General Electric and Honeywell vs European anti-trust Commission

The merger between General Electric (GE) and Honeywell would have been the largest ever merger between two industrial companies, it would have increased GE’s size by almost a third. GE is a leading manufacturer of airplane engines and Honeywell is a leading producer of avionic systems (such as engine starters). It was a stand out merger as it was the first time a merger between two US companies had been solely derailed by the European anti-trust Commission (EC), after having been cleared by the US Department of Justice (DoJ).
The EC’s rational to block the merger was based on two main arguments that point toward dominance and an “incompatibility with the common market”. There was an incentive to bundle complementary products, creating an exclusive package that was unavailable on the current market. This could have led to rivals’ profits lowering, encouraging them to leave the market and allowing GE/Honeywell a position of dominance. Also the concern that GE could extend their aircraft leasing service’s (GECAS) “GE-only” policy to Honeywell products; encouraging manufacturers to choose GE and Honeywell as their engine and systems supplier, again leading to a position of dominance. Both were elements of “GE’s toolkit for dominance” (Drauz, 2001).

Professor Choi, in 2001 (on behalf of Rolls Royce), modeled the potential for conglomerate effects arising from the merged entity bundling goods, which could lead to a reduction in competition. He states that consumers must buy one engine along with one set of avionics, making the goods complementary, and assumed that the same price is charged to all consumers. Choi considers a market where there are only two engine suppliers (GE and Rolls Royce) and two avionics suppliers (Honeywell and ...

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...t emphasised the short term, potentially beneficial reduction of price. Whereas the EC started their analysis with the long-term effects and the fact bundling leads naturally to an anti-competitive outcome. Looking into future possible outcomes, as the EC did, requires discounting and working out the probability of occurrence.
It is worth noting that the model used by the EC to demonstrate foreclosures due to bundling was dismissed in the final decision. The Court of First Instance (CFI) dismissed the EC’s bundling analysis, concluding it did not measure up to a requisite standard. The GE/Honeywell merger has made apparent the inconsistency between the EC’s “ambitious long-term” and DoJ’s “practical short-term” methods. There has since been reforms, mainly by the EC, to create a more consistent analysis based on economic models and available empirical evidence.