December 12, 2017 / 10:40 AM / a year ago

EU antitrust official sees competition threat if mergers lead to high margins

BRUSSELS (Reuters) - EU regulators are keeping tabs on high profit margins enjoyed by companies that are merging, concerned this may threaten competition, a senior EU antitrust official warned on Tuesday.

European Union flags flutter outside the EU Commission headquarters in Brussels, Belgium, April 20, 2016. REUTERS/Francois Lenoir

The comments by Chief Competition Economist Tommaso Valletti underline current unease among antitrust enforcers on both sides of the Atlantic about whether they have gone too far in allowing a recent wave of mergers and acquisitions. Some have resulted in significant price hikes, to the detriment of consumers.

Some antitrust experts say high profit margins may even discourage companies from developing new and improved products. The contrary view is that industry consolidation is a logical response to shrinking profit margins.

“Margins need to go back very prominently in our analysis. Margins are an essential ingredient,” Valletti told a conference organized by consultancy CRA, citing his analysis of more than 170 industries in the five largest EU countries between 2010 and 2015.

“With respect to antitrust, the upward trend in margins increases the potential for anti-competitive leverage,” he said.

The Commission scuppered TeliaSonera and Telenor’s (TEL.OL) planned merger of their Danish operations in 2015 on concerns of price increases and less innovation.

Valletti said competition enforcers would not hesitate to act in future.

“Merger control matters especially in preventing anti-competitive effects in a world of high margins,” he said, speaking in a personal capacity.

Valletti urged companies to address such concerns before politicians step in and impose measures which may be harsher than those demanded by competition regulators.

“If we do not properly adapt to changing markets, the risk is politics will, in ways we might not approve of,” he said.

Reporting by Foo Yun Chee; Editing by Susan Fenton

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