Competition and/or Efficiency: A Review of West German Antimerger Law as a Model for the Proposed Treatment of Efficiency Promotion under Section 7 of the Clayton Act
West German Antimerger Law
under Section 7 of the Clayton Act Competition and/or Efficiency: A Review of West German Antimerger Law as a Model for the Proposed Treatment of Efficiency Promotion
James F. Ponsoldt 0 1
0 This Article is brought to you for free and open access by Northwestern University School of Law Scholarly Commons. It has been accepted for inclusion in Northwestern Journal of International Law & Business by an authorized administrator of Northwestern University School of Law Scholarly Commons
1 James F. Ponsoldt, Christian Westerhausen, Competition and/or Efficiency: A Review of West German Antimerger Law as a Model for the Proposed Treatment of Efficiency Promotion under Section 7 of the Clayton Act , 9 Nw. J. Int'l L. & Bus. 296, 1988-1989
of West German Antimerger Law as a
Model for the Proposed Treatment of
Promotion Under Section 7
of the Clayton Act
James F. Ponsoldt*
Christian Westerhausen **
As many commentators have noted,' the end of Ronald Reagan's
presidency likely will engender a renewed debate concerning the proper
level of government intervention in business integrations.2
* Professor of Law, University of Georgia School of Law; J.D., Harvard Law School, 1972.
** Rechtsferendar; J.D., University of Goettingen, 1984; LL.M., University of Georgia School of
1 See Fox & Sullivan, Antitrust-Retrospectiveand Prospective: Where are We Coming From?
Where are We Going? 62 N.Y.U.L. REV. 936 (1987); Ponsoldt, Introduction to a Retrospective
Examination of Antitrust During the Reagan Administration, 33 ANTITRUST BULL. 201
2 See Tougher Antitrust Stance Expected, N.Y. Times, Apr. 4, 1988, at DI, col. 3
("Enforcement of Antitrust laws is likely to become significantly more aggressive, particularly regarding
mergers, no matter which party wins the White House in November.") The debate will not be limited to
the United States. See generally, Lieberknecht, United States Companiesin ForeignJoint Ventures,
54 ANTITRUST L.J. 1051, 1071-78 (1985). The mega-merger movement has triggered discussions in
past eight years, the number and size of corporate mergers have risen
astronomically.' Such unchallenged mergers have occurred while the
Reagan Administration and the Democrats in the United States
Congress ("Congress") have debated the appropriateness of merger control
laws, both in testimony at oversight hearings and in conflicting proposals
for amending Section 7 of the Clayton Act ("Section 7").4
Although the underlying debate is profoundly political, reflecting
different views of the role of democratic government in regulating wealth
distribution,5 the political debate largely has focused upon narrower
economic and legal questions: whether unrestrained merger activity
presumptively increases the economic efficiency of the merged firms and of
the markets, and, if so, whether such efficiency promotion precludes, or
should preclude, government intervention. The latter question
frequently is subsumed within the assertion that "competition" - the
statutory goal - necessarily is the equivalent of efficiency.6
Germany regarding the possible need to further strengthen the German merger control law,
amended as recently as 1980, possibly leading to the challenge of mergers between large German
firms solely because of the size of the resultant entity. See, Willeke, Fuenf Punktezur
Fusionskontrolle, Frankfurter Allegemeine Zeitung [hereinafter, FAZ] Feb. 17, 1986, at 37, col. 1.
3 See Krattenmaker & Pitofsky, Antitrust Merger Policy and the Reagan Administration, 33
ANTITRUST BULL. 211, 213 (1988). According to W.T. Grimm & Co. (a United States consulting
firm), the total value of merger transactions in 1985 rose to an all-time record level of $179.6 billion,
which was 47% higher than the 1984 record of $122.2 billion. There were 3,000 merger
announcements in 1985, which amounted to an 18% increase over the 2,543 deals in 1984; See 50 Antitrust &
Trade Reg. Rep. (BNA) No. 1257, at 492-93 (March 20, 1986).
4 See, e.g., Oversight Hearingon the Antitrust Division of The Departmentof Justice Before the
Subcommittee on Monopolies and Commercial Law of the House Comm. on the Judiciary, 99th
Cong., 2d Sess. (1986); Compare,H.R. 1515, 99th Cong., 2d Sess. (1985) and H.R. 1075, 99th Cong.,
2d Sess. (1985) with S. 2160, 99th Cong., 2d Sess. (1985) and H.R. Rep. No. 4247, 99th Cong., 2d
Sess. (1986)(Merger Modernization Act of 1986). The conflicting views regarding merger control
have spread to Europe in recent years. See Europe's MergerPlans Called Inadequate,Wall St. J.,
Apr. 11, 1988, at 24, col. 1.
5 See Ponsoldt, Democracy and Capitalism Collide (Letter), N.Y. Times, Jan. 9, 1987, § A. at
26, col. 4; Scalia, The Role of The Judiciaryin Deregulation,55 ANTITRUST L.J. 191 (1986); Lande,
Wealth Transfer as the Original and Primary Concern of Antitrust: The Efficiency Interpretation
Challenged, 34 HASTINGS L.J. 67 (1982); Campbell, The Antitrust Record of the FirstReagan
Administration,64 TEx. L. REV. 353 (1985).
6 Perhaps the best known expression of this view comes from Robert Bork:
A policy of rivalry for its own sake, and in spite of the costs of industrial fragmentation, would
outlaw monopoly no matter how gained. The statute's focus upon the process by which
monopoly is achieved suggests a different value premise. . . 'Competition' may be read as a shorthand
expression, a term of art, designating any state of affairs in which consumer welfare cannot be
increased by moving to an alternative state of affairs through judicial decree.
R. BORK, THE ANTITRUST PARADOX, at 57, 61 (1978). Bork's further equating of consumer
welfare with maximized allocative efficiency and aggregate societal wealth demonstrates an indifference
to wealth distribution between consumers and sellers and between large and small businesses. See,
Lande, supra note 5, at 67, n.2. Bork, in any event, does not deal with the actual legislative history
of the Sherman and Clayton Acts, which recognized "competition" simply to mean business rivalry,
which often was furthered by, in Bork's words, "fragmentation" of the markets. See generally, H.
The Reagan Administration's refusal to challenge mergers, relying
upon an efficiency rationale, has been sharply criticized for intolerably
undermining the existing rule of law.7 Most observers today recognize
that efficiency considerations should play a role in merger enforcement,
particularly as markets have expanded beyond national boundaries.
However, the existing state of the law, developed primarily between 1950
and 1974, regards efficiency as virtually irrelevant.8
The purpose of this Article is to demonstrate the need for legislative
change in the Clayton Act. Such change should be based upon the
merger control legislation enacted in the Federal Republic of Germany
("Germany"), which explicitly recognizes an appropriate role for the
efficiency effects of mergers but, at the same time, often subordinates the
role of efficiency to the quite separate goal of protecting competitive
markets, when those goals conflict. This Article first will briefly summarize
the existing state of United States antimerger law, insofar as Section 7 of
the Clayton Act and its history incorporate efficiency considerations.
The Article then will review the German merger control legislation,
particularly focusing upon the efficiency considerations under Sections
2224a of the Gesetzgegen Wettbewerbsbeschrankungen ("GWB"), and,
finally, will suggest that the German model constitutes an appropriate
compromise between the libertarian and populist extremes in the United
OF MERGER CONTROL LAW
Since merger control law was first introduced in both the United
States' ° and West Germany,"1 opponents of those laws have argued
continuously that the preservation of a competitive process leads to sacrifices
in business efficiency. Only a very large firm can be in the best position
to realize significant efficiencies and to be internationally competitive.
Thus, businessmen have contended that measures to prevent
concentration in the industries of those two nations frustrate the goal of attaining
merger-engendered efficiencies and technological progress.1 2
To a limited extent, the German legislature accepted those
arguments. Under Section 24(3) GWB, firms can rely upon the social
desirability of efficiencies as a defense to an otherwise anticompetitive merger.
Nevertheless, the strict prerequisites for such a defense, and its place in
merger analysis, suggest that the preservation of a competitive structure
is conceived to be the main safeguard for the efficiency-yielding potential
of firms. Sacrificing competition for business efficiency remains the
United States antimerger law lacks such a defense. The law does
not break with the principle of competition and rejects any endorsement
of anticompetitive mergers in order to gain a result which would
otherwise be expected from an unconcentrated market. As one commentator
has stated: "Faced with the choice between promoting cost savings of
firms with economic power and protecting freedom and opportunity of
firms without economic power, the Supreme Court declared that the law
capacities would broaden the supply on markets and, thus, lead to the enhancement of
competition. On the other hand, external expansion results in the acquisition of market shares and
capacities by which the number of independently operating enterprises is reduced and the
competitive pressures are diminished.
The Commission, therefore, suggests a more efficient control of big mergers directed
against the dangers of this kind of concentration. A better accountabilitycould be a first step:
The Federal Cartel Office should be obliged to publish the leading reasons for not challenging a
big merger. Since the presumptive rules
(introduced by the 1980 Amendment to the GWB)
proved to be ineffective, one should think about giving up the intervention criterion of market
domination for a limited group of big mergers.
10 Section 7 of the Clayton Act was enacted in 1914 (Ch. 323, § 7, 38 Stat. 730, 731-32 (1914))
and amended by the Celler-Kefauver Act (Ch. 1184, 64 Stat. 1125 (1950))(codified as amended at 15
U.S.C. § 18 (1982)).
11 The German merger control law was enacted in 1974. Second Amendment to the Law
Against Restraints of Competition of August 4, 1973,  Bundesgesetzblatt I [BGBI.I] 917.
12 See Note, "SubstantiallyTo Lessen Competition... " CurrentProblemsofHorizontalMergers,
68 YALE L.J. 1627, 1654 (1959)(summarizing and discussing earlier complaints against antitrust).
See also J. DIRLAM & A. KAHN, FAIR COMPETITION: THE LAW AND ECONOMICS OF ANTITRUST
POLICY, 10-11 (1954); Fox, The Modernization of Antitrust: A New Equilibrium, 66 CORNELL L.
REV. 1140, 1144 n. 13 (1981)("the 'new' criticism of antitrust is, in fact, not new."). For a summary
of German literature on this topic, see I. SCHMIDT, WETTBEWERBSTHEORIE UND POLITIK, 56-68
favored the latter."' 3 Moreover, a post-merger firm's increased efficiency
has sometimes become the rationale for condemning, rather than
upholding, a merger.
In the early 1970s the economic conditions in both Germany and
the United States began to change dramatically: domestic firms faced
fierce competition from abroad which, in turn, led to high levels of
unemployment. The call for more business efficiency became louder. 4
Despite similar economic problems, the merger control policies of the two
nations began to differ substantially in the methods each employed to
achieve increased efficiency. German merger control law and policy
continued to adhere to the concept of preserving a competitive market
structure conducive to economic rivalry among numerous market
participants, which in turn would lead to productive and allocative
efficiency. In contrast, United States merger control policy, in practice, has
shifted away from this principle and regards increased autonomy of firms
as a superior route to efficiencies. Non-intervention in the marketplace is
preferred over measures which constrain concentration of the
marketplace, regardless of the existing state of the law. Thus, German law and
practice have consistently reflected a compromise between regulation and
non-intervention, while United States practice has deviated radically
from its more interventionist legal premises.
Stated very briefly, the competitive effects examination under
Section 7 is undergoing a change in focus from a structuralistic analysis of
the long-term consequences of an industry's market structure to an
efficiency analysis of the hypothesized short-term effect of a merger on the
industry's output and prices.' 5
The reasons for this shift in United States merger control policy can
be found in a conservative political ideology and its resulting change in
the balance of power among economists.' 6
UNITED STATES MERGER CONTROL LAW: A SUMMARY OF
EFFICIENCY CONCERNS WITHIN SECTION 7 OF THE
Statutory Language of Section 7 of the Clayton Act
The first issue to be examined is whether the actual language of
Section 7 permits the consideration of efficiency gains as a justification for a
merger. The wording alone of Section 7 offers no clear indication. The
provision is broadly phrased to prohibit mergers, or a series of mergers,
which might "substantially lessen competition." In contrast to Sections
22-24a of the German Law Against Restraints of Competition, Section 7
gives no explicit guidance for the analysis of anticompetitive effects
which may result from a merger. 17 Instead, Section 7 leaves the task of
defining the term "substantially to lessen competition" to the courts.
"Competition" can be defined in many ways, and thus the objectives of
Section 7 can be interpreted very differently. Depending upon the
outlook adopted by the particular court, an efficiency defense can be either
permitted or rejected.
Assuming that procompetitive effects18 would actually be achieved
through merger-induced efficiency gains, those effects clearly should
constitute a part of the "anticompetitive effects" analysis required by Section
7. Logic suggests that a procompetitive merger cannot be
anticompetitive.19 However, if evaluation of certain criteria (such as market share
data, the level of concentration, or the existence of barriers to entry) have
led to the conclusion that a merger in a relevant market is
anticompetitive, it is difficult to conceive how the merger still can be justified by
procompetitive effects in the same market. Furthermore, the question
arises whether power gains of a merger in one market can be balanced
against procompetitive effects caused by the same merger in another
The statutory language of Section 7 is ambiguous, neither
compelling nor foreclosing the consideration of efficiencies in merger analysis.
17 Sections 22-24a, Gesetzgegen Wettbewerbsbeschrankungen [GWB] (German Merger Control
Law)(requiring a higher threshold for challenging a merger than does Section 7 of the Clayton Act)
defines market power as a superior market position of an enterprise in relation to its competitors. It
points to certain indicators of the existence of such a position and allows efficiencies justifications
rebutting the presumptive illegality of a merger.
18 Regardless of whether "competition" is defined merely by output restriction (welfare) theory
or understood in a structural sense.
19 Rogers comes to the same conclusion by examining the question whether Section 7 precludes
any substantial lessening of competition caused by a merger or whether the statute is directed to
substantial lessening of competition on balance, and argues the latter. Rogers, The Limited Casefor
An Efficiency Defense in HorizontalMergers, 58 TUL. L. REV. 503, 507-10 (1983).
Consequently, the statute must be examined in conjunction with its
legislative history in order to determine the proper role of efficiency
considerations in merger enforcement.
Congress did not agree on precise standards for the competitive
effects test prescribed by the Clayton Act, but instead left such a
determination to the courts.2 ° It is, therefore, necessary to examine the
congressional concerns which prompted the enactment of the Clayton
Act and the Celler-Kefauver Amendment, 2 and to identify the dominant
values of United States merger control law. The analysis will focus on
whether Congress acknowledged that a merger which leads to a gain in
market power could also enhance the achievement of efficiencies.
CongressionalConcerns Other Than the Promotion
of Economic Efficiency22
Congress' dominant concern, prompting the 1950 Celler-Kefauver
Amendment, was the rising industrial concentration in the United States
economy.2 3 Alarm about the economic, social and political effects of this
change in market structure was the common spirit emerging from the
committee reports and debates. The legislators aimed at dispersing
economic power and viewed competition as a process requiring numerous
participants and decentralization.
The political consequences of the ongoing merger movement were
clearly a major congressional concern: it was feared that the domination
of United States industry by a few corporate giants could lead to
totalitarianism. An over-concentration of economic power in a handful of
corporations would not be tolerated by the public and therefore would
lead to increased government control2. 4
Antitrust law was intended to prevent any firm from having undue
access to the political system.2 5 In this respect the statement by
(one of the co-sponsors of the 1950 Celler-Kefauver
points to the history of cartelization and concentration of
industry in Nazi Germany, arguing that the industrial monopolies
brought Hitler to power and the world into war.26 That statement
exemplifies the way the lack of antitrust law in Germany during the 1930s
served as a negative example, thereby influencing the development of
United States merger control law.
The social implications of high levels of concentration of economic
power were repeatedly addressed in the congressional debates: legislators
lamented that the destiny of the people would be determined by the
decisions of persons who lived far away. 27 Local initiative and civic
responsibility would be diminished.28 Congress preferred a society that was
composed of small, independent, decentralized businesses.2 9
A similar aim of the deconcentration policy favored by the
legislature was the preservation and enlargement of the freedom of business
opportunity. This objective has both economic and non-economic ("pop-.
ulist") implications.3 0 The "chances of the average man to make a place
for himself in business" were to be preserved.3 The individual who
wishes to become an entrepreneur should have free access to the markets;
his chances should not be restricted by barriers to entry. This freedom of
action for the small entrepreneur was to be secured by maintaining a
market structure conducive to competition, by limiting the discretion of
large corporations, and by placing those corporations under the
discipline of the market.3 2
An economic concern, which is evident in the legislative history of
the Clayton Act and the Celler-Kefauver Amendment, is that mergers
which would create or increase market power would lead to
supra-competitive pricing and would directly harm consumers. In contrast, the
promotion of rivalry among numerous firms for a greater share of the
market would "protect consumers from paying artificially high prices." 33
Legislative steps to prevent trends towards economic concentration in
their incipiency were considered the best guarantee against "unfair
exploitation." 34 Put into purely economic terms, Congress wanted to
protect consumers from unfair transfers of wealth from buyers to sellers. 35
The Improvement of Economic Efficiency as a
Evidence of congressional concern with allocative inefficiency
cannot be found in the legislative history of the 1914 Clayton Act nor the
1950 Celler-Kefauver Amendment. 36 The legislators did, however,
discuss the extent to which the antimerger statutes could affect productive
efficiency. 37 The majority in Congress believed that an
anti-concentration policy would enhance corporate efficiency. 38 A possible conflict
between the goals of dispersing economic power and of achieving corporate
efficiency - through mergers generating efficiencies as well as
contribut33 95 CONG. REC. 11506 (1949)(remarks of Rep. Byrne); see also id. at 11493 (remarks of Rep.
34 Id. at 11506 (remarks of Rep. Bennett).
35 Fox states:
While Congress expected all of the people to get the political benefits of a decentralized
economic system, in the sense that decentralization would tend to stave off fascism, socialism and
communism, Congress preferred exploited consumers to exploiting producers and it preferred
profit opportunities for 'new men, new energies, and a new spirit of initiative' to profit
opportunities for entrenched persons or firms with power or leverage.
Fox, supra note 14, at 296 n.104.
36 The implications of the allocative efficiency model should be explored further with respect to
the validity of Oliver Williamson's market power/efficiency theory for merger analysis. At this point
Fox's remarks, supra note 35, should be modified insofar as Congress most probably would have
welcomed the achievement of allocative efficiency as the by-product of the competitive process. In
an earlier article Fox develops this concept of efficiency which is in accord with the legislative
history and precedent: "An environment which is conducive to vigorous rivalry" would also enhance
efficiency and progressiveness. Fox, The Modernization ofAntitrust: A New Equilibrium, 66
CORNELL L. REV.1140, 1154, 1169 (1981).
37 Opponents of the bill lamented a major threat to the efficiency of both large and small firms.
See, e.g., 95 CONG. REC. 11487 (1949)(remarks of Rep. Goodwin).
38 See, e.g., 95 CONG. REC. 11,486 (1949)(remarks of Rep. Celler); id. at 11,493 (remarks of Rep.
Carroll)(stating that free competition "'safeguards... the development of new types of business and
industry"); id. at 11,7
)(remarks of Rep. Yates)(stating that in a concentrated market "big
concerns will adopt a live and let live policy towards each other at the sacrifice of their efficiency and
ing significantly to economic concentration - was not squarely
addressed. One can only speculate whether Congress would have regarded
the achievement of efficiencies as justification for mergers resulting in
market power gains.
As demonstrated above, the legislative record reveals a dominant
concern with the social, political and other non-efficiency economic
effects of the rising industrial concentration in the United States economy.
The principal goal of the antimerger statutes was the dispersion of
economic power. Thus, it can be inferred that Congress in 1950 would not
have been willing to forego its market power concerns in order to
increase corporate efficiency: the legislators were willing to risk efficiency
losses in order to prevent a possible increase in market concentration.
The legislative history suggests a clear inclination to resolve the
abovementioned conflict in favor of a strict antimerger policy, not allowing an
efficiency defense.3 9
Some commentators, however, contend that Congress placed a
significant emphasis on efficiency as a goal of antimerger policy and did not
preclude an efficiency defense," ° that Congress believed that when
efficiency exists, it should weigh in favor of a merger.4 1 However, the
evidence offered to support this contention is not convincing.42 The fact
that efficiency concerns were incorporated into prior legislation in 1941
and 19434 does not reveal a clear legislative intent favoring mergers
which promote efficiencies. Those earlier bills were considered prior to
the influential 1948 Federal Trade Commission report examining the
merger movement in United States industry.44 Congress, confronted
with the report's information, was principally concerned with this
change in market structure. It can reasonably be concluded that
ciency justifications were consciously deleted.45
Furthermore, Congress' intention to permit mergers between
relatively small firms, enabling them to offer increased competition to larger
companies, 46 is not sufficient evidence for the above-mentioned point of
view.47 Section 7 only forbids mergers which would lead to a
"substantial" lessening of competition. Mergers between small companies do not
have such an effect, for they do not result in a firm with a sufficient
degree of market power to threaten competition. Apparently, Congress
merely intended to exempt de minimis mergers.45
Thus, it can be concluded that Congress' dominant concerns in 1950
were the political, social and economic effects of the rising industrial
concentration in United States industry following World War II. The
legislators aimed at the dispersion of economic power in order to preserve a
market structure composed of numerous participants. Any concern for
the achievement of corporate efficiency was secondary. It follows that,
although the conflict between the goals of dispersing economic power
and achieving corporate efficiency was not squarely addressed, Congress
would not have regarded the achievement of efficiencies as justification
for a merger contributing to economic concentration. Indeed, the
legislators were willing to risk efficiency losses in order to prevent a possible
increase in concentration.
The United States Supreme Court's interpretation of the
Congressional purpose of the Clayton Act during the 1960s has been consistent
with the above summary of legislative history.49 Neither Congress nor
the Supreme Court has reversed course with respect to the role of
economic efficiency in United States antimerger law.5"
WEST GERMAN MERGER CONTROL LAW:
SECTIONS 22-24A GWB
To ascertain the role of efficiency considerations and other values in
German merger control law, a different mode of analysis than that
employed in the evaluation of United States merger control law is necessary.
There are two reasons for this. First, the statutory language of Sections
22-24a GWB is much more explicit than Section 7. The legal structure
of the German antimerger statutes and their legislative history clearly
reveal when, and under which conditions, efficiency considerations
should be incorporated into the legal analysis of mergers. The
significance of the judicial decisions lies in interpreting these provisions and
determining their parameters. Second, the role of precedent (stare
decisis) is a unique feature of Anglo-American law and is alien to the
German legal system. In practice, however, the decisions of the German
Bundesgerichtshof ("supreme court") are generally followed by the lower
Section 24(1) GWB and Section 24(3) GWB provide ways to
integrate efficiency justifications into the legal examination of mergers. An
analysis could, therefore, immediately focus on the contents of these two
statutes. This procedure, however, is not advisable. The construction of
these statutes and the assessments of their limits, depends heavily upon
the policy and the goals of German merger control law.
Thus, in the discussion which follows, first the legislative history of
German merger control law will be reviewed in order to gain insight into
the purposes of Sections 22-24a GWB. Then, the role of efficiency
considerations in Sections 24(1) GWB and 24(3) GWB will be examined.
Legislative History and Objectives of German
Merger Control Law
The German merger control law was enacted in 1973 as an
amendment to the Law Against Restraints of Competition.5 2 The antimerger
provisions can be separated into two principal bodies of law: the
ing provisions under Sections 23 and 24a GWB and the substantive
provisions under Sections 22, 23a and 24 GWB. Although this statutory
structure will be surveyed more carefully below, this much shall be stated
here: under section 24(1) GWB, the Cartel Office is empowered to
prohibit mergers which are likely to create or strengthen a
market-dominating position. As under Section 7, the threshold inquiry is directed
toward the effects a merger is likely' to have on competition. United
States law, however, intervenes at a lower degree of competitive impact
than does the German law; namely, when a merger is likely to lessen
competition substantially or will tend to create a monopoly.
There were two fundamental reasons for the enactment of the
German antimerger statutes. First, official inquiries into the concentration of
the German industry had led to a greater awareness of the growing
merger-movement. 3 Additionally, a change in government had
occurred in 1969. The Social Democratic Party ("SPD"), in coalition with
the liberal party ("FDP"), had taken control for the first time in German
post-war history. In his first address to parliament, Chancellor Willy
Brandt announced that the GWB should be modernized and
supplemented by preventive merger control provisions. 4
The final draft of the antimerger law stated that "problem number
one of antitrust policy today is not any more cartelization but
concentration." Concentration was seen to be "dangerous" for both economic and
socio-political reasons. 55 The economic concern was based on a
structure-conduct-performance paradigm: a high level of concentration would
lead to reduced use of competitive parameters and ultimately to bad
performance by the firms in the marketplace, yielding less efficiency and
technical progress. Thus, an unconcentrated market structure was
perceived to be the best guarantor for both higher productive and allocative
efficiency. Furthermore, the socio-political implications of an increased
concentration were envisaged: private economic power could constitute a
threat to a free market economy which ultimately would endanger
political democracy. 56 The principal goal of the legislators was, therefore, the
dispersion of economic power in order to maintain the market structures
which make effective competition possible.
This objective was carried further in the Fourth Amendment to the
Law Against Restraints of Competition of April, 1980, which
strengthened the German merger control law.5 7 Official inquiries by the
Monopolies Commission ("Commission")5 8 into the concentration of the
German industry triggered this development of the law. The
Commission concluded that merger control had been unsuccessful in preventing
certain kinds of market concentration. Furthermore, the controls had
not been sufficiently effective in the case of non-horizontal mergers.59 As
a result, the following provisions were enacted. First, the small
enterprises exemption of section 24(8) GWB was narrowed considerably.
Under the old exemption, mergers involving enterprises with a turnover
of less than 50 million Deutschmarks ("DM") were exempted from
prohibition. The aim of this clause was to enable small and medium-sized
businesses to be sold or to merge at a good price. This profitable
possibility favors small entrepreneurship and would encourage newcomers to
enter such markets.
The exemption, however, turned out to be counter-productive, for
big corporations systematically acquired small and medium-sized
enterprises. Of the 42% of all mergers exempted under section 24(8) GWB in
1978, 85% of those mergers involved corporate giants with a yearly
turnover exceeding DM1 billion.6 0 This development increased the trend
towards concentration in markets composed of small and medium-sized
corporations. Small companies were deterred from staying independent
and competing against their vertically integrated rivals, and many viewed
combining with a strong firm as the only means of survival.6 Thus, the
exemption provided in Section 24(8) GWB no longer applies to those
mergers in which the acquiring enterprise has at least a DM1 billion
and 24(l)) do not directly refer to the socio-political importance of the merged company. The
principal criteria is the creation or enhancement of a market-dominating position.
57 Fourth Amendment to the Law Against Restraints of Competition of April, 1980, 
58 The Monopolies Commission (Monopolkommission) is required by Section 24b GWB to issue
a report on concentration developments in Germany every two years and to give opinions
concerning pending cases. MONOPOLKOMMISSION, HAUPTGUTACHTEN 1973/1975 (Monopolies
Commission, Main Report 1973/1975)(2d ed. 1977); MONOPOLKOMMISSION, HAUPTGUTACHTEN 1976/
1977 (1978); MONOPOLKOMMISSION, HAUPTGUTACHTEN 1978/1979 (1980).
59 The major reason was that the presumptive rule of market domination was based on market
60 MONOPOLKOMMISSION, HAUPTGUTACHTEN 1973/1975, supra note 58, at no. 925.
61 See U. IMMENGA & E. MESTMACKER, supra note 51, at § 23, no. 31, 34; EMMERICH,
KARTELLRECHT, 256 (3d ed. 1979).
turnover and the acquired enterprise's turnover does not exceed DM4
The same concern for small and medium-sized businesses led to the
enactment of Section 23a(l)(1)(a) GWB.6 2 Under that provision, the
creation or strengthening of market domination will be assumed where an
enterprise with a turnover of DM2 billion merges with another enterprise
in a market in which small and medium-sized enterprises have a
twothirds share of the market and the merger would lead to a market share
of at least 5%.
The second presumptive rule enacted in 1980 is Section 23a(l)(1)(b)
GWB and is aimed primarily at better prevention of vertical and
conglomerate concentration: market domination shall be presumed where an
enterprise with a DM2 billion turnover merges with an enterprise which
has a dominant position in one or more markets in which overall
turnover exceeds DM150 million. Between 1973 and 1980, German merger
control was not entirely successful in preventing large enterprises from
acquiring a market-dominating corporation in a market unrelated to the
activities of the acquiring firm. The difficulties can be explained by the
fact that the German merger control policy was mostly geared to market
share data and the degree of concentration in a specific market. The
policy did not sufficiently take into account the negative competitive
effect arising when a leading firm in one market is acquired by a powerful
firm, thereby entrenching the acquired firm's leading position.6 3
The third relevant provision, Section 23a(l)(2) GWB, presumes
market domination when the participating enterprises together have a
DM12 billion turnover and at least two of the combining enterprises each
have a DM1 billion turnover. The legislators were concerned with the
accumulation of such resources because of their influence on the
concentration climate in the country. It was thought that usually these kinds of
so-called "marriages of elephants" would lead to a market dominating
The presumptions of Section 23a GWB, adopted in 1980, seem to
imply a merger policy focused purely on size. Their practical relevance,
however, is limited: once the conditions of these provisions are met, the
Federal Cartel Office ("FCO") can tentatively presume the creation or
strengthening of a market dominating position. After the merging
parties adduce evidence, the FCO must further investigate these factors for
an assessment of the merger's competitive effect. Only when the
investigation leads to a "non liquet" situation (where a doubt remains as to the
merger's competitive effect), does the presumption of market domination
become relevant and attain substantive significance. 65 The presumptive
rules of Section 23a GWB, however, do indicate that the size of a firm's
resources shall play a more significant role in the assessment of the
competitive effects, particularly in the case of vertical and conglomerate
To summarize, the Fourth Amendment to the Law Against
Restraints of Competition of 1980 shows the legislature's concern with the
deterrent effect which mergers involving big enterprises can have on
small entrepreneurship. The increasing amount of vertical and
conglomerate mergers was perceived to be a threat to competition in German
industry. The fight against concentration was therefore strengthened, in
order to preserve a market structure with numerous enterprises
conducive to effective competition, by prohibiting the creation or entrenchment
of market power. A market which protects the ability of smaller firms to
compete will attract new companies and therefore stimulate greater
competition. Thus, German merger control law contains more than a mere
economic dimension. A chief function of its policy, directed towards the
dispersion of economic power, is the protection of the freedom of
The Role of Efficiency Considerations in Section 24(1) GWB
and Section 24(3) GWB
Mergers which lead to efficiency gains are relevant on three different
levels of the legal analysis under Section 24 GWB: first, concerning the
question of whether or not the merger leads to the creation or
reinforcement of a market dominating position (Section 24(1) GWB); second,
concerning the question of whether the merger leads to an improvement
in the conditions of competition which outweighs the disadvantages of
market dominance (the balancing clause in Section 24(1) GWB); and
65 See MOSCHEL, supra note 63, at 551; U. IMMENGA & E. MESTMACKER, supra note 51, § 23
No. 7. But see Baur, The ControlofMergersBetween Large, FinanciallyStrong Firmsin West
Germany, 136 ZErrSCHRIFrFUR DIE GESAMTE STAATSWISSENSCHAFr 444, 454 (1980).
66 "[The statute's] purpose is to secure freedom of competition and to eliminate economic power
where that power impairs the effectiveness of competition, interferes with its tendencies to improve
economic performance and endangers the best protection of consumer interest." Government
Report Accompanying the Bill for a Law Against Restraints of Competition, 21 (1954).
third, in the context of the public interest exemption in Section 24(3)
Efficiencies as Another Basis for Invalidatinga Merger
In German merger control law, efficiency gains play a significant
role in determining whether a merger leads to the creation or
reinforcement of a market-dominating position. However, the fact that the
combination of two companies' resources leads to cost savings is, by itself,
irrelevant in the context of Section 24(1) GWB. The determinative
factor is the impact of these efficiencies on the competitive conditions and
on the structure of the particular market.
This point can be clarified by examining the formulation of the
anticompetitive-effects test put forth in Section 24(1) GWB in connection
with Section 22 GWB. According to these statutes the FCO shall
prohibit a merger if it can be expected that the merger will create or
strengthen a position of market domination. An enterprise or an
oligopolistic group is market-dominating if it is not subject to any substantial
competition or has a superior market position in relation to its
competitors. The latter alternative has become decisive in merger control
enforcement because it constitutes a lower threshold of competitive
restraint and is much easier to prove than the lack of substantial
The "superior market position" test necessitates a comparison
between competitors in a particular market - a firm has market power if it
has a latitude of freedom of conduct in developing its market strategies
and in determining its market behavior.6" Section 22(1) Nr.2 GWB
provides some examples of such market dominance: in addition to the
enterprise's market share, particular regard shall be given to its financial
strength, its access to supply and sales markets, its corporate ties to other
enterprises, as well as to legal or factual barriers to market access for
other enterprises. The significance of these indicators may be influenced
by efficiencies of a firm.
For example, a merger which leads to significant efficiency gains
may increase barriers to entry in the relevant market. Such a result is
possible if the minimum efficiency scale of a firm is raised through the
achievement of economies of scale or if the firm gains absolute cost
advantages, such as technological economies (mostly by sampling patents)
67 Judgment of Feb. 21, 1978, Bundesgerichtshof [BGH] 28 Wirtschaft und Wettbewerb,
Entscheidungssammlung zum Kartellrecht. [WuW/E] 1501, 1507; YUENGST,
MARKTBEHERRSCHUNGSBEGRIFF UEBERRAGENDE MARKSTELLUNG (§ 22(1) NR. 2 GWB) UND DIVERSIFIKATION, 71
or capital cost economies (by gaining better access to financial markets).
It is undisputed that these effects deteriorate the structure of a market
and may - together with other factors such as market share and
concentration indicators - lead to the prohibition of a merger. Small potential
entrants may be deterred from entering the market for fear that the
competitive advantages of the larger firms may be so significant that the small
firms could be driven out of the market. In turn, efficiency-induced cost
savings may grant the larger enterprises additional pricing flexibility with
which to combat potential new entrants.
Particularly obvious is the connection between efficiency gains and a
better access to supply and sales markets. Here, competitive advantages
can be achieved by minimizing transactional costs through economies of
integration (such as may result from the combination of the former
enterprises' distribution networks). These advantages may allow the
merged firm to dominate the market since other non-integrated rivals
will be foreclosed from competing for the merged firm's share of the
relevant market. The number of independent suppliers will decline and lead
to a market structure less conducive to effective competition.
Any other competitive advantage generated by efficiencies of a
merged firm must also be taken into account when evaluating its market
position. The enumeration of factors in Section 22(1) Nr. 2 GWB is not
comprehensive. In addition to financial economies, technological,
management and plant - as well as multi-plant - economies must be
considered.68 All of these advantages may serve to further entrench the
dominant position of an enterprise, or to create such a position, by
discouraging smaller competitors from competing aggressively.6 9
The following decisions of the German supreme court - two
involving horizontal mergers, and three involving product extension
mergers - illustrate the importance of efficiencies in the context of the
anticompetitive effects test in Section 24(1) GWB. A more
comprehensive description of these cases is necessary for a better assessment of the
role this factor plays in the overall examination of whether a
marketdominating position will be created or reinforced by the merger. As
under United States case law relating to Section 7, the German supreme
court has examined the anticompetitive effects of efficiencies in the
context of entrenchment cases: cost advantages gained by an acquired firm
are viewed as anticompetitive when the acquired firm is likely to become
more dominant through its acquisition by a larger, deep pocket buyer.
The Kloeckner-Becorit case involved a merger between two
cers of equipment used in coal mines. The FCO prohibited this merger
under Section 24(1) and Section 24(2)(1) GWB because the resulting
company, Kloeckner-Becorit GmbH, would dominate the market for
hydraulic shaft extension equipment in Germany.7" The court of appeals
affirmed the FCO decision and based its judgment on two structural
factors. First, Kloeckner-Becorit GmbH would have a 42% market share,
which was significantly higher than the 30.7% share of its next strongest
competitor. Second, the merging companies would combine their
technological capabilities in mining engineering, which would enable
Kloeckner-Becorit to enhance its technological innovation, "thereby
satisfying the needs of the consumer to a higher degree."71
On appeal, the supreme court upheld the court of appeals'
contention that technical efficiencies could convey a competitive advantage
upon the merged company.72 Such efficiencies, the supreme court
concluded, should be considered in examining whether a market-dominating
enterprise would be created.73 The supreme court, however, disagreed
with the court of appeals' contention that a dominant market position
could be solely determined on the basis of market shares (being the most
"market related" structural factor), as long as other circumstances did
not exclude a dominant latitude of freedom of conduct.74 The supreme
court held that market share indices did not have such outstanding
significance. Even though the court of appeals had considered the technical
efficiencies generated by the merger, its analysis had placed too great an
emphasis on the market shares. All other significant structural factors
should have been duly considered. Therefore the supreme court reversed
and remanded to the court of appeals for further investigation into these
In the merger case of Muenchener-Anzeigenblaetter,the
advertisement newspaper Muenchener Wochenblatt, a wholly-owned subsidiary
of the national newspaper Sueddeutsche Zeitung, acquired three of its
competitors in Munich. After the FCO prohibited this merger and the
court of appeals affirmed, the case was appealed to the supreme court.75
In 1982 the supreme court held that through its acquisition, the
Muenchener Wochenblatt had achieved a paramount market position, as
defined in Section 22(1) Nr.2 GWB, in three geographic submarkets for
advertisement newspapers in Munich. The creation of such a
marketdominating enterprise, the court determined, should be prohibited in
accordance with Section 24(1) GWB.76 The court's finding was also based,
to some extent, upon the market shares which would be achieved by the
merger. The court stressed that in some cases only the overall
consideration of the factors in Section 22(l)(2) GWB would lead to the assumption
of a market-dominating position.77 Here, the Muenchener Wochenblatt
was backed by the considerable financial strength and the strong position
in the daily newspaper market of its parent corporation. The
Sueddeutsch Zeitung would be able to offer economic and technical assistance
to its subsidiary, such as by providing additional staff or cooperation
with its advertisement department. With the efficiencies achieved
through these shared resources, and the increased market shares
resulting from the acquisitions, the Munchener Wochenblatt would achieve a
paramount position in the market for advertisement newspapers in
Munich, and so the court barred the merger.7 8
In October, 1984, the supreme court considered the Gruner &
JahrZeit case. The publishing house Gruner & Jahr sought to acquire an
interest in Zeit, a highly reputed weekly political newspaper. The FCO
had challenged this merger on three grounds.79 First, the paramount
market position of Stem (published by Gruner & Jahr) in the illustrated
magazines market would be further strengthened. Second, the
marketdominating position of Spiegel (in which Gruner & Jahr held a 24.9%
interest) in the weekly political magazines market would be reinforced.
Both of these contentions were based on the restraints of the remaining
competition that existed because of the overlapping contents of these
publications. The possibility of developing a joint concept would
strengthen their market positions and improve their advertisement
business. Third, the FCO contended that the merger would create a
dominant position for Zeit in the weekly political newspaper market.
The court of appeals reversed the FCO decision on all three
grounds. On appeal, the supreme court8 0 upheld the court of appeals'
judgment concerning the first two issues, but reversed and remanded the
issue of Zeit's dominant market position. Zeit occupied a share of at
least one-third of the market for weekly political newspapers. Even if
that share were presumed not to be market-dominating prior to the
merger, a paramount market position could be created once Zeit was
76 Id. at 1906.
77 Id. at 1908. In two ofthe three geographic submarkets, the new market shares were below the
presumptive threshold of 33 1/3%. Id.
79 Judgment of Jan. 9, 1981, BKartA, 31 WuW/E 1863.
80 Judgment of Oct. 2, 1984, BGH, 35 WuW/E 2112.
combined with Gruner & Jahr's8 ' other publications and resources.8 2
Specifically, the FCO had focused on certain cost advantages which Zeit
would gain after merging with the publishing house, such as better access
to the archives and photo material of the powerful magazine Stern as
well as more efficient administrative services.83 The substitution
competition by the national daily newspapers would affect Zeit, as well as all of
its competitors, in the same way. It was therefore competitively neutral
on the market for weekly political newspapers and could not hinder the
creation of a market-dominating position by Zeit.84
A 1985 conglomerate merger case, Edelstahlbestecks, involved the
takeover of the Wuerttembergische Metallwarenfabrik AG ("WMF")
by the Rheinmetall Beteiligungsgesellschaft ("Rheinmetall"). s5
Rheinmetall is a member of a powerful Roechling-group with ample resources,
which is active in the metal working industry. WMF enjoyed numerous
structural advantages: a market share exceeding 30% for high-grade steel
cutlery, the high market prestige of the WMF brand name, cost-effective
production in the Far East, and a market where the closest competitor
had only one-fourth of the WMF market share. These factors all led the
supreme court to find that WMF was market-dominating.86 Although
the merger did not increase WMF's market share, the court held that the
existing dominant market position would be further secured and
consolidated by Rheinmetall's financial resources.8 7
In a press statement, Rheinmetall had declared its intention to
support WMF and to increase WMF's capital in order to enable it to
expand. After the merger, WMF had in fact stepped up its investments
and announced further investments. The court argued that the
competitors would perceive the new WMF as even more motivated, and
determined, to defend itself against any form of competition than if it
remained independent. Thus, the court concluded, actual and potential
competition would be discouraged, and the merger would lead to a
reinforcement of WMF's market-dominating position and should therefore
The entrenchment-doctrine of the German supreme court was
further enforced by the FCO in the IBH- Wibau case.89 The acquiror, IBH,
was a financially strong producer of construction equipment. With a
high, and steadily increasing, market share, Wibau was considered
market-dominating among asphalt mix producers. Other structural
indicators could not rebut this presumption, for the market competitors lacked
larger financial resources, and the market barriers were relatively high.
The FCO determined that IBH's financial resources, and the improved
access to the selling market resulting from the merger, would strengthen
Wibau's market-dominating position by discouraging actual and
potential competition. Wibau would be able to use IBH's distribution
network, its distribution experience, its knowledge of the market, and client
contracts. These distribution efficiencies would be enhanced by the fact
that the combined production programs of IBH and Wibau would yield
an all-embracing range of products. Once again, the German supreme
court concluded that the efficiencies which would be achieved would lead
to the deterioration of the market structure, and the merger should,
therefore, be invalidated.
In summary, German antimerger statutes, as well as the German
supreme court's interpretation of those statutes, acknowledge that
efficiency gains leading to competitive advantages for a merged firm may
have negative effects on the conditions of competition in a particular
market. In this respect efficiencies can, therefore, be an additional basis
for invalidating a merger.
2. The Balancing Clause in Section 24(1) GWB
Even if a merger is likely to create or strengthen a
market-dominating position, under Section 24(1) GWB, the FCO must nevertheless
approve the transaction if the participating enterprises can prove that the
merger will also improve the conditions of competition, and that those
improvements will outweigh the disadvantages of any potential market
dominance. Before turning to the specific role of efficiency
considerations under Section 24(1) GWB, however, some general remarks
concerning this provision are appropriate.
Usually, an improvement in competitive conditions cannot occur in
the same market in which a merger leads to a dominating position. In
determining whether to prohibit a merger, the FCO is making a
prognosis about the likely future competitive developments which will result
from the merger in the relevant market. If the merger will improve
competitive conditions in this market, a presumption of market dominance
can be avoided. However, the competitive conditions in a dominated
market will be improved only in the case of "failing company" mergers.90
The balancing clause in Section 24(1), thus, was justified primarily
by the argument that mergers which lead to market-dominating positions
frequently have a beneficial effect upon competitive conditions in
different markets.9 The deterioration of competitive conditions caused by the
creation of market domination in the one market must therefore be
balanced against any improvement in competitive conditions in other
markets.92 In contrast, the United States Supreme Court rejected this
concept of "countervailing power" for Clayton Act purposes, while
apparently accepting it as a principle of "Rule of Reason" analysis under
the Sherman Act.93 The competitive conditions balancing clause is
therefore a uniquely German feature of merger control law.
The "competitive conditions" language of Section 24(1) GWB
implies that the FCO may only evaluate aspects of competition in certain
markets, and is prohibited from analyzing the effects of the merger on the
overall economy.94 The latter judgment is made, if at all, upon
application, by the Federal Minister of Economics in the context of Section
24(3) GWB. German merger control law distinguished clearly between
the evaluation of competition by the FCO and of effects upon the public
interest by the Federal Minister of Economics ("the Minister"). The
FCO, nevertheless, has exceeded its scope in many instances and has
considered overall economic policy goals, such as avoidance of
unemployment or improvements in the regional or sectoral economic
Furthermore, the wording of Section 24(1) GWB implies that - as
in the case of the determination of market domination - only structural
factors are relevant. For example, an improvement in the conditions of
competition is only possible if the merger leads to a favorable market
90 See U. IMMENGA & E. MESTMACKER, supra note 51, at § 24, no. 120; MOSCHEL, supra note
63, at § 11. No. 890.
91 Regierungsbegrundung zu dem Entwurf eines Zweiten Gesetzes zur Anderung des GWB,
BTDrucks. V1/2520, at 29.
92 The German legislature has demanded a comparison between two non-comparable factors.
No measures exist for this balancing approach. The judgment of the Federal Cartel Office is
therefore left to its own discretion.
93 United States v. Philadelphia Nat'l Bank, 374 U.S. at 370; Ponsoldt, supra note 39.
94 See MOSCHEL, supra note 63, at § 11, No. 887; U. IMMENGA & E. MESTMACKER, supra note
51, at §24, No. 116.
95 See EMMERICH, supra note 61, at 262, 264; Note, supra note 8, at 616.
structure guaranteeing more competition. 96 Purely internal,
microeconomic, advantages caused by a merger, such as efficiencies,
which enable the firms to enhance their market position should,
therefore, not be considered in the context of Section 24(1) GWB.
Consequently, the achievement of efficiencies at the firm level must have some
impact on the structure of the market, thereby improving the conditions
for competition; such impact, however, is not presumed but must be
proven by the particular facts. Thus, merger-caused efficiencies must
guarantee a more effective rivalry in order to be permitted under Section
The leading case examining the balancing clause is Erdgas
Schwaben. In 1976 the FCO challenged the establishment of a joint venture
between the electricity supply enterprise Lech Elektrizitaetswerke AG
("LEW"), the gas and electric power supplier Aktiengesellschaft fuer
Licht und Kraftversorgung ("LK"), and the City of Augsburg, which
had set up its own gas and electric utility company. The purpose of the
joint venture, named Erdgas Schwaben GmbH ("Erdgas"); was to supply
natural gas to Swabia, a region in the German state of Bavaria. Each
partner received a one-third ownership interest. The FCO prohibited the
merger, 98 claiming that the joint enterprise9 9 would lead to a
strengthening of the dominant market position of LEW in the electricity supply
market in Swabia.1 "° Additionally, a market-dominating position for
Erdgas in the Swabian gas supply market would be created because LEW
and LK would be eliminated as potential competitors. 10 1
The court of appeals affirmed the decision of the FCO,10 2 and the
supreme court agreed that the merger would reinforce LEW's existing
dominant market position in the electricity supply market. 113 LEW
would be able to influence the decisions of the joint venture according to
its own interests, despite owning only one-third of Erdgas.104 As a result,
the powerful electricity supplier would be able to prevent the
construc96 See MOSCHEL, supra note 63, at § 11, at 887; U. IMMENGA & E. MESTMACKER, supra note
61, at 115, 116.
97 Judgment of Dec. 12, 1978, BGH, 29 WuW/E 1533, 1538, 1541 (1978); Judgment of Feb. 18,
1985, BKartA, 35 WuW/E 3469, 3473; Judgment of May 29, 1974, BKartA, 24 WuW/E 1517,
1521; Judgment of Feb. 4, 1974, BKartA, 24 WuW/E 1475, 1481; Judgment of June 8, 1984,
BKartA, 34 WuW/E 2143, 2147.
98 Judgment of Mar. 9, 1976, BkartA, 27 WuW/E 1647.
99 The joint venture was considered a merger according to § 23(2) No.2(a) GWB and § 23(2)(3)
100 BKartA, 27 WuW/E at 1648-49.
101 Id., at 1649-50.
102 Judgment of Mar. 23, 1977, OLG, KG, 28 WuW/E 1895.
103 Judgment of Dec. 12, 1978, BGH, 29 WuW/E 1533.
104 Id. at 1536.
tion of new gas lines, especially during the initial investment phase.10 5
Thus, LEW would be able to hinder the substitution competition
between gas and electricity and could thereby strengthen its own
The court then focused on the balancing clause contained in Section
24(1) GWB. 0 6 The three enterprises had claimed that the planned joint
venture would lead to improvements in competitive conditions because
gas could now enter into substitution competition with fuel oil in the
central heating market. This procompetitive effect, they argued, would
outweigh any anticompetitive effects resulting from their endeavors.
The court held that approval under Section 24(1) GWB can only be
granted if competitive conditions are likely to be better after the merger,
and if a similar improvement in competitive conditions is not likely
without the merger. The merging enterprises had the burden of proving that
no alternatives existed which would have enabled gas to enter into
competition with oil as quickly and effectively as under the planned joint
venture. 0 7
On this point, the FCO had contended that LEW and LK were able
to build a gas utility in Swabia independently. Both companies replied
that the optimal plant size, and the sharing of the high risks, necessary to
assure effective competition with the fuel oil industry, could only be
accomplished by the proposed joint enterprise. 8 The supreme court
concluded that the court of appeals had failed to consider adequately the
parties' contention that the merger would lead to substantial efficiencies.
The three companies had contended that LEW's participation in the
enterprise would improve technical services and customer relationships,
lead to the common use of rights of way, render possible the common
organization of meter reading and customer credit services, and create
further overhead economies.' 0 9 These microeconomic advantages, the
court determined, might actually enable gas to enter into competition
with fuel oil more quickly and effectively than would be the case without
the merger, and the supreme court reversed the court of appeals
judgment. The court stated, however, that on remand, an expert witness
should be called to present evidence on the extent of possible efficiencies
and their future competitive impact. If only the participation of LEW in
the joint venture would lead to an improvement in competitive
condi105 Id. at 1536-38.
106 Id. at 1538-41.
107 Id. at 1540.
108 Id. at 1540-41.
109 Id. at 1541.
tions, "then the court of appeals will have to examine whether the
improvements brought about by this cooperation outweigh its
accompanying disadvantages."' 10
In two earlier cases the FCO had outlined the limits of efficiency
justifications in the context of the Section 24(1) GWB balancing clause.
In the Haindl-Holtzmann case, the FCO prohibited the merger of two
major domestic newsprint producers.' Prior to this proposed merger,
the level of concentration in the German newsprint market was already
sufficient to presume a market-dominating oligopoly as defined in Section
22(3) Nr.2.a. GWB. The merged firm, together with its two remaining
competitors, would control two-thirds of the market. The FCO argued
that the Haindl-Holtzmann company would prevent an expansion of
capacity, thereby further restricting the output of newsprint. Foreign
competition in this market from Scandinavian companies was already
restricted by the European Economic Community-imposed import
duties. Thus, the FCO concluded, the merger amounted to a further
strengthening of this oligopoly's market-dominating position. 12
The newsprint producers had attempted to justify the proposed
merger under the balancing clause of Section 24(1) GWB. They claimed
that the larger merged firm would have better access to capital funds,
yielding more investment resources, and thereby strengthening the firm's
competitiveness. Nevertheless, the FCO determined that while the
combined resources of both firms may cause an improvement in the market
position of the planned firm, the merger would not improve the structure
of the domestic newsprint market. That latter conclusion is decisive in
the Section 24(1) GWB balancing test. Furthermore, the FCO found no
conclusive evidence supporting the companies' contention that without
the merger they would have to exit the market, and that a higher degree
of market concentration would thus occur if the merger were not
In the Bitumen-Verkaufsgesellschaft case, the FCO challenged the
establishment of a joint venture between four large oil refiners to be
known as Bitumen-Verkaufsgesellschaft for the purpose of selling liquid
asphalt." 4 Prior to the planned merger, the largest sellers on the market
for liquid asphalt had a superior market position in relation to their
smaller competitors, with a combined market share of 50%. The parallel
increase in their prices, as well as in their market share, showed that no
substantial competition existed between this group of companies. Thus,
the FCO deemed these enterprises to be market-dominating according to
Section 22(2) GWB." 5 The joint venture would result in another seller
of the same size as the oligopolists and, therefore, lead to a further
strengthening of the market-dominating oligopoly.
The FCO rejected the parties' contention that the joint venture
would lead to improvements in conditions of competition and that these
improvements would outweigh the disadvantages of market dominance.
Although the enterprises had claimed that the establishment of the joint
venture would lead to the achievement of substantial efficiencies, the
FCO determined that efficiency gains at the firm level could only be
taken into consideration in the context of the structure of the market." 16
Consequently, it had to be determined whether the newly created firm
would be able to enter into competition with the companies which had
controlled the market previously, thereby lessening the existing
The FCO saw "no realistic grounds" for supposing such a
development. 1 8 If a new company were added "to the transparent market for
the relatively homogeneous product liquid asphalt, the interdependence
between the equally strong offerors would increase."1'19 Beneficial
market effects accruing from the joint venture, thus, were not probable.
More recently, the FCO applied the supreme court holding in
Erdgas Schwaben to two similar factual situations in the energy supply
market. In Gasversorgung-Schwanewede, the Stadtwerke Bremen AG
("StdW") and the gas utility Gasversorgung Wesermuende GmbH
("GWM") had agreed to establish a joint venture in equal partnership, to
be known as Gasversorgung Schwanewede GmbH ("GV SchW") which
would supply gas to Schwanewede, a small community outside of
Bremen. 2 ° The electric utility Ueberlandwerke Nord Hannover AG
("UNH"), which monopolized the supply of electricity in that town, held
a 50% interest in GWM. The FCO argued that UNH, through its
interest in GWM, would be able to influence the decisions of the planned joint
venture, especially during the opening of the gas supply market, and
would be likely to try to protect itself from the competitive threat of this
alternative energy source by preventing the introduction of gas supply
into certain areas. 12 1 Thus, the potentially remaining competition on the
energy supply market would be restrained, if not eliminated. The
market-dominating position of UNH in the electric supply market in
Schwanewede would consequently be strengthened.
The FCO rejected the parties' argument that the merger would lead
to substitution competition between gas and fuel oil and therefore should
be approved according to Section 24(1) Alt. 2 GWB. 2 2 The utility
companies had not proven that an equal effect was not likely to occur as
quickly and effectively without the joint venture. On the contrary, the
The partners of the planned Gasversorgung Schwanewede were able to
establish a gas supply in Schwanewede independently by taking a normal
entrepreneurial risk [since StdW and GWM operated gas utilities in
neighboring towns without the help of partners]. UNH's and StdW's
intention to minimize the entrepreneurial risk by setting up a joint venture may
make sense from the companies' point of view. These thoughts should
however, not le1a2d3 to the legalization of competitively objectionable effects
from a merger.
Similarly, the case of Thueringer Gas-Westerland involved a joint
venture between the only electric supply utility (Stadtwerke Westerland)
and the only gas supplier (Thueringer Gas AG) on the island of Sylt.
The resulting company (Stadtwerke Westerland GmbH) would have
offered all of the main controlled energy in this geographic market. The
FCO prohibited this merger, for substitution competition between the
two energy sources - gas and electricity - would have been eliminated
and Stadtwerke Westerland's market-dominating position in the
electricity supply market would have been strengthened.' 24 The FCO
emphasized that in a highly concentrated market, only minor further
deteriorations of the market structure justify applying Section 24(1)
In February 1985, the court of appeals reversed the FCO's
decision,12 6 holding that competition between gas and electricity on the
submarkets for central heating, central warm water supply, decentralized
warm water supply, and cooking was either nonexistent or not
substantial. The merger-caused restraint of competition would therefore be
insignificant. 127 On the other hand, the joint venture would have beneficial
effects upon the competitive conditions in the submarket for central
heating. In that market, one fuel oil supplier held an 80% market share. The
merger would enable gas suppliers to enter into competition with fuel oil
suppliers more quickly and effectively than without the merger.128 The
court of appeals based its judgment upon an extensive discussion of the
efficiencies generated by the joint venture and concluded that efficiencies,
"with which an enterprise could challenge its dominant competitor,
should be considered in the context of the balancing clause in Section
24(a) GWB, if one could expect that this increased competitiveness were,
in fact, employed." 129 The court found that the electric utility
Stadtwerke Westerland had prominent access to the consumer, for the
owners of existing houses already had a long-lasting contact with the
company. In addition, builders of new houses would need to select an
energy supplier, and because of that pre-existing relationship, the joint
enterprise would have a better chance to sell gas than an independent gas
supplier. Furthermore, distribution economies were possible because
Stadtwerke Westerland was well-staffed in all parts of the island, and
other overhead economies and administrative synergies would result as
The court conceded that it was "impossible to assess the extent of
these rationalization advantages."' 130 However, according to general
economic experience, the efficiencies would have an appreciable market
effect. Since lively competition was expected in the submarket for central
heating, the companies would make use of their increased
competitiveness, and the joint venture would be better able to enter into competition
with the dominant fuel oil supplier in this market. Therefore, the court
of appeals concluded that the insignificant anticompetitive effects of the
merger were outweighed by its procompetitive effects.
Claims of efficiencies leading to an increased competitiveness also
play a role in the context of so-called catch-up mergers in oligopoly
situations. In several cases the FCO permitted mergers, even though the
presumptive thresholds of illegality were passed, if the merger would reduce
the distance between the merging enterprises and the market leader. The
enforcement agency believed that the resulting, more symmetrical,
oligopoly would constitute an improvement in the conditions of
competition. One illustrative example is the Benteler Niederrheinstahlcase. By
acquiring a 50% share of NRS-Niederrheinstahl GmbH, the Benteler
group obtained the second highest market share, though still falling short
128 Id. at 3473-74.
129 Id. at 3473.
130 Id. at 3474.
of the market leader Mannesmann. The prohibition of this merger would
have led to a further strengthening of Mannesmann's market-dominating
position. Allowing the combined enterprises to catch up with
Mannesmann, thus creating a more balanced market structure, was seen to be
an improvement in the conditions of competition on the particular
market. 13 1
This enforcement practice of the FCO has been heavily criticized, 132
especially by the Monopolies Commission ("the Commission"). 33 The
practice, in effect, legitimizes all mergers creating market positions below
the level of the market leader, and would entail further concentration in
the particular market, since the remaining oligopolists would now aim at
reaching the market leader's market share through a merger, without
having to fear a prohibition order from the FCO. A more concentrated,
narrower oligopoly would increase oligopolistic interdependence and the
chances for collusion between the firms. Catch-up mergers would,
furthermore, impair the competitiveness of the remaining independent
enterprises. This would be detrimental to the conditions of competition
since the remaining oligopolistic competition would be preserved by
The Commission found support for its position in United States
merger control law and enforcement practices.1 34 The Commission
stressed that Section 7 of the Clayton Act is intended to prevent
restraints of trade in their incipiency, and thereby intervenes at a lower
degree of competitive impact than the German antimerger statutes.
Justifications for anticompetitive mergers were not available under United
States law. This comparison would show the general impact of the
FCO's practice on competition policy.
In summary, internal, microeconomic advantages, such as
efficiencies, enhance a merged firm's market position, but they do not
necessarily affect the structure of a market. Therefore, in general, they cannot be
considered within the context of Section 24(1) GWB. However, it has
been shown that the achievement of efficiencies on the firm level can have
a beneficial impact on the structure of a market, thereby leading to the
improvement of competitive conditions in the sense of Section 24(1)
GWB. This demonstrates the ambivalent nature of concentration in
dustries. Both anticompetitive and procompetitive effects can evolve
from this phenomenon and must be given weight in the legal analysis of
The Public Interest Exemption in Section 24(3) GWB
If the FCO has vetoed a merger, a second line of defense is available
to the participating enterprises under Section 24(3) GWB. Upon
application, the Federal Minister of Economics ("the Minister") may permit
the merger, if the restraint of competition is balanced by the overall
economic advantages of the merger, or if the merger is justified by an
overriding public interest. Competitiveness outside Germany should also be
considered. This public interest exemption, however, states that the
authorization may only be granted if the extent of the restraint of
competition does not endanger the principle of the market economy. Insofar as
the restraint of competition by the merger is concerned, the decision of
the FCO is binding. However, the Minister exercises discretion in
determining the weight to be given to those findings in making his
evaluation.13 Overall economic advantages can include the strengthening of
industrial branches important to the economy as a whole and the
achievement of efficiencies from a merger. The most important overall
economic advantage, however, is the preservation of unhealthy or failing
companies. Overriding public interests can be positive social benefits,
such as the preservation of jobs, the promotion of the public health,
military necessity, or other political interests. Nevertheless, the Minister has
intervened in very few cases. In a single case the Minister refused
permission,136 in five others the permission was granted, most with
restrictions or conditions attached to it.137
Section 24(3) GWB, in effect, constitutes a compromise. It pays
tribute to the conservative German legal and political communities
which had prevented the introduction of a merger control law since the
135 See Judgment of Feb. 7, 1978, OLG, 28 WuW/E 1937.
136 Judgment ofJune 26, 1975, Bundesminister Fur Wirtschaft [BWM], 25 WuW/E 149 (1975).
137 The permission was granted in the following cases: (1)in the VEBA/Gelsenberg II merger in
1974, on the basis of assuring Germany's oil supplies, for the enterprises would still be only
mediumsized on the world scale even after the merger, Judgment of Feb. 1, 1974, BWM, 24 WuW/E 147; (2)
in the Babcock/Artos merger in 1976, with the purpose of preserving jobs in economically weak
regions, Judgment of Oct. 17, 1976, BWM, 27 WuW/E 155; (3) in the Rheinstahl Thyssen/Huller
Hille merger in 1977, with a partial authorization, for the purpose of preventing a further loss ofjobs
by saving a failing company and preserving the extraordinary technological potential of Huller, of
great importance for German exports, Judgment of Aug. 1, 1977, BWM, 27 WuW/E 159; (4) in the
VEBA/BP merger for the purpose of protecting the long-term energy supply for Germany,
Judgment of Mar. 5, 1979, BWM, 29 WuW/E 165; (5) in the IBH/Wibau case, for the purpose of
enhancing international competitiveness, Judgment of Dec. 9, 1981, BWM, 32 WuW/E 177.
early 1950s. Especially during those first years of antitrust efforts, the
German industry asserted its historically powerful position 138 in order to
fight any attempt to establish an effective antitrust law, including
measures to prevent concentration in German industry. 139 These forces were
assisted by the conservative Christian Democratic Union party, which
held power until 1969. The primary concern voiced against antimerger
statutes was the possible loss of merger-caused efficiencies. The 1957
report of the Committee for Economic Policy of the German Parliament
expressed a fear that the full development of the tendency towards
optimal plant size could be hindered by a merger policy."4 The addition of
Section 24(3) GWB to the merger control law enacted in 1973
demonstrates that the Social Democratic/Free Democratic party also felt
obliged to make concessions to German industry.
The German legislature has not given competition absolute priority
over other policy considerations. In reference to efficiency considerations
in the context of Section 24(3) GWB, the following can be stated:
generally German merger control law views efficiencies as the result of a free
competitive process. A market composed of a multitude of enterprises
was perceived to be the best guarantee for both higher productive and
allocative efficiency. Section 24(3) GWB, however, acknowledged that a
conflict may exist between the goals of achieving corporate efficiency and
dispersing economic power, in the case of a merger leading to market
domination while also generating significant efficiencies. To a limited
extent, the provision breaks with the principle of freedom of competition
and instrumentalizes mergers in order to achieve a higher degree of
corporate efficiency. For example, an otherwise anticompetitive
concentration process is allowed in order to gain a result which would otherwise be
expected from an unconcentrated market.14 1
138 During the Nazi regime, an actual merging of private and public power in the administration
of cartels had taken place. The industry participated in boycotts and collective discrimination
against outsiders in order to discipline them "inthe public interest." Mestmacker, Competition
Policy and Antitrust: Some Comparative Observations, 136 ZEITSCHRIFT FUR DIE GESAMTE
STAATSWISSENSCHAFrEN 387, 388 (1980).
139 Only pressure from the allies led to the inclusion of merger control provisions into the first
governmental draft of the Law against Restraints of Competition in 19
52. The enacted law in 1957
however, did not include antimerger provisions.
'140SCHRIFrLICHER BERICHT DES AUSSCHUSSES FUR WIRTSCHAFrsPOLITIK UBER DEN
ENTWURF EINE GEsETZEs GEGEN WETTBEWERBSBESCHRANKUNGEN (Report of the Committee
for Economic Policy of the Bundestag) BT-Drucks. 11/3644 at 27.
141 The term "instrumentalization" of anticompetitive practices is used by Immenga and
Moschel. U. IMMENGA, POLITISCHE INSTRUMENTALISIERUNG DE KARTELLRECHTS? (1976);
MosCHEL, supra note 63, at § 11, No. 714. The French merger control law is a good example of an
extended instrumentalization: its public interest approach justifies mergers on competition grounds
or the furtherance ofeconomic and social progress, including international competitiveness. Loi No.
The language and legislative history of Section 24(3) GWB, as well
as the purpose of German merger control law, however, clarify that this
provision can only be applied in a very limited manner. The following
remarks outline these limitations regarding the significance of efficiencies
in the context of 24(3) GWB.
Many of the limitations accruing from the public interest exemption
in Section 24(3) GWB have already been voiced in the legislative
history. The government report accompanying the bill for the Second
Amendment of the Law against Restraints of Competition in 1971142
stated that the criteria of "overall economic advantages" and "overriding
public interest" require in each case, the existence of a general policy
justification for the merger. Authorization should only be granted if
these reasons were of great importance in the particular case, were
proven concretely, and if governmental assistance measures promoting
the competitive system were not possible. It should be remembered that
mergers basically result in long-term solutions that are not reversible.
The wording of the public interest exemption, "overall economic
advantages," like merger-caused efficiencies of the participating enterprises,
cannot justify an otherwise anticompetitive merger." Thus, the
microeconomic advantages must lead to some kind of beneficial
macroeconomic effect. This is undoubtedly the case if, as a result of their
cost savings, the merged enterprises lower prices or if they improve the
quality of their products. The application of Section 24(3) GWB should,
however, not be preconditioned on such conduct, since internal
efficiencies achieved by enterprises are one of the major reasons for
macroeconomic growth in a country: the efficiency of an economy is only
the sum of the efficiencies of the enterprises of which it is composed.'
If the efficiency of an economy is considered to be an overall economic
advantage, this should also apply to the efficiencies achieved at the firm
level. The only qualitative restriction which Section 24(3) GWB requires
77-806, July 19, 1977 , Journal Officiel de la Republique Francaise [J.O.] 3833, La Semaine
Juridique [J.C.P.] III No. 45,979; Decret No. 77-1189, Oct. 25, 1977, J.O. 5223, J.C.P. III No.
142 REGIERUNGSHEGRUNDUNG ZU DEM ENTWURF EINES QWEITEN GESETZES ZUR
ANDERUNG DES GWB, BT Drucks. VI/2520, p. 31.
143 Id.; for almost identical remarks by the Federal Minister of Economics, see VAW/Kaiser,
BWM, 25 WuW/E at 149 (1975).
144 See U. IMMENGA & E. MESTMACKER, supra note 51, at § 24, No. 226; MOSCHEL, supra note
63, at § 11, No. 899; Monopolkommission, Sondergutachten 3, Kaiser VAW 55, 56 (1975).
145 See Knopfle, Gesamtwirtscheftliche Vortele eines Zusammenschlusses und
UberragendesInteresseder Allgemeinheit als Zulassungskriterien,24 WuW 5.
is that the merger leads to real economies in production, procurement or
distribution. Resource savings have to be achieved. Pecuniary
efficiencies, leading to lower costs but not real resource savings, do not
constitute an overall economic advantage. 14 6
Since Section 24(3) GWB requires a macroeconomic relevance of
the particular merger, certain quantitative restrictions are implied: the
microeconomic advantages accruing from the merger must reach a
sufficient level in order to be viewed as "overall economic advantages."
Thus, only significant efficiencies can justify a merger under the public
interest provision.'4 7
Furthermore, the efficiencies must be unique to the merger. This
requires a determination as to whether the efficiency gains can be
achieved without creating competitive problems, such as a takeover by a
firm outside the industry or a takeover by a firm with a small market
share. Additionally, the possibility of internal growth by the enterprises
must be examined. This restrictive precondition of an efficiency
justification under Section 24(3) GWB can be inferred from the wording of the
provision, requiring that the overall economic advantages have to
outweigh the restraint of competition.148
When balancing the anticompetitive consequences of a merger with
any efficiency gains which might constitute an overall economic
advantage, the Federal Minister of Economics must consider that
anticompetitive mergers result in long term detrimental effects on the competitive
process. The resulting disadvantages can permanently affect both
consumers and competitors. In contrast, the microeconomic advantages of
efficiencies may only last for a short period of time. 149
Those principles are illustrated in the "VAW-Kaiser" case. In
December 1974, the FCO struck down a planned merger plan between
Kaiser Aluminum ("Kaiser"), a multinational enterprise active in the
aluminum industry, and VAW, the leading manufacturer of aluminum in
Germany. 150 The merger would have resulted in the reinforcement or
creation of market-dominating positions in several specialized aluminum
markets.' 5 ' Kaiser and VAW argued that the merger would lead to
im146 Pecuniary efficiencies are achieved when large firms pay lower prices for their inputs than
small firms because of their superior bargaining power or credit worthiness.
147 See BWV, 25 Wuw/E at 151; IMMENGA, NationaleFusionskontrolle,Auslandswettbewerb
und die ErhaltungInternationalesWettbewerbsfahigkeit, RIW/AWD, 577, 580 (1981).
148 MOSCHEL, supra note 63, at § 11, No. 900.
149 See MONOPOLKOMMISSION, HAUPTGUTACHEN 1973/1975, supra note 58, at 56.
150 Judgment of Dec. 23, 1974, BKartA, 25 WuW/E 1571.
151 In some ofthese submarkets for aluminum products, the market-dominating position of VAW,
in others, the market-dominating oligopoly on these markets would have been strengthened.
provements in the conditions of competition; since otherwise, both
companies would have to discontinue production and leave those markets.
However, if the merger were consummated, the number of aluminum
product producers would only be reduced by one. The FCO rejected this
argument, because the enterprises had not shown conclusively that both
of them would be forced to exit the markets.
In January 1975, Kaiser and VAW applied to the Minister for
permission to merge under Section 24(3) GWB. The Minister asked the
Commission to give its opinion concerning the case, as provided in
Section 24a(5)(7) GWB. Kaiser and VAW had claimed that operating
efficiencies could be achieved through specializing their plants producing
semi-finished aluminum products. The production facilities could be
modernized and completed by shifting machines.' 52 By bundling the
orders, the productive capacities could be better utilized, resulting in a
decrease of per unit costs. These efficiencies fulfilled the quantitative and
qualitative restrictions of Section 24(3) GWB. The Commission,
therefore, acknowledged that the merger would lead to an overall economic
advantage. The efficiencies could also strengthen the international
competitiveness of Kaiser and VAW, which in turn would benefit the
overriding public interest.153 However, the Commission determined that almost
the same efficiency gains could have been achieved in the field of
semifinished aluminum products by a cooperative venture between the two
companies.' 54 This alternative would have created fewer competition
problems, since a long-term change in the market structure could have
been prevented. Consequently, the resulting efficiencies were not unique
to the merger. The Commission also found that the other positive effects
of the merger, such as securing the jobs in the industry, did not outweigh
the restraints on competition which would result from the merger. 55
In his order of June 1975 the Minister of Economics refused to
consider the job security element since a prognosis on long-term employment
effects of the merger, or its prohibition, were too uncertain, and the
rationalization measures of the companies may nevertheless lead to
dismissals.'5 6 Furthermore, the Minister came to the same conclusions on the
other elements as did the Monopoly Commission, and refused to permit
152 MONOPOLKOMMISSION, SONDERGUTACHTEN 3, 53 (1975).
153 Id. at 71.
154 The claimed economies of scale were, however, rejected by the Commission, for prior to the
merger, Kaiser and VAW had belonged to the largest aluminum producers of the western world. Id.
155 Id. at 72-74.
156 See BWM, 25 Wuw/E at 151-52 (1975).
In summary, although Section 24(3) GWB breaks with the principle
of competition and instrumentalizes anticompetitive mergers in order to
achieve a higher degree of corporate efficiency, several restrictions which
can be derived from the legislative history, the language, and the purpose
of Section 24(3) GWB, diminish the scope of an efficiency defense
available under this provision.
The German legislature has, therefore, acknowledged that effective
competition is the best guarantee for the achievement of productive
efficiency, since it compels rationalizations and, most importantly, compels
the firms to reduce prices and improve the quality of their products. In
contrast, if an anticompetitive merger were allowed on the basis of the
possible efficiencies which might accrue from it, the participating
enterprises might lose their interest in achieving efficiencies and lowering
The value-basis of the United States and the West German merger
control law is very similar. In both countries, the legislatures' dominant
concerns which prompted the enactment of the antimerger statutes were
the political, social and economic effects of a rising concentration in the
respective countries' industries. The principal goal was to disperse
economic power in order to preserve a market structure composed of
numerous participants and to protect the freedom of economic opportunity
for the market participants. In both countries the concern for the
achievement of efficiencies was secondary.
The United States Congress did not squarely address the conflict
between the goals of dispersing economic power and achieving corporate
efficiency through a merger which would contribute significantly to
economic concentration as well as generate efficiencies. In view of the
principal concerns with the effects of concentration, it can, however, be
inferred that Congress would not have regarded the achievement of
efficiencies as justification for an anticompetitive merger. Additionally, the
United States Supreme Court decisions concerning Section 7 of the
Clayton Act have precluded the availability of an efficiency defense under
existing United States merger control law.
In contrast to United States merger control law, the German merger
control law has provided two ways to incorporate efficiency justifications
into the legal analysis of mergers. In both situations, however, the scope
of such an efficiency defense is very limited. In the context of the Section
24(I) GWB balancing clause, purely internal microeconomic advantages,
such as efficiencies, do not constitute an improvement in the conditions
of competition required by this provision. The achievement of
efficiencies at the firm level must have some impact on the structure of the
market in order to be considered under Section 24(1) GWB.
The public interest exemption in Section 24(3) GWB acknowledges
that a conflict may exist between the goals of achieving corporate
efficiency and dispersing economic power. Consequently, the provision
breaks with the principle of competition and allows an efficiency defense.
However, the wording and legislative history of Section 24(3) GWB, as
well as the purpose of German merger control law, severely limit the
number of cases in which possible efficiencies might justify an
anticompetitive merger under this public-interest exemption.
The development of United States merger control law should
borrow from the German experience with its efficiency justifications,
especially with respect to Section 24(3) GWB, and thereby formulate a
legislative compromise between the existing populist and libertarian
extremes. The basis for such a fertilization is the similar approach of both
laws toward prohibiting anticompetitive mergers, and the laws' similar
objectives. However, the discussion of the utility of an efficiency defense
in United States merger control law is strictly de legeferenda,since such
a possibility is not available under Section 7 of the Clayton Act.
13 Fox, supra note 12, at 1142.
14 See Fox , The 1982 Merger Guidelines: When Economistsare Kings , 71 CALIF. L. REV. 281 , 283 ( 1983 ).
15 See Rowe , The Decline of Antitrust and the Delusions of Models: The FaustianPact of Law and Economics, 72 GEO. L.J. 1511 ( 1984 ) (delineating this development).
16 See Sullivan , Antitrust, Microeconomics, and Politics: Reflections on Some Recent Relationships , 68 CALIF. L. REV. 1 , 5 ( 1980 ); see also Fox, supra note 14 , at 283 , 297 .
20 Bok, Section 7 of The Clayton Act and The MergingofLaw and Economics, 74 HARV. L. REV. 226 , 237 ( 1960 ) (pointing to the paucity of remarks concerning the specifics of how the act was to be applied).
21 Ch. 1184 , 64 Stat . 1125 ( 1950 ) (codified as amended at 15 U .S.C. § 18 ( 1982 )).
22 The legislative history of the 1914 Clayton Act and of the 1950 Celler-Kefauver Amendment will dbe jointly taken into account in the following analysis .
23 H.R. REP . No. 1191 , 81st Cong., Ist Sess ., 2 ( 1949 ) ; S. REP . No. 1775 , 81st Cong , 2nd Sess. 3 ( 1950 ).
24 See, e.g., 96 CONG. REC. 16452 ( 1950 ) (remarks of Sen . Kefauver). See also id. at 16 , 503 - 04 (statement of Sen. Aiken); id. at 16 , 446 (remarks of Sen. O'Mahoney). Concerning the political ramifications of high levels of concentration, see the remarks of President Franklin D. Roosevelt in a message to the Congress entitled Message From President Franklin D. Roosevelt to the Congress Transmitting Recommendations Relative to the Strengthening and Enforcement of Antitrust Laws (April 29, 1938 ), reprintedin 4 E. KINTNER, THE LEGISLATIVE HISTORY OF THE FEDERAL ANTI-
39 See Ponsoldt , The Expansion of HorizontalMerger DefensesAfter GeneralDynamics: A Suggested ReconsiderationofSherman Act Principles , 12 Loy. U. CHI. L.J. 361 , 398 ( 1981 ) (calling the efficiency defense a "section seven anomaly" ); Bok, supra note 20, at 307 , 318 . Bok suggests that "perhaps more explicit guidance should be demanded from Congress before adopting an interpretation which could block really important increases in efficiency," yet he does not believe there is a substantial likelihood that efficiencies will be generated by mergers and stresses the alternative avenue of internal expansion open to companies . Id. at 318- 319 . See also Pitofsky, supra note 25 , at 1064.
40 4 P. AREEDA & D. TURNER , ANTITRUST LAW § 941b , § 903 , § 904 ( 1980 ) (demonstrating the limited role of non-economic values in the legislative history ).
41 Muds, The Efficiency Defense underSection 7 of the Clayton Act, 30 CASE W. RES. L. REV . 381 , 402 ( 1980 ).
42 For a comprehensive criticism of Muris's analysis , see Lande, supra note 5 , at 132-33.
43 See S. Doc . No. 35 , 77th Cong., Ist Sess. ( 1941 ); S. 577 , 78th Cong., 1st Sess . ( 1943 ) ; and H.R. 1517 , 78th Cong., 1st Sess . ( 1943 ).
44 FTC, REPORT ON THE MERGER MOVEMENT: A SUMMARY REPORT , 1948 , reprintedin E. KINTNER, supra note 24, at 3436.
45 For a discussion of the difficulty of drawing conclusions from the prior history of unsuccessful bills , see Bok, supra note 20 , at 251; see also Lande, supra note 5 , at 132.
46 See, e.g., 95 CONG. REC. 11488 ( 1949 ) (statement of Rep . Celler) ; H.R. REP . No. 1191 , 81st Cong., 1st Sess. 6-7 ( 1949 ).
47 But see P. AREEDA & D. TURNER , supra note 40, § 904 , at 12-13; Muds, supra note 41, at 399.
48 Lande, supra note 5, at 132.
49 See, e.g., Federal Trade Commission v . Procter and Gamble Co ., 386 U.S. 568 ( 1967 ) ; United States v . Philadelphia National Bank, 374 U.S. 321 , 371 ( 1963 ); See generally E . SULLIVAN, ANTITRUST LAW 630-31 ( 1977 ). In a Section 1 Sherman Act case filed prior to the enactment of Section 7 of the Clayton Act, the Supreme Court disregarded the issue of efficiencies . United States v. U.S. Steel Corp., 251 U.S. 417 , 443 - 44 ( 1919 ). The defendant, United States Steel Corporation, formed by the merging of approximately 180 separate firms, had contended that there was a "necessity for integration, and rescue from the old conditions - from their improvidence and waste of effort; and that, in redress of the conditions, the Corporation was formed, its purpose and effect being 'salvage not monopoly . '" Id. at 443 . For a discussion relating this decision to the new 1984 Merger Guidelines of the United States Department of Justice, see Miller, Notes on the 1984 Merger Guidelines" Clarificationof the Policy or Repeal of the Celler-Kefauver Act?, 29 ANTITRUST BULL . 653 , 659 ( 1984 ).
50 See, e.g., Ford Motor Co. v. United States , 405 U.S. 562 , 569 - 70 ( 1972 ) (Court rejected the efi eiency argument, implying that such a defense had been foreclosed by earlier decisions) . See also 4 E . KINTNER, FEDERAL ANTITRUST LAW , § 34 .13 at 181, § 35 .27 at 233 ( 1984 ).
51 See generally, U. IMMENGA & E. MESTMACKER, GWB-KoMMENTAR ZUM KARTELLGESETZ , § 23 , no. 30 ( 1981 ).
52 Second Amendment to the Law Against Restraints of Competition of August 3 , 1973 , [1973 ] BGBI.I 917. The Law against Restraints of Competition was enacted on July 27, 1957 and became effective on January 1 , 1958 . [1957 ] BGBI.I 1081.
53 See, e.g., KONZENTRATIONSENQUETE , DRUCKSACHEN DF . S DEUTSCHEN BUNDESTAGES [BT-Drucks.] IV 12 , 320 ( 1964 ); Bericht des Bundeskartellamtes ueber seine Taetigkeit im Jahre 1968 (Federal Cartel Office , Annual Report , 1968 ) BT-Drucks . V 14236 ( 1969 ).
54 Verhandlungen d. 6. Deutsche Bundestages , 5 . Sitzung, Stenographischer Bericht October 28 , 1969 , at 23B ( Congressional Record of the Lower House of the 6th Federal German Parliament) .
55 Entwurf eines Zweiten Gesetzes zur Aenderung des GWB, (Draft of the Second Antitrust Law Reform Act of 1973 ), BT-Drucks. VI 12520 ( 1971 ). The identical draft was reintroduced to parliament after the reelection of the SPD-FDP coalition in November 1972 , BT-Drucks. 7 /76, at 16 ( 1973 ).
56 However, the legal criteria for examining the effect of the merger on competition (Sections 22
62 Regierungsbegrundung zu dem Entwurf eines Vierten Gesetzes zur Anderung des GWB , BTDrucks . 8/2136, at 21.
63 MOSCHEL , GESETZGEGEN WETTBEWERBSBESCHRANKUNGEN , 554 ( 1983 ); EMMERICH, supra note 61, at 257; U. IMMENGA & E. MESTMACKER, supra note 61, at § 23, no. 29 .
64 Bericht des Ausschusses fur Wirfscheft zu dem Entwurf eines Vierten Gesetzes zur Anderuug des GWB (Report of the Committee on Economics on the Draft of the Fourth Amendment to the Law against Restraints of Competition) , BT-Drucks. 8/3690 ( 1980 ). 1.
81 As well as the financial resources of Gruner & Jahr's powerful parent corporation , Bertelsmann-Verlag.
82 BGH , 35 WuW/E at 2123-24.
83 BKartA, 31 WuW/E at 1863 .
84 BGH , 35 WuW/E at 2122.
85 Judgment of June 25, 1985 , BGH, 35 WuW/E 2150. The case was appealed to the supreme court after the FCO had challenged the merger . See Judgment of Mar. 4 , 1981 , BkartA, 31 WuW/E 1867, and the Court of Appeals had affirmed that decision . See Judgment of Sept. 9 , 1983 , OLG, 34 WuW/E 3137.
86 BGH , 35 WuW/E 2154-56.
87 Id. at 2156-58 . 3.