Why Can Europe Stop an All-American Merger?

Why Can Europe Stop an All-American Merger?

Why Can Europe Stop an All-American Merger?

Answers to your questions about the news.
Sept. 4 2001 6:38 PM

Why Can Europe Stop an All-American Merger?

If Hewlett-Packard acquires Compaq, the combined company would dominate four computermarket categories, which could draw objections from European antitrust authorities. Earlier this year, the European Commission effectively quashed a proposed merger between General Electric and Honeywell. Why do European governments get to tell American companies what to do?

Advertisement

Because if you want to do business in Europe, you have to obey European laws. Just as America's antitrust cops are authorized to regulate American markets, European regulators worry about the European market. For companies like HP and Compaq (or more to the point, GE and Honeywell), that's one cost of doing business in Europe.

For the most part, American and European antitrust regulators share a common approach, especially with regard to horizontal mergers such as the HP-Compaq deal. (Horizontal mergers take place between companies that are on the same level of the supply chain. A vertical merger would be one between, say, Compaq, a PC manufacturer, and Intel, a PC processor manufacturer.) European laws are more hostile to vertical mergers, which is one reason the GE-Honeywell deal fell through. And because there are different standards in the United States and Europe (and elsewhere), the government with the most stringent antitrust laws can end up setting policy for the entire global economy. (That's why many economists think it would be a good idea to harmonize international antitrust laws.)

It's worth noting that this situation works both ways. As New Yorker columnist (and former Moneybox) James Surowiecki pointed out recently, the U.S. Justice Department in the 1990s broke up international cartels in vitamins, lysine, and graphite electrodes.

Advertisement

Explainer thanks Luke Froeb of Vanderbilt University, Gary Hufbauer of the Institute for International Economics, andJamesLangenfeldof LECG, an economics and finance consulting firm.