Definition of concentration in the economy
Definition and fundamentals
In economics, concentration refers to the merger or collaboration of several companies, which has a lasting impact on the distribution of economic power in a market. The aim of a concentration is often to achieve competitive advantages, for example through gains in market share, rationalization effects, or the utilization of synergies. Concentration processes can take horizontal, vertical, or diagonal forms.
An economic concentration can take different forms, including mergers, company takeovers, acquisitions, cooperations, and joint ventures. The term is mainly shaped by antitrust and competition law and is closely related to the control of market power and its effects on competition.
Distinction from related terms
Concentration must be clearly differentiated from the concept of cooperation in the economy. While cooperations target a limited collaboration between companies, a concentration aims at significantly more extensive and lasting unifications of market strategies or corporate structures.
Legal foundations of economic concentration
National law: German antitrust law
The main regulatory framework for the control of economic concentrations in Germany is the Act against Restraints of Competition (GWB). In particular, the regulations on merger control (§§ 35 et seq. GWB) play a central role. The task of merger control is to monitor and, if necessary, prevent mergers between companies, especially where these could significantly impede effective competition.
Circumstances constituting a merger
According to § 37 GWB, a merger is deemed to exist when companies
- unite,
- acquire the ability to exert significant influence over another company, or
- acquire shares associated with a blocking minority.
The foundation of a joint venture can also constitute a merger if this company engages in independent market activities.
Notification and review obligations
- Notification: Mergers must be notified to the Federal Cartel Office when statutory turnover thresholds are exceeded.
- Review: The Federal Cartel Office then examines whether the planned concentration will create or strengthen a dominant market position.
- Prohibition: The authority has the ability to prohibit a concentration if negative competitive effects are to be expected (§ 36 GWB).
- Clearance and conditions: The Federal Cartel Office can also clear mergers or make approval conditional upon requirements and obligations.
European law: EU merger control
The EC Merger Regulation (Regulation (EC) No 139/2004; also: Merger Regulation, ECMR) forms the basis for the assessment of mergers and concentrations at the European level. It applies when the participating companies achieve what is termed a Community-wide turnover threshold.
Jurisdiction and procedure
- European Commission: Responsible for reviewing large, cross-border mergers.
- Unified examination procedure: The Commission examines whether a significant impediment to competition in the internal market is to be expected.
- Decisions: The Commission may clear mergers, impose conditions, or prohibit them.
Development of international law
Beyond national and European regulatory regimes, there are also international developments. Numerous countries have their own systems of merger control. At the same time, increasing efforts are underway to coordinate internationally in order to prevent market distortions in the globalized market. Organizations such as the International Competition Network (ICN) promote the exchange and harmonization of merger control practices worldwide.
Forms of economic concentration
Horizontal concentration
Description of mergers between companies operating at the same market level (e.g., merger of two supermarket chains). The goal is usually to increase market share or rationalize competitive structures.
Vertical concentration
Vertical concentrations encompass companies at different stages of the value chain, such as the acquisition of a supplier by a manufacturer. This form can lead to market foreclosure and presents particular challenges for merger control.
Diagonal (conglomerate) concentration
Conglomerate concentrations link companies from different or complementary markets. They are often motivated by diversification efforts on the part of the participating companies and are generally viewed less critically by competition authorities.
Effects and legal consequences of concentrations
Control and sanctions
If a concentration is implemented without the necessary clearance (so-called ‘gun jumping’), severe sanctions may be imposed. In Germany, the Federal Cartel Office can subsequently order divestiture and impose fines (§ 39 GWB). At the European level, Art. 14 ECMR also provides for substantial fines.
Exceptions and special rules
The GWB contains special provisions for certain markets (e.g., media, energy), where, due to societal interests, additional control mechanisms exist. Exceptional situations may also apply, such as when mergers are approved to secure jobs or in cases of impending insolvency.
Third-party participation and right of complaint
Third parties, such as competitors or consumer organizations, have the right under certain conditions to participate in merger control proceedings or to raise objections. This contributes to transparency and ensures that different interests are considered.
Impact of merger control on market structure
The legal control of concentrations serves to protect competition as a key organizing principle of the social market economy. The goal is to prevent dominant market positions that could disadvantage consumers or other market participants. At the same time, regulatory interventions must remain proportionate so as not to hinder entrepreneurial innovation and efficiency potential.
Summary
Concentrations in the economy are comprehensively regulated by law to prevent the emergence of dominant market structures and protect competition. National and European competition law provide strict requirements and control mechanisms for mergers. Companies must thoroughly examine the legal requirements before entering into any collaboration regarded as an economic concentration in order to avoid violations and resulting sanctions. Merger control remains a central instrument for ensuring fair and open market structures.
Frequently Asked Questions
What legal prerequisites must be met for the notification of an economic concentration under European competition law?
An economic concentration must be notified under the European Union Merger Regulation (Regulation (EC) No 139/2004) when certain turnover thresholds are reached. Specifically, companies are required to notify if the global aggregate turnover of all participating companies exceeds 5 billion euros and the EU-wide turnover of each of at least two involved companies exceeds 250 million euros. However, if more than two-thirds of the EU-wide turnover of all participating companies is generated in one and the same Member State, the national competition authority is generally competent. In addition, mergers are subject to the notification obligation if they permanently result in a change of control, for instance through the acquisition of a majority of voting rights, capital, or through agreements enabling decisive influence. The mere failure to make a proper notification can already result in substantial fines and an order to unwind the merger.
To what extent can an economic concentration be prohibited from an antitrust law perspective?
An economic concentration can be prohibited if it is expected to significantly impede effective competition, especially through the creation or strengthening of a dominant position. Under European law, this assessment is primarily based on market definition, market shares, barriers to market entry, and the economic and financial resources of the companies involved. Furthermore, horizontal (between direct competitors), vertical (between manufacturers and suppliers), and conglomerate (between non-directly competing companies) mergers are assessed differently. In its decision, the European Commission weighs the potential competitive disadvantages (e.g. price increases, less innovation) against efficiency gains, but can impose remedies or completely prohibit the concentration if significant concerns persist.
What is the role of national competition authorities in reviewing concentrations?
National competition authorities, such as the Federal Cartel Office in Germany, are responsible when the specific national statutory turnover thresholds are met or when the concentration does not reach EU-wide significance. These authorities examine cases independently according to national antitrust law, such as the Act against Restraints of Competition (GWB) in Germany. In certain circumstances, the European Commission can refer cases to the national authorities or vice versa; this mechanism is provided for in the European merger control rules (so-called referral under Articles 4, 9, and 22 of the Merger Regulation). National authorities can also review mergers that fall below the EU thresholds but have significant effects on competition in the respective domestic market.
What deadlines apply in the legal context for the notification and examination of a concentration?
The notification of a concentration must take place before the merger is implemented (‘suspensive effect’), known as the ‘standstill obligation’. Once a complete notification has been submitted, the competent competition authority generally has an initial review period (Phase I), which, in the case of the EU Commission, is 25 working days. If no in-depth review is deemed necessary during this period, the merger may be cleared. Otherwise, a main investigation (Phase II) begins, with an additional period of 90 working days, which can be extended in certain exceptional cases. These deadlines must be strictly observed; any violation can have significant legal consequences for the companies involved, including fines or the invalidity of the merger.
What special legal requirements apply to mergers in the financial sector?
Concentrations in the financial sector are often subject to further specific regulatory requirements in addition to general antitrust provisions. For example, the acquisition of significant holdings in banks or insurance companies regularly requires separate approval from the relevant supervisory authorities, such as the Federal Financial Supervisory Authority (BaFin) in Germany. In addition to the assessment of competitive effects, BaFin also examines the reliability and financial strength of the acquirer, anti-money laundering safeguards, and the assurance of proper business management. There are also sector-specific thresholds and reporting obligations that apply independently from general merger control requirements.
What sanctions can be imposed for violations of merger control regulations?
Violations of merger control regulations—in particular, breaches of the standstill obligation or failure to notify when required—can lead to significant sanctions. Both at the EU and national level, substantial fines may be imposed, typically calculated based on the turnover of the companies involved. The European Commission may impose fines of up to 10% of the worldwide annual turnover of the relevant company. In addition to financial sanctions, there is a risk that the merger may have to be reversed, which can have wide-ranging economic and organizational consequences in practice. In severe cases, there is additionally a risk of reputational damage and further civil or criminal consequences.
