Estimating post-merger price effects in bidding markets: lessons from GE/Alstom

In September 2015, the European Commission cleared General Electric’s proposed acquisition of Alstom’s power generation business, subject to undertakings, after a Phase II investigation. The transaction reduced the number of major suppliers of heavy duty gas turbines from four to three. As part of its assessment, the Commission estimated the likely price impact of the proposed transaction, taking into account the bidding nature of competition.

In this Brief, we examine the intuition behind the techniques used by the Commission, which we expect it to employ when evaluating future transactions involving bidding markets. Whilst less simplistic, these techniques suffer from similar drawbacks to the price pressure tests which the Commission and other authorities around the world are increasingly employing.