attempt to enter new markets or to attract more clients, companies usually invest in innovation, to make better offers than competitors, thus leading to new or improved products to the benefit of consumers. Some mergers reduce the incentive for companies to invest in such innovation. These ultimately hinder technological progress and innovation.

At times mergers may also confer power and incentives on a merged entity to further monopolise the market and prevent new entry into the market. This, on one hand, deprives consumers of the benefit of competition and, on the other hand, deprives entrepreneurs of the opportunity to engage in new ventures.

Role of competition agencies in controlling mergers

Mergers change the socio-economic infrastructure of a country and create super-powers; in fact, it is the creation of such giants in the 19th century which triggered the development of modern competition laws in the United States. Now most countries around the world have adopted competition laws enforced by their domestic competition agency, which comprises of merger control provisions. In Mauritius, this role is entrusted to the Competition Commission, which is empowered to intervene in mergers which result in substantial lessening of competition.

As at date the Competition Commission has reviewed more than 40 local mergers and more than 60 mergers at the COMESA level, through collaboration with the COMESA Competition Commission. To improve its merger control, this year, the Competition Commission has put in place new tools and established collaborations with other institutions to identify mergers happening in Mauritius. For the last eight months, the Competition Commission has reviewed more than 1500 share transactions and launched various enquiries to identify if there is any transaction which warrant the intervention of the Competition Commission.

As at date, the Competition Commission has intervened in various mergers to ensure that competition and consequently consumers are not harmed. For example, in the face of the global merger between Holcim Ltd and Lafarge S.A, the Competition Commission was of the view that it may affect competition in Mauritius as they were the main players. Therefore, to ensure that competition is maintained on the market in Mauritius, Holcim Ltd had to sell its shares in Holcim (Mtius) Ltd (now known as Kolos Cement Ltd) to another company. As a result, despite the completion of the merger between Holcim Ltd and Lafarge S.A merger internationally, there was no reduction in competition locally.

Last year, the Competition Commission issued a media release informing that it reviewed a merger proposal in the health insurance sector and had concerns that the merger may lead to competition harm. However, the merger was abandoned.

More recently, the Competition Commission also reviewed the acquisition of Monoprix supermarket chain by the owner of Winner’s supermarket chain. Consumer choice was a major factor in assessing whether the said merger will negatively affect consumers. In this case, it was found that consumer choice would not have been significantly affected as consumers could still choose from several other supermarkets and the relevant market was dynamic.

Global mergers also affect us. Currently there is much focus on the merger between Bayer and Monsanto which are large players in agribusiness. The merger of more than
Rs 2 trillion has been reviewed by competition agencies worldwide. These companies sell various products from seeds to pesticides and herbicides, among which are the well-known brands of Roundup and Basta.

The competition agencies in the United States and European Union were concerned that the merger will result in higher prices, lower quality, fewer choices and would stifle innovation. Consequently, Bayer and Monsanto have to divest assets in seed and herbicide business and other intellectual property rights, worth several hundred million rupees, to proceed with the merger to ensure that competition is not harmed.     

However, once more, it is important to highlight that most mergers are either beneficial or benign to consumers and the economy at large. Some mergers bring both efficiencies and consumer harms, while certain mergers may be generally harmful. Therefore, it is important to scrutinise mergers to ensure that the anticompetitive side of certain mergers are properly carved out while at the same time ensuring the welfare of society at large by maximising the benefits resulting from such mergers.