ZWeR 2006, 139
Economic analysis and judicial review: The CFI on GE/Honeywell
The GE/Honeywell merger prohibition decision raised a wealth of important issues about the economic analysis of mergers – particularly those of a non-horizontal nature. The CFI's judgement on the appeal against this prohibition was keenly anticipated, particularly for its findings on these issues. This article considers how the CFI dealt with evidence and arguments in relation to the questions of dominance and vertical and conglomerate effects.
Contents
- I. Introduction
- 1. Background
- 2. Economics and the CFI's standard of review
- 3. The key economic controversies
- II. Assessment of Dominance
- 1. Introduction
- 2. Market share: measurement and interpretation
- 2.1 What is a meaningful measure of competitive success in a market where orders are lumpy?
- 2.2 How should joint ventures be treated?
- 2.3 How can the engine supplier's success be distinguished from the aircraft manufacturer's?
- 2.4 Conclusion on market shares
- 3. Financial strength and vertical integration (GECAS)
- 3.1 The issues: GECAS's aircraft purchases and financial assistance
- 3.2 The GECAS “share shifting'' effect: the theory
- 3.2.1 Airline level: “seeding''
- 3.2.2 Airframer level: “Archimedean leveraging''
- 3.3 The GECAS effect: evidence
- 3.3.1 “Statistical evidence'' on market shares
- 3.3.2 Examples and internal documents
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- 3.4 Use of “financial strength'' to gain competitive advantage
- 3.4.1 The Boeing 777X campaign
- 3.4.2 The CFI's reasoning
- 3.5 Concluding observations on GECAS and financial strength
- III. The conglomerate and vertical effects of the mergers
- 1. The effect of GECAS and GE Capital on Honeywell's markets
- 2. Bundling
- 2.1 Background
- 2.1.1 Terminology
- 2.1.2 Brief history of the bundling arguments
- 2.2 Bundling: the CFI's assessment
- 2.3 Bundling: conclusion
- 3. Vertical foreclosure
- 3.1 The Commission's vertical foreclosure theory (engine starters)
- 3.2 The CFI's findings on vertical foreclosure
- 4. Conclusion: proving vertical and conglomerate effects
- IV. Concluding thoughts
- 1. The assessment of dominance
- 2. The assessment of vertical and conglomerate effects
- 3. Economic evidence
- *
- *)The author is a Vice President at CRA International in London and acted as an economic adviser to General Electric throughout the administrative procedure in GE/Honeywell and the subsequent proceedings before the Court of First Instance. The views expressed in this article are entirely personal.
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