European Commission Releases Draft Merger Guidelines: A Modernized Merger Assessment Framework That Addresses Concerns Of Global Competitiveness

The European Commission (the “Commission”) has published draft Merger Guidelines (the “Draft Guidelines”). The draft represents the most comprehensive modernization of the EU merger control framework in over twenty years.

Notably, the Draft Guidelines combine the 2004 Horizontal Merger Guidelines and the 2008 Non-Horizontal Merger Guidelines into a single, unified effects-based framework (with significant changes).

Spurred in large part by two landmark blueprints for the overhaul of the European economy—Enrico Letta’s report on the future of the Single Market (the ""Letta Report"")[1] and Mario Draghi’s report on the future of European competitiveness (the ""Draghi Report"")[2]—the Draft Guidelines signal a major structural recalibration of EU merger control. Together, these reports argued that Europe's legacy regulatory framework historically prevented EU firms from achieving the cross-border consolidation and industrial scale necessary to compete globally against U.S. and Chinese conglomerates. In response to this twin political mandate to integrate a broader competitiveness, sustainability, and supply chain resilience agenda into antitrust enforcement, the Draft Guidelines introduce several significant modifications to how the Commission evaluates market power, innovation, and transaction benefits:

• Integration of a ""Theory of Benefit"": In a departure from historical practice that viewed efficiency claims with deep skepticism, the Commission has elevated the role of transaction efficiencies. Merging parties are encouraged to articulate a formal “theory of benefit,” placing pro-competitive efficiencies on a more equal analytical footing with potential theories of harm.
• Establishment of an ""Innovation Shield"": To address persistent concerns regarding ""killer acquisitions"" while protecting non-problematic transactions, the Draft Guidelines introduce an ""innovation shield"" that provides a clearer, low-risk pathway for acquisitions involving start-ups and small innovative companies under specific market thresholds.
• Broader Parameters of Competition: The framework expands the traditional focus on price and output to formally include non-price parameters such as innovation, investment, labor market monopsony power, privacy, sustainability, and supply chain resilience.
• Codification of Digital Ecosystem and Entrenchment Theories: Reflecting a decade of evolving enforcement practice in the technology sector, the Draft Guidelines formalize theories of harm centered on ecosystem leverage, data accumulation, and the ""dynamic entrenchment"" of a dominant position.

The Commission expects to publish a finalized text taking account of consultation responses, with formal adoption anticipated in late 2026 or early 2027. However, consistent with past practice, parties should expect the Commission’s case teams to begin reflecting this updated analytical framework in ongoing pre-notification and Phase I reviews immediately.

A Unified Framework Incorporating Scale, Resilience, and Dynamic Effects

Historically, EU merger policy evaluated horizontal and vertical relationships under separate guidelines, often adhering to static indicators of market power. The Draft Guidelines abandon this division in favor of a single framework, structured around specific direct and dynamic anticompetitive effects.

Significantly, the Draft Guidelines introduce an expanded definition of Market Power. It is no longer evaluated purely through pricing power, but is formally defined as the ""ability of one or more firms to profitably maintain prices above competitive levels or to reduce quality, choice, capacity, output, investment, innovation, privacy, sustainability or resilience below competitive levels for a period of time.""

To operationalize this, the Commission establishes five market share bands to gauge market concentration:

• Low: Combined market share under 10%.
• Moderate: 10% to 25% (establishing a standalone horizontal safe harbor baseline).
• Material: 25% to 40%.
• High: 40% to 50%.
• Very High: 50% or more.

Transactions falling within the Low and Moderate bands will benefit from an administrative presumption of compatibility, signaling an expedited path to clearance. Conversely, crossing into the Material or High bands serves as an automatic evidentiary trigger: it establishes a preliminary presumption of market power, shifting the burden onto the merging parties to proactively demonstrate—through the newly formalized ""Theory of Benefit""—that the transaction will not result in horizontal, vertical, or ecosystem foreclosure. The Very High band (50% or more) triggers an explicit legal presumption of market dominance. For these transactions, the evidentiary burden on the parties becomes heavy, as the Commission operates under the baseline assumption that the merged entity possesses the structural capacity to act independently of competitive constraints.

The Draft Guidelines operationalize the core thesis advanced by the Letta and Draghi Reports: EU merger control must not inadvertently block European firms from achieving necessary industrial scale. The text explicitly notes that scale-enhancing mergers combining complementary activities—particularly cross-border consolidation within the Single Market that addresses supply chain vulnerabilities, defense readiness, or green technology—can be highly pro-competitive. However, this openness to ""scale"" is balanced by stricter tools targeting dominant firms. The Draft Guidelines formalize a ""dynamic foreclosure"" theory of harm, allowing the Commission to intervene in cases where a merger may gradually weaken rivals over a longer time horizon by depriving them of critical scale, data, or network effects. This theory falls outside of the “ability, incentive, effect” framework that has largely governed the evaluation of non-horizontal mergers over the last 20-30 years.

Elevating Efficiencies to a Standalone Defensive Tool

While the legal standard under the EU Merger Regulation remains unchanged, the Draft Guidelines indicate a greater willingness to engage with efficiency arguments if they are raised early and documented thoroughly. Under the new “theory of benefit” framework, the Commission will consider not just short-term cost savings, but dynamic efficiencies related to long-term innovation and investment. Crucially, the text notes that the Commission may consider qualitative evidence on an equal footing with quantitative models, recognizing that policy-driven benefits (such as sustainability or resilience) may not be readily subject to precise mathematical quantification. However, the burden remains strictly on the merging parties to demonstrate that these benefits are verifiable, merger-specific, and timely passed on to consumers.

The Core Theories of Anticompetitive Harm

Rather than dividing concentrations into rigid horizontal or vertical categories, the Draft Guidelines analyze transaction effects across universal, cross-cutting tests. The Commission identifies nine distinct theories of anticompetitive harm:

1. Loss of Head-to-Head Competition: This applies when a transaction removes an actual, direct competitor that exerts a significant competitive constraint on the merging parties. The Commission will look past static market shares to evaluate factors such as the closeness of rivalry and whether the transaction eliminates an ""important competitive force.""
2. Loss of Investment and Expansion Competition: This theory targets concentrations in markets characterized by high capital intensity or physical footprints where firms primarily compete through capacity deployment or network growth. The analysis focuses on whether a transaction reduces the merged entity’s independent incentive or economic pressure to expand or upgrade its infrastructure.
3. Loss of Innovation Competition: This framework addresses transactions that either terminate specific pipeline project overlaps or broadly reduce a firm’s structural incentive and capability to pursue long-term R&D. It codifies scrutiny against acquisitions where a transaction might cannibalize existing profitable sales, thereby stalling the commercialization of competing pipelines.
4. Loss of Potential Competition: This harm arises when an incumbent with market power acquires a firm that, despite not yet being active in the relevant market, already exerts a significant competitive constraint or is highly likely to enter and constrain the market in the foreseeable future. A violation may be found if no other or only a few potential competitors exist to sufficiently discipline the incumbent post-merger.
5. Foreclosure (Input, Customer, and Diagonal Effects): This test evaluates whether the integrated firm has the ability and economic incentive to disrupt competition by degrading rivals' access to necessary inputs or downstream customer networks. The Commission expands this framework to include leveraging strategies and ""diagonal"" constraints where a transaction harms a competitor's viability by altering bargaining leverage or inflating access costs.
6. Entrenchment of a Dominant Position: Focused heavily on market contestability, this theory examines whether an acquisition structurally erects or reinforces barriers to entry, even in the absence of traditional horizontal or vertical overlaps. This typically targets transactions that deepen customer lock-in or expand digital ecosystems to neutralize emerging competitive threats before they can scale.
7. Coordination: The Draft Guidelines update the criteria for assessing whether a transaction increases the risk of explicit or tacit collusion among remaining market participants. The Commission will scrutinize whether the merger eliminates a disruptive firm that historically destabilized market alignment or whether the transaction makes existing coordination significantly more stable.
8. Information Access and Competitive Exploitation:This theory covers structural distortions arising when an integrated entity gains access to a rival’s commercially sensitive data (e.g., through a vertical or platform relationship). The Commission analyzes whether the merged firm can exploit this data to anticipate rivals' strategies, degrade downstream competition, or facilitate broader market coordination.
9. Portfolio Effects and Conglomerate Bundling:This framework addresses transactions where combining non-substitute, non-complementary products across separate product lines increases the merged firm's overall multimarket power. The Commission evaluates whether the entity has the ability and incentive to engage in bundling or tying practices that exclude standalone competitors and harm consumers.

Transatlantic Divergence: The EC Draft Guidelines vs. The 2023 US Merger Guidelines

For multi-jurisdictional transactions, the alignment of regulatory timelines must be matched by an understanding of divergent analytical frameworks. While both the EC Draft Guidelines and the 2023 US Merger Guidelines expand enforcement into digital ecosystems, innovation, and labor monopsony power, they establish distinctly different legal pathways for reviewing concentrations:

• Structural Presumptions vs. Dynamic Effects: The 2023 US Merger Guidelines lean heavily into rigid structural presumptions, lower the Herfindahl-Hirschman Index (HHI) threshold for a ""highly concentrated market"" to 1,800, and presume a transaction is illegal if it shifts the HHI by more than 100. Conversely, the EC Draft Guidelines move away from structural silos, utilizing HHI bands as mere preliminary screens while structuring the primary competitive inquiry around multimarket effects, asset access, and long-term infrastructure incentives.
  • Market Definition Necessity: The 2023 U.S. Guidelines declare that direct evidence of competitive harm can reduce or eliminate the need for a highly precise market definition, transforming it from a strict legal hurdle into an analytical tool. The EC framework maintains market definition as a fundamental legal prerequisite under the EU Merger Regulation, drawing on the principles articulated in the EC Notice on Market Definition, adapting it to dynamic digital platforms through the use of flexible share bands (ranging from Low to Very High).
  • Theories of Violation vs. Integrated Framework: The U.S. framework employs a series of discrete standalone Guidelines (Guidelines 1 through 11) representing isolated theories of violation into which case teams attempt to pigeonhole a transaction. In contrast, the EC completely collapses the traditional silos between horizontal and non-horizontal mergers into an integrated framework organized strictly around a transaction's ""direct"" versus long-term ""dynamic"" effects.
• The Treatment of Efficiencies and Benefits: The most profound conceptual gap lies in the defensive availability of transaction efficiencies. The U.S. Guidelines treat efficiency arguments with severe skepticism, maintaining an exceptionally high evidentiary bar and reminding parties that the Supreme Court historically held that ""possible economies cannot be used as a defense to illegality."" In stark contrast, the EC Draft Guidelines formalize a distinct ""theory of benefit,"" inviting parties to present qualitative and structural efficiencies on an equal analytical footing with the Commission's theories of harm.
  • Geopolitical Objectives and Global Scale: The U.S. Guidelines focus entirely on protecting domestic market structures and protecting labor against employer monopsony, maintaining an enforcement baseline agnostic to trade policies. Conversely, the EC draft weaves in macroeconomic considerations, signaling a distinct receptivity to transactions that achieve the industrial scale, investment capacity, and supply chain resilience required to compete globally, provided domestic competition is preserved.
• Ecosystem and Platform Theories: While both sets of guidelines formalize ecosystem economics, they take different operational tracks. The U.S. Guidelines emphasize structural ""entrenchment or extension of a dominant position"" via exclusionary conduct or the accumulation of adjacent platform capabilities. The EC guidelines expand this logic further into ""diagonal foreclosure"" and asset interoperability, looking specifically at whether a transaction creates a structural barrier by controlling non-substitute, non‑complementary data assets across separate digital pipelines.
• Algorithmic and Automated Coordination: The two frameworks diverge sharply in how they anticipate automated or technology-enabled market collusion:
  • AI and Pricing Engines: While the U.S. framework continues to evaluate coordinated effects through traditional structural factors (such as market transparency, firm histories, and homogeneous products), the EC explicitly modernizes its coordinated effects toolkit. The Draft Guidelines introduce novel theories targeting AI and pricing algorithms, allowing the Commission to challenge mergers that concentrate data assets or pricing engines in ways that facilitate automated market alignment or tacit algorithmic collusion—even in the absence of explicit human agreements or communication.

Implications for Transaction Parties

The Draft Guidelines represent both an opportunity and an added layer of complexity for cross-border M&A. While they provide a wider repertoire of arguments to justify consolidation, they will simultaneously subject transactions to broader information requests and investigations regarding non-price factors. We suggest that companies and deal teams currently planning or executing transactions subject to EU merger review consider the following:

1. Develop a ""Theory of Benefit"" Concurrently with the Deal Rationale: Efficiencies can no longer be assembled reactively during a Phase II investigation. Parties must curate an evidence-based narrative early in the transaction-planning process, ensuring that strategic rationales and internal ordinary-course documents are aligned with the transaction’s claimed efficiencies from the outset.
2. Anticipate Non-Price Document Requests: Deal teams should expect case teams to probe beyond traditional market share metrics. Internal documents and data relating to R&D pipelines, data asset accumulation, privacy policies, and labor agreements will face increased scrutiny, particularly in the digital, life sciences, and defense sectors.
3. Screen for Labor Market and Minority Shareholding Risks: In line with broader international trends, the Draft Guidelines emphasize evaluating whether a transaction creates anticompetitive monopsony power over specialized workforces. Additionally, standard concentration measures may be adjusted upward if the merging firms hold non-controlling minority stakes or share common institutional ownership with competitors.
4. Prepare for Divergent Outcomes in Multi-Jurisdictional Clearances: Cross-border deal teams must abandon the assumption that a single, unified economic analysis will satisfy both U.S. and EU regulators. Because the 2023 U.S. Merger Guidelines lean on strict structural presumptions while the EC Draft Guidelines utilize a more fluid, effects-based framework, a transaction could easily clear one jurisdiction while triggering an extensive Phase II review in the other. Litigating or settling on one side of the Atlantic will no longer guarantee a clear path on the other, meaning regulatory cooperation and risk-allocation provisions in merger agreements must be structured with explicit, jurisdiction-specific flexibility.
5. Establish Stricter Ordinary-Course ""Document Hygiene"" for Long-Term Planning: Given the EC’s explicit focus on non-price competition parameters—such as sustainability, supply chain resilience, and labor market impact—internal corporate documents will be evaluated under an entirely new lens. Strategic planning documents, board presentations, and even internal emails that casually discuss ""labor efficiencies,"" ""stabilizing capacity,"" or ""consolidating data assets"" can be weaponized by case teams to build theories of labor monopsony or ecosystem entrenchment. Companies should implement rigorous training to ensure that ordinary-course documents accurately reflect pro-competitive motivations rather than an intent to insulate a firm from market entry.
6. Create a Standalone ""Innovation Defense"" Strategy for Nascent Acquisitions: If a transaction involves the acquisition of a start-up or an early-stage firm with a strong pipeline but little current market share, parties must aggressively document why the transaction falls outside the scope of a ""killer acquisition."" This involves building a defensive file that demonstrates either: (a) the target’s R&D path requires the acquirer’s unique industrial scale to survive; or (b) the transaction meets the strict criteria of the EC’s new ""innovation shield."" Waiting until the Commission issues a formal request for information regarding pipelines will leave the parties playing a reactive defense against an assumed innovation loss.
7. Re-Evaluate Minority Stakes and Common Ownership Profiles: Prior to entering a transaction, merging entities must audit not only their own structural overlaps but also the investment profiles of their major institutional shareholders. Under the new EC framework’s focus on common ownership, the Commission is demonstrating an intent to examine whether shared minority investors across competing firms soften the incentive to compete aggressively. Deal teams must perform a pre-signing census of their capitalization tables to identify whether overlapping passive or institutional holdings could inflate standard concentration screens or serve as an independent hook for a coordinated‑effects inquiry.

Conclusion: A New Era of Geopolitical Antitrust

The Draft Guidelines represent a profound structural and philosophical realignment of EU merger control policy. Dismantling the traditional, longstanding silos between horizontal and non-horizontal transactions, the Commission is abandoning a regulatory framework that historically restricted European firms from achieving the industrial scale necessary to compete globally. Its replacement is a unified, effects-based framework intended to strengthen the European economy, no longer focused on short-term pricing power, but on a transaction's systemic impact on innovation and contestability of markets, and the attainment of efficient, scaled-up, globally- competitive firms. Transactions considered “unthinkable” one to two years ago may be ripe for reconsideration.

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