In Germany, abuse control of dominant companies has been embodied in competition law since the Act Against Restraints of Competition (ARC) entered into force in 1958. Incidentally, the competition rules of the European Community came into effect in that same year. Abuse control, together with the general ban on cartels (including restrictive agreements) represents the traditional foundation of German competition law. The instrument of merger control, on the other hand, was introduced in Germany fifteen years later and not until 1990 in the EU. The three main pillars upholding current German competition law are the enforcement of the ban on cartels, along with merger control and abuse control of dominant companies.
The ban on cartels is critically important in Germany because of the development of national competition and the structure of the German economy. Since the nineteenth century, cartel agreements have been widespread in the German economy. However, the ARC sought to end the cartel-related practices, some of which dominated entire industries. Agreements between companies aimed at eliminating competition have been prohibited since 1958 and are punished with substantial fines. Restrictive agreements between competitors are allowed only in exceptional cases and subject to clearly defined criteria.
Merger control was not addressed in the original version of the ARC. However, it was clear at that time that mergers often led to considerable competition problems. The acquisition of another company is often the cheapest and fastest path towards company growth. Merging parties hope to achieve a competitive advantage in terms of turnover—for example, by acquiring additional market shares—and in terms of costs, which they expect to decrease due to synergy produced by the merger.
Mergers do not always lead to success. On the one hand, they can increase the efficiency of a new entity, especially if markets are undergoing change, thus spurring competition. However, one should not rely on the idea that sheer size in the market guarantees entrepreneurial success. Studies show that quite the opposite is true in an excessive number of cases. On the other hand, mergers between competitors may lead to market dominance or a monopoly. When competition is brought to a standstill, consumers are no longer ensured a benefit from increased efficiency.
The aim of merger control is to prevent the creation of dominant positions as a result of mergers and to secure competitive market structures. If this fails, the only recourse is abuse control of dominant companies.
Acquisitions and mergers, Monopolistic competition, China, Germany