Competition Policy, Investments and Innovation

Abstract

The European Commission’s ongoing review of the Merger Guidelines comes as Europe seeks to accelerate innovation and bolster firms’ competitiveness. Against this backdrop, the report first examines the relationship between scale and investment in the digital backbone, documenting investment patterns and network performance in Europe and the United States and proposing a methodology for benchmarking telecom operators’ financial sustainability. It then develops an economic framework for identifying when horizontal mergers can raise innovation, distinguishing the roles of within-firm synergies, involuntary spillovers, and contractual technology transfers. Together, the evidence and model offer guidance for merger assessment, emphasizing the role of efficiencies and technology-market arrangements, and encouraging a careful examination of the merits of companies’ efficiency defences.