Predictability has been defined as the capacity to make predictions concerning the actions of others that have a high chance of turning out to be correct. With regard to European merger policy, predictability can thus be interpreted as the capacity of a firm willing to merge with another firm to predict the likely reaction of the Commission of the European Community to the notification of a proposed merger. It seems reasonable to assume that no firm handing in a notification enjoys being prohibited from executing a proposed merger since prohibitions entail considerable costs that would otherwise not accrue. If predictability of European merger policy was perfect, this should thus lead to the absence of any prohibitions because prohibitions are costly. Taking Madison’s argument quoted above explicitly into account, one should expect predictability to increase over time as uncertainty regarding the interpretation of legislation by the administration and the courts decreases case-by-case.
Ideally, the relationship between the time passed since new legislation was enacted and the number of cases should thus look like the following graph:
Figure 1:Idealized Development of Prohibitions over TimeThis is, of course, an idealised slope. Changes, even marginal ones, in legislation can cause local bumps just as the inauguration of new personnel that wants to document its tough stance on the issues can. But a curve derived from empirical cases should be at least somewhat reminiscent of the idealised curve. Based on all the cases dealt with by the European Commission during the first twelve years of European merger policy, this is not exactly what factually happened.
The next graph simply shows the number of prohibitions as they occurred over time. True, the number of prohibitions is rather low: only 18 out of 1908 notified cases were prohibited, i.e., a little less than one percent. But there has certainly not been a downward trend in prohibitions, which means that predictability has not increased over the years.
A second aspect regards the time dimension. It was said that the time needed in order to get legal remedies could be crucial for the legal certainty of merger policy. European merger policy used to be hailed for the tough time limits imposed by Regulation 4064/89 that forces the Commission to distinguish between two phases of investigation and that proscribes the Commission to finish the first phase after one month and the second phase after another four months.1 Practitioners have often noted that de facto, the process is not quite as fast because getting all the information that the Commission demands before being willing to open phase I would oftentimes require a number of weeks. But by and large, the decision-making process of DG Competition is a rather fast one.
But what about the case in which the Commission decides to prohibit a merger? In that case, the merging firms can decide to appeal the decision by taking a case to the Court of First Instance (CFI). A decision by the CFI declaring the proposed merger compatible with EU Law will, at least in most cases, only “save” the proposed merger if it does not take years before the CFI decides. Table 1 below contains a list of cases in which the merging firms appealed to the CFI and lists the number of months that passed before the CFI published its decision. The number of companies that have taken their case to the CFI is very low; the “average” is therefore a rather crude indicator for the time-length a firm would have to expect should it decide to take its case to Luxembourg. But actually, the expected time-length might be the single most important reason for the low number of cases actually ending up at the CFI: if some three years pass before a firm can expect to get the “right” decision, the proposed merger might not make sense any more. A long time-span until the decision can therefore mean the de facto absence of legal protection. Although this picture is already pretty gloomy, it is not even the entire picture yet: Even after three years have passed and the CFI has published its decision, legal certainty is not yet achieved because the Commission now has the possibility to appeal the decision by bringing the case to the European Court of Justice. There, the case would supposedly be pending for at least another two years.2
(Source: http://europa.eu.int)
In this section, two rather abstract and academic criteria have been used in order to ascertain the predictability of European merger policy, namely the number of prohibitions that were compared with a stylised curve that should materialise were European merger policy highly predictable and the time needed before a final decision in a merger case could be obtained. But these are criteria used by outside observers who try to make sense of European merger policy. A radically different approach towards learning something about the quality of European merger policy in general and its predictability, more specifically, is to ask those who have first-hand experience with DG Comp. This is exactly what we did.
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