COMPETITION • EUROPEAN AND FRENCH LAW • EFFICIENCIES
Economies of scale are possible when an increase in scale leads to a decrease in average unit costs. They are likely, whether the concentration is horizontal or non-horizontal, to make market entry unprofitable (in particular by sharply reducing revenue prospects) unless the new entrant can capture a sufficiently large share of the market. Indeed, customer foreclosure can lead to higher input prices if there are significant economies of scale in the input market. Similarly, foreclosure effects resulting from bundling or tying are likely to be more pronounced in industries where there are economies of scale and where the structure of demand at a given point in time has a dynamic impact on the supply conditions in the market for the future.
However, economies of scale may typify efficiency gains that may offset the anticompetitive effects of a merger. Thus, while a horizontal merger reduces the number of undertakings in the market and facilitates collusion and oligopolistic interdependence, it also allows the initiating undertaking to attain an optimal size more quickly and to achieve economies of scale, which can then be passed on to consumers. Although a vertical or conglomerate merger is likely to eliminate competitors at each stage of the economic process and to reduce or eliminate potential competition, it also allows the parties to save on transaction costs and to improve research or finance their activities in neighboring markets.
