Competition Markets Authority
Introduction
I have spent much of my career advising businesses on complex mergers. Now, as chair of the CMAs Panel of independent experts, I preside over a process that has had to adapt to considerable changes in markets and in how we think about competition policy. In both roles one thing has been very clear to me the power granted to decision makers to prohibit mergers is considerable and that power has to be exercised with great responsibility. I propose to talk about how we exercise that responsibility, in particular that we do so in a manner that is demonstrably independent, clearly evidence-based, and procedurally fair.
Independence
There are 3 aspects to independence: independence in how we assess mergers; freedom from government intervention and, particularly since Brexit, appropriate cooperation with, but independence from, other global competition authorities.
The UK system is unusual by international standards in that phase 2 decisions are made by independent experts who engage open-mindedly with the cases referred from phase 1. Their background as senior business people, leaders in the professions, academia and consumer advocacy, as well as competition policy, means that they bring strong contextual understanding of issues relevant to modern merger control. This is coupled with a good understanding of merger policy concerns and cutting edge economic and legal thinking, developed at the initial induction, reinforced by a continuous programme of training and knowledge dissemination, and supported by advice from CMA staff, who approach phase 2 without being tied to the phase 1 conclusion. Throughout this process the importance of challenge including challenge to the phase one decision and the views of members of the staff team is hard-wired into the culture of the Panel including through the working methods of individual inquiry groups.
The law requires that at least one member of the Panel must also be a member of the Board. This makes obvious sense given that important aspects of the regime, such as the substantive and procedural guidelines, are agreed by the Board and have to be taken into account by decision-making groups. I make this point because one or two people have suggested that having Panel members on the Board is in some way incompatible with independence. In fact, professionals are perfectly capable of exercising different types of responsibility within complex systems, and there is nothing unusual about decision-makers in specific cases being members of a body that has wider regime-wide responsibilities. For example, serving judges sit on the Sentencing Council which produces binding guidelines on sentencing for the judiciary.
Second, the panel is independent of government. Other than in exceptional public interest cases, there is no role for ministers in merger decisions. I am told by advisers that they are sometimes asked by a client if government lobbying will improve their chances of achieving a successful outcome in the phase 2 process. In my time on the Panel, no minister, official or special adviser has been in touch with group members or staff to seek to influence how a group should decide a merger case. And if this was to ever change, they would be given short shrift. Similarly, media commentaries on mergers are part of what we expect from a free press, but our decision-making is based on the evidence, not media sound bites. A merger party that has confidence in its legal and economic arguments should focus on those rather than wasting everyones time lobbying government which might suggest a lack of confidence in the underlying strength of the case that the CMA has to decide.
Third, the panel is independent of other agencies. We receive different messages concerning international alignment. On occasions we are accused of being too closely aligned with other agencies and at other times we are criticised for not being sufficiently consistent with others. Our position is this. We do not lobby other agencies to achieve a particular outcome and they do not lobby us. We recognise that in many cases parties and the process benefit from coordination with other jurisdictions, and we strive to achieve this where it is possible within the legal framework. This is why we generally seek to align our timing and processes with other agencies to the extent we can, and why we ask merger parties to provide waivers that facilitate the exchange of information with other agencies. But ultimately, we have our own statutory duties: to prevent anti-competitive mergers for the benefit of UK consumers. And where the evidence points to a particular outcome, we shall not hesitate to exercise our responsibilities even if that means diverging from other authorities.
Evidence-based
Mergers regimes are forward looking. We seek to anticipate what would happen in a market if the merger proceeds compared to what might happen if it did not. As with all the CMAs work, our decisions are made on the basis of significant volumes of evidence and data and applying legal and economic principles.
In phase 2 investigations, this exercise is invariably complex. Clearly unproblematic mergers do not usually come to us. Obviously anti-competitive mergers are also the exception. The cases that we normally consider are between these extremes sufficiently likely to give rise to concern to justify an in-depth phase 2 review, but generally not so clearly problematic or irremediable that the advisers and boards of the potential merging parties consider it to be a likely waste of time, money and reputation to take forward.
The analysis of certain mergers in dynamic markets or ecosystems was recently suggested extrajudicially by the President of the Competition Appeal Tribunal to be an exercise in crystal ball gazing or guesswork (footnote 1).
But the fact that an analysis is forward-looking does not mean that it is akin to fortune telling. Our role is not to predict market outcomes but to assess how the transaction would be expected to affect the competitive process in a market. We are seeking to understand how far, and in what way, the merger will affect the incentive of the merger parties and third parties to compete and how that may play out in practice. There is never 100 per cent certainty, and the legal test does not require that there should be. The test requires us to consider whether a substantial lessening of competition is more likely than not a more than 50% likelihood. This involves applying judgement to evidence and data. This is as true in established markets as it is in new and developing markets characterized by dynamic competition. In each case one is considering a range of data and evidence and seeking to draw reasonable conclusions from this as to what is likely to happen if the merger was to proceed.
We regularly consider vast amounts of data, internal documents and other submissions. The volume of evidence has increased significantly over the past few years. It is now common to receive millions of documents from merger parties. As the volume of documents and data has increased, we are now also using artificial intelligence systems to help identify more quickly the most relevant material and patterns within material.
We are sometimes warned by merger parties to be sceptical about comments of third parties such as competitors and customers because third parties have their own commercial axes to grind. We are well aware of this, and we exercise appropriate scepticism. Of course, the main parties also (and quite properly) have commercial positions to defend, and we exercise similar scepticism when considering their arguments. This is why more objective and contemporaneous evidence, untainted by the prospect of the merger, can often be helpful, for example data about how markets have operated in the past and their trajectory for the future, in some cases survey data, and in some cases internal documents of the parties and third parties, for example, emails, internal reports, executive committee minutes and the like, particularly where these predate the planned merger.
One of the benefits of having Panel members who have worked at senior roles in large organisations or as leading advisers to businesses is that they understand the strengths and limitations of putting weight on internal documents. The documents have to be understood in context, they may be prone to exaggeration or understatement, and may be motivated by a desire to promote, or discourage, a particular project or development. We get that and we make judgements on the weight to be given such documents accordingly.
We are also sometimes told that such documents are irrelevant because the views of the CEO or other senior executives trump anything in internal documents, especially if given as part of sworn testimony. Again, we give weight to this, but it is not decisive. CEOs obviously play a very important role in setting commercial strategy but are nevertheless one part of a companys decision-making machinery. Opinions can change as organisational and external circumstances develop, and a particular senior executives predictions can be wrong. If there is a difference in the view of how a business or market may develop between what a CEO says and what may be indicated in internal documents or by other senior stakeholders, including sometimes senior executives of other businesses, we have to assess what the totality of the evidence shows. We consider all this in the round.
A good example of this is the Sabre/Farelogix investigation. At the time, we concluded from Sabres internal documents and likely commercial incentives that, absent the merger, it would have continued to develop its merchandising sol