MOFCOM Expects To Conduct More Sophisticated Economic Analysis in Review of Merger Control Filings

The MOFCOM’s document submitted to a recent Roundtable on Economic Evidence in Merger Analysis held by the OECD, which was released in July 2012, shows that the MOFCOM appreciates the importance of economic analysis in its review of merger control filings.

According to that document, the economists from the economic division of the MOFCOM’s Anti-monopoly Bureau participate in the entire review procedure of every filing case. After receiving the notification documents filed but before placing a case on its docket, the Anti-monopoly Bureau will have its economists examine those filed documents and advise what issues need to be clarified. At that time the economists’ focus is mainly on market definition and preliminary overview of competitive effects. After placing a case on the docket, the bureau will set up a review team, which includes both lawyers and economists¹. 

In case review, the Anti-monopoly Bureau’s economists apply a variety of economic tools, such as market shares and concentration, unilateral and coordinated effects, entry, efficiencies and failure, in horizontal merger cases, and foreclosure, in non-horizontal merger cases. In some cases, the bureau economists have started using the quantitative tools such as critical loss analysis, diversion ratio, upward pricing pressure, and merger simulation². Critical loss analysis is usually used in market definition. Diversion ratio, upward pricing pressure, and merger simulation are methods used in analysis of unilateral effects. Some of these methods (e.g. simulation) are sophisticated but they can make the competitive effects analysis more robust and accurate.

In some cases, the Anti-monopoly Bureau even uses outside economists. For example, it retained outside economists to conduct the analysis of competitive effects in the recent Western Digital/Hitachi case³ and the Seagate/Samsung case⁴. Besides review of concrete cases, the bureau’s other purpose to use outside economists is to “provide opportunities for the (bureau’s) economists to improve”⁵ their expertise. 

We predict that the Anti-monopoly Bureau will apply more economic analysis in its review of significant merger control cases. In December 2012, at China Competition Policy and Law Annual Conference, Mr. Zheng Wen, Deputy Head of the bureau, announced that one of the bureau’s goals in the near future is accurate analysis of competitive effects. The bureau understands that accurate analysis requires substantial application of quantitative economics methods. Not all cases merit such substantial analysis. For the cases which apparently raise no competition concern, the bureau will adopt a simplified review procedure and conduct quick review, according to Mr. Zheng. Therefore, businesses should expect that simple filing cases will be concluded faster, but significant cases may be reviewed with more quantitative, sophisticated economic analysis.

In order to apply quantitative analysis, the Anti-monopoly Bureau needs sufficient data and information, which it will request from filing firms and other relevant parties. Understanding the economic models and analysis which may be adopted by the bureau will be important for filing firms and their legal counsels. To address the bureau’s concern, filing firms will need to present arguments which should be well-reasoned not only in law but also in economics.

1.  Economic Evidence in Merger Analysis (2011), OECD Policy Roundtables, released on July 27, 2012, page 265.

2. Id.

3. The MOFCOM’s Announcement ((2012) No. 9) regarding Conditional Approval of Western Digital’s Acquisition of Hitachi Global Storage, accessible at http://fldj.mofcom.gov.cn/article/ztxx/201203/20120307993758.shtml.

4. The MOFCOM’s Announcement ((2011) No. 90) regarding Conditional Approval of Seagate Technology’s Acquisition of Samsung Electronics, accessible at http://fldj.mofcom.gov.cn/article/ztxx/201112/20111207874274.shtml.

5. See footnote 1, page 266.