OECD Employment Outlook 2019 by OECD

Author:OECD
Language: eng
Format: epub
Tags: employment
Publisher: OECD Publishing
Published: 2019-04-25T00:00:00+00:00

Mergers and anti-competitive conduct

Mergers can also have the effect of increasing employers’ buyer power in the labour market. In fact, if merging firms would together form the dominant buyer in an input market, the merged entity would likely use its buyer power to reduce quantities and prices in that input market, thereby increasing its profits. For this to occur, merging firms do not need to compete in the same downstream product market. For example, in the extreme case in which merging local input buyers sell their products in perfectly competitive markets, such as in markets for homogeneous tradable goods where prices are fixed by world demand and supply (such as markets for raw materials), the merger would not affect downstream product prices. Yet, in this case, the merger may generate significant welfare losses due to its impact in the input market – see e.g. Dobson and Inderst (2007[144]) and Marinescu and Hovenkamp (forthcoming[87]).

More generally, however, the merging firm could potentially pass part of the input price reduction onto downstream output prices, making final consumers gain from the merger, which implies that the welfare gain in the output market could offset the welfare loss in the input market. However, the actual pass-on of the reduction of input prices on downstream output prices will depend on a number of factors, including the degree of competition in the output markets, the degree of bargaining power of input suppliers and the type of outside options available to them – see e.g. Inderst and Shaffer (2008[145]) and Carlton, Israel and Coleman (2014[146]). In particular, worker bargaining power or good outside options for the workers are necessary conditions for a pass-on of any reduction in wages on downstream output prices. But, in the absence of collective bargaining, these conditions are unlikely to hold in many labour markets,71 where workers are capacity constrained – i.e. they cannot indefinitely extend their working time – and have a strong financial dependence on their employer – see e.g. Inderst and Shaffer (2008[145]) and Naidu, Posner and Weyl (forthcoming[78]).

In many jurisdictions, guidelines for antitrust authorities are cautious in considering the effects of mergers on input markets based on their possible effects on prices and quantities in those markets, even when likely effects on the downstream product markets are minor or absent. For example, EU guidelines suggest that the evaluation by antitrust authorities of a merger must be based on its possible effects in the final product market – see e.g. European Commission (2004[147]). In other jurisdictions, merger guidelines are more explicit on the fact mergers between input purchases should be mainly assessed by examining their impact in the relevant input market. For example, the US horizontal merger guidelines explicitly indicate that enforcing agencies should not “evaluate the competitive effects of mergers between competing buyers strictly, or even primarily, on the basis of effects in the downstream markets in which the merging firms sell” (US Department of Justice and Federal Trade Commission, 2010, p. 33[106]). US enforcement authorities and US courts have

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