Monopolies

As mentioned earlier the MMC can only carry out an investigation where a company has a 25 per cent market share or where two or more companies together having a 25 per cent market share are acting together so as to restrict competition. The DGFT has the duty to keep the UK mar-ket under continuous review and to ascertain the existence of monopoly situations. He decides the priority for refer­ences to the MMC. The Commission looks into the supply of particular goods and services and not into the activities of large companies as such. This means that a large muiti-product firm may be the subject of more than one MMC investigation.

The way in which the MMC works has been criticised for being a much too lengthy process; there is an average interval of about two years between the initial reference and the publication of the MMC's report. The reports have been wide ranging and have provided detailed authoritative accounts of the structure and performance of the firms investigated. They have greatly extended pub­lic knowledge of the way in which the business world con­ducts its affairs.

There has also been criticism because some of the reports and recommendations of the MMC have not been followed by strong legal action by the government. The Secretary of State for Trade has the power to make orders giving legal effect to any recommendations of the MMC, but this power has rarely been used. Even so the reports of MMC have led to substantial changes in business practices. Adverse comments have usually led to voluntary agreements by the firms concerned (in negotiations with the Secretary of State) to modify or abandon the offending practice. The fear of investigation and unwelcome publicity may also have had some beneficial effects on business behaviour.

Over the years the MMC have made a variety of recom­mendations for the control or modification of firms' poli­cies. These have included proposals for price reductions; government supervision of prices, costs and profits; the low­ering of tariffs on competing imports; substantial reductions in advertising arid oilier selling costs, and the prohibition of any further take-overs of competitors.

Mergers

A proposed merger may be referred to the MMC for investigation where it would involve the transfer of gross assets of at least f30 million or where the merger would lead to a monopoly situation (i.e. the control of at least 25 per cent of the market). The Director-General of Fair Trading has the responsibility of keeping himself informed of all merger situations qualifying for possible reference to the MMC. He carries out preliminary investigations and then advises the Secretary of State on whether the proposed merger should be referred to the MMC; only the Secretary of State can refer a proposed merger to the MMC. In fact only a small percentage of mergers have been referred to the MMC and of these about 60 per cent were either found to be against the public interest or were abandoned. The restrain­ing effects of merger control are certainly greater than the official statistics indicate because many merger proposals are dropped after informal consultations with the DGFT

Decisions on merger references are taken on a case by case basis. In deciding whether a proposed merger is likely to operate against the public interest the MMC will take into account such matters as:

(a) the extent to which competition is likely to be reduced;

(b) the possible gains in efficiency from rationalization, economies of scale and better management;

(c) the likely effects on employment;

(d) the possibilities of increased competitiveness in overseas markets;

(e) whether the merger is likely to stimulate innovation and technical progress;

(f) the possible effects on the regional distribution of industry;

(g) the effects on consumers and suppliers: for example a merger might create a large preponderant buyer which would be in a very strong bargaining position if its suppliers were numerous and small.

Until quite recently the official policy on mergers was based on the view that mergers are generally not against the public interest. Current attitudes appear to be more critical and the tendency is for more proposed mergers to be sent to the MMC for their consideration. This change of attitude is largely due to the fact that several recent studies of the effects of mergers have shown that a high proportion (at least 50 per cent) of them have proved unprofitable or much less successful than had been anticipated. One explanation for this may be the fact that the planned gains from mergers often depend upon substantial reorganization of production facilities which may include the closure of some plants with inevitable redundancies. Such changes are likely to meet with strong resistance especially from organized labour and hence may take a long time to carry out. There is also con­cern that many mergers appear to have been motivated by a desire to increase market power (by reducing competition) rather than by a desire to increase efficiency.