The Evidence Is In: Europe Doesn’t Need More Consolidation. It Needs More Competition

In a major new report, the most comprehensive review of European merger approvals in decades has found that cleared mergers have, on average, resulted in higher markups and reduced innovation – not just among merging parties, but across entire markets. 

Released by the European Commission earlier this month, the report shows that citation-weighted patenting fell 18% among merging firms and their rivals in the five years post merger. Markups increased by 4% for merging firms and 3% for rivals. It offers a powerful rebuttal to industry claims that mergers deliver more innovation and lower prices through efficiencies and scale. 

The report found that this could not solely be explained by scale efficiencies, since higher markups and reduced innovation occurred among rivals as well – a sign of reduced competition and monopoly power.

“This is pretty damning evidence that the EU’s approach has failed. The Commission’s own study shows that decades of weak enforcement has led to higher prices, stunted innovation and reduced competitiveness. Industry claims that Europe needs more mergers should be treated with the raised eyebrow they deserve” said Research Fellow Claire Lavin from the Open Markets Institute. “Competition, not concentration, drives firms to cut prices, invest in innovation and build a stronger European economy. CEOs and lobbyists representing powerful companies are paid to look out for shareholders and profits, so we shouldn’t be surprised when their pro-merger talking points serve those interests. The Commission must look at the evidence, not talking points. This report points to the need for stricter merger control especially considering the risk for enforcement errors arising from the unpredictable and forward-looking nature of merger review.”

The report’s findings come at a consequential moment: the European Commission is conducting the broadest review of its merger policy in almost two decades. Industry groups are currently lobbying for looser rules, arguing that mergers deliver efficiencies, help to gain scale and allow them to be more competitive. Although some transactions may genuinely bring sufficient benefits that are passed onto consumers, the Commission should only rely on robust and reliable evidence showing efficiencies will materialize. The evidence actually shows that very few mergers lead to tangible benefits, and this latest study confirms that most transactions have had a negative impact on innovation and markups.

As the Commission is due to publish a new version of its Merger Guidelines in the coming weeks, a piece of legislation that will shape merger reviews in the next decade, it must take heed of this robust and importance evidence that confirms the need for stricter and tougher merger enforcement in the future.

The study reviewed nearly 3,800 mergers approved by the European Commission between 1990 and 2024. In that period, the Commission blocked just 33 takeovers. Since December 2019, it has approved over 2,200 mergers and blocked just three. A dozen more were abandoned during scrutiny in that period.

The study also found that the European Commission’s merger remedies – conditions placed on some mergers when greenlighting them – appear to have had no significant impact on innovation, though they did moderate markups. Post merger markups and innovation reductions occurred in both highly concentrated markets and more competitive markets, pointing to a weakness in the current metrics for reviewing merger impact. 

Open Markets Institute has contributed to the Commission’s review of the Merger Guidelines by submitting observations (last year and in June this year) and taking part in public discussions