Dynamic Competition Analysis in Competition Law: Beyond Slogans

About the workshop

The European Commission’s (Commission) decision to revise the Merger Guidelines comes at a moment when several economic and political developments put pressures on competition authorities worldwide. 
Integrating more dynamic effects analysis into merger control has been put forward as an important dimension of the EU merger reform. 

The concept of ‘dynamic competition’ regroups a number of theories that might be distinguished from the ‘static competition model’. The static approach, to which dynamic competition is often contrasted, traditionally centered on current market shares and short-term price effects. This has been increasingly criticized in the literature for failing to recognize innovation’s pivotal role in shaping long-term market dynamics and consumer welfare. 

Dynamic competition theories, in contrast, emphasize how mergers may influence innovation, future market entry and expansion, and structural changes - effects that are critical in sectors like AI, fintech, and other rapidly innovating industries where disruptive forces and high entry barriers prevail. A common characteristic of these different theories of ‘dynamic competition’ is that they all focus on innovation as a key component of the competitive process.

Dynamic effects can also be said to refer to the long-term impacts of a merger on market innovation, technological progress, entry and expansion, and future competition—not just effects on current market shares or prices. This assessment is crucial in sectors where products are rapidly evolving (e.g. AI tools or fintech), or where entry barriers are high, but R&D is the main competitive driver or where disruptive innovation may be stifled (e.g. in killer acquisitions).

A different, broader than the two previous ones, concept of ‘dynamic’ relates to the analysis of the departure from standard neoclassical price theory models that rely on static partial equilibrium or even general equilibrium thinking and simplify complex, heterogeneous market realities using representative firm or consumer constructs. Other approaches engage with the economic process modelled as a dynamic system of interacting agents taking into account nonlinear dynamics and disruption theory, to uncover the ‘dynamic complexity’ of these interactions and focus not only on the level but also the direction of innovation. For more analysis, see the study of the CLES team here   

The workshop will engage with the meaning and operationalization of dynamic competition in competition law and policy, the different approaches and methodologies put forward in various areas of social sciences focusing on innovation and dynamic competition, and the lessons to be learnt for the drafting of the guidelines and for competition law enforcement. 

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