ChainWhat it assumes · how to break it
Start
The CMA blocks a merger between two large rivals, as it did with the proposed merger of Sainsbury's and Asda in 2019.
1
As a result, the two firms keep competing for the same customers, so the market does not become more concentrated.
market concentration · merger control
market concentration · merger control
Assumes: The firms were close competitors.
But: If the firms served different customers or areas, blocking the merger protects little competition.
2
This means consumers keep more choice of stores and brands, and the firms must compete on price, quality and range to win them.
consumer choice · non-price competition
consumer choice · non-price competition
Assumes: Consumers switch between the rival firms.
But: If many consumers shop at one store out of habit or convenience, rivalry between the firms brings them little gain.
3
Therefore, prices stay lower and consumer surplus higher than if the merger had gone ahead.
consumer surplus
consumer surplus
Best link to attack
Assumes: The merger would not have brought cost savings passed on to consumers.
Assumes: The merger would not have brought cost savings passed on to consumers.
But: Merging firms often argue that buying power and lower costs would let them cut prices; blocking the merger may deny consumers these gains.
End
Consumers keep more choice, lower prices and higher consumer surplus than if the merger had gone ahead.
Evaluation chain
- E1However, the benefit to consumers depends on whether the merger's cost savings would have been passed on as lower prices.
- E2If the merged firm would have gained large purchasing economies from bigger orders with suppliers, and remaining rivals kept up strong competition, then some of those savings would have reached shoppers.
- E3As a result, blocking the merger may keep prices higher than they would otherwise have been.
- E4So blocking a merger protects consumers where cost savings are small or unlikely to be passed on, and may harm them where savings are large and competition from other firms is strong.
Another way to attack it: The CMA must predict how the market will develop; if online or discount rivals grow faster than expected, the merger might have done little harm, so blocking it may be a case of government failure.
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Questions this answers
- Assess the case for the competition authority blocking a merger between two large supermarkets.
- Explain how merger control can protect consumers.
- Discuss whether blocking mergers always benefits consumers.
Diagram
Williamson trade-off diagram: blocking the merger avoids the price rise and deadweight loss, but gives up the cost-saving rectangle from economies of scale.
Reverse and related
Merger allowed → fewer competitors, with prices rising unless cost savings are passed on.